BofA: Life don't come easy for CHF: What's the trade?

Markets:

• GBP leads, USD lags on the day
• European equities flat; S&P 500 futures down 0.05%
• US 10-year yields up 3 bps to3.848%
• Golddown 0.30% to $2,510
• WTIcrude down 0.57% to $76.98
• Bitcoindown 0.61% to $62,438

It was another quiet session with no market moving data releases. The only notable news was UK’s PM Starmer warning of “painful” budget in October which hints to tax rises, although he promised not to raise them for working people.

In the markets, there’s been very little movement. The most notable moves have been in the bond market where long-term Treasury yields have been rising faster than short-term ones. Although that could be just daily noise, it’s something to keep an eye on as the Fed cuts into a resilient economy (at least for now).

The focus will now switch to the American session where the labour market data in the US Consumer Confidence report will take the centre stage.

• GBP has testified of its high beta properties after its rapid recovery in August alongside other risky assets
• Expected downside in EURGBP below 0.85 and upside in GBPUSD above 1.30 to extend
• Maintains long recommendation in GBPCHF
• Main drivers of the bullish view is positive global risk sentiment, lower yields, and improving UK domestic data (demonstrated by recent flash PMI data)
• Sterling to be supported as solid activity data should help the BoE stay in line with their peers
• Incoming fiscal policy with the budget statement is a potential risk

Markets:

• WTI crude up $2.22 to $77.05
• US 10-year yields up 1.1 bps to 3.81%
• Gold up $8 to $2518
• S&P 500 down 0.3%
• CAD leads, NZD lags

The market took back some Friday's post-Powell moves in an orderly retracement that was more back-and-fill than a response to fundamentals. Daly backed up Powell's comments and highlighted how the FOMC doesn't want to see any further weakening in the jobs market, which certainly looks like a Fed put. She also neglected to mention any kind of gradual easing, leaving 50 bps on the table.

The durable goods report headline was strong but the details were weak, so it balanced out. Otherwise, only oil was the real mover on a Libyan shutdown and that helped to push CAD to the top of the pile.

Equity markets were higher in the pre-market but there is angst building ahead of Nvidia's earnings report and the nearly 10% move implied in the options market. That might keep things locked in for now.

Goldman Sachs sees potential for further gains in the British Pound, maintaining a long GBP/CHF position with a target of 1.16, driven by both positive global risk sentiment and strong domestic data.

Key Points:

• Pound Recovery: The GBP has quickly rebounded from early August losses, benefiting from improved global risk sentiment, evidenced by the currency's high beta properties. EUR/GBP has dropped below 0.85, and GBP/USD (Cable) has climbed above 1.30.

• Supportive Risk Sentiment: The positive global risk sentiment, fueled by lower yields, is aiding the GBP. This external factor is crucial for the Pound's continued strength.

• Strong Domestic Data: UK domestic data, particularly the flash PMIs, showed stronger-than-expected results, indicating that the UK’s solid growth momentum may persist, providing additional support for the GBP.

• Long GBP/CHF Position: Goldman Sachs maintains its recommendation to stay long on GBP versus CHF, targeting a move towards 1.16.

Conclusion:

Goldman Sachs remains bullish on the GBP, driven by both favorable global risk sentiment and robust domestic economic data, and continues to recommend a long GBP/CHF position with a target of 1.16.

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USD/JPY traded in a more subdued range today. It ticked a little higher towards 145.65 before losing some ground. As I post its mid-range around 145.30 or so.

We had Japan's flash manufacturing purchasing managers' index (PMI) data for August. This showed continued contraction for manufacturing and expansion for services at a faster rate.

The USD added a few points pretty much across the major’s board, but ranges were small. EUR, AUD, NZD all fell against the big dollar. USD/CAD and GBP/USD are not a lot changed.

South Korea's central bank, the Bank of Korea, held its benchmark interest rate unchanged at 3.5%, as was widely expected. The Bank signalled it was ready to start easing policy as inflation pressures and growth have eased. Governor Rhee said the Bank did not cut today due to concerns over financial stability risks. Analysts expect a cut at the Bank’s October meeting.

Sheesh ... describing an 80 point USD/JPY range as subdued.