Earnings, Soft PMIs, and Market Dynamics: Impact on Yields, Dollar, and Key Developments
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- Earnings and soft services PMIs sends yields and dollar lower
- Fed rate hike odds for September 20th meeting stand at 11% (down from yesterday’s 16%)
- Russian mercenary leader Prigozhin may have died in plane crash
The US dollar remained near session lows against the Japanese yen after the Treasury’s mixed 20-year auction. The bond market rally that started yesterday is holding up after decent demand saw a 4.499% yield, which was higher than the pre-sale yield of 4.490%, and obviously above the 3.954% prior 20-year bond auction. Eventually the bond market will fixate over foreign demand, but for now the Treasury doesn’t seem to be seeing have any trouble with the extra issuance.
PMIs
Both the dreadful eurozone PMIs and softening US ones helped keep the bond market rally going and that should help with the global disinflation process. Rates are coming down and so are Fed rate hiking expectations.
Earnings
For a second consecutive quarter, Foot Locker significantly slashed their guidance. Wall Street was already skeptical of how Foot Locker would finish the year, but the outlook just went from bad to abysmal. Foot Locker suspended their dividend and cut their full-year sales and earnings guidance, noting softening trends in July. A tough consumer backdrop is only going to get worse, which could lead to a few ugly quarters for the footwear chain.
Abercrombie & Fitch Co. earnings were the exact opposite to what came out of Foot Locker. Abercrombie is raising their outlook as their customers appear to be bucking the trend we saw from Macy’s and Kohls.
All the signs are there for the outlook to get worse for the consumer. Mortgage rates are over 7% for the first time in nearly 2 decades. Credit card debt just jumped over $1 trillion as Generation X has the highest balance. The US job market is showing signs of cooling and that should continue as consumer spending softens.
USD/JPY daily chart
The USD/JPY chart is tentatively pulling back as global bond rates decline following weak global PMIs. Despite the two-day slide, a bullish bias might remain if the long end of the curve sees rates remaining elevated. If bearish momentum remains, the 142.75 will provide initial support. To the upside the 147.50 provides key resistance, while the 150.00 level remains a key price barrier.
