The GBP is the strongest and the AUD is the weakest as the North American traders enter for the day

Today will be highlighted in the North American session by the PCE data in the US.

• Core PCE year on year is expected to decline to 4.2% from 4.6%
• Core PCE MoM is expected at 0.2% versus 0.3% last month
• PCE last month increase by 0.1% while YoY came in at 3.8%

The core PCE is the Fed’s favorite measure of inflation . This week the Federal Reserve raised rates by 25 basis points. The Fed chair emphasized that the meetings ahead will be data-dependent.

Also today:

• Personal income and personal spending will be released at 8:30 AM along with the PCE data
• Canada GDP for the month of May will be released at 8:30 AM ET as well
• The Michigan consumer sentiment revised report will be released at 10 AM ET

Yesterday a slew of data out of the US showed strength with initial jobless claims showing job growth, durable goods orders showing increased spending for big-ticket items, GDP for the 2nd quarter showing the economy expanded by 2.4% greater than the 1.8% expectations.

Overnight the focus was on the Bank of Japan interest rate decision. The central bank maintained the current yield curve control (YCC) and monetary policy. They confirmed that there will be no changes to their short-term interest rate target, which remains at -0.1%, and the 10-year Japanese Government Bond (JGB) yield target will stay at around 0%, with a band of up and down 0.5% each. They did announce that they will guide YCC more flexibly to respond nimbly to upside and downside risks, but the 0.5% either-way band is still in place. The bank has left a provision for potentially widening it on a day-to-day basis to 1% in the future. However, it appears the exact implications of this flexibility are not entirely clear, and the Bank may need to provide more details.

The BOJ also revised their inflation forecasts for fiscal 2023 to +3.2% from +2.5% previously stated in April but kept the forecasts for fiscal 2024 and 2025 unchanged at +1.7% and +1.8%, respectively. HMMMM.

In their quarterly report, they suggested that Japan’s economy is recovering moderately and is expected to continue expanding above potential. Risks to inflation are skewed to the upside for fiscal 2023 and 2024. The consumer inflation in Japan is expected to slow down, and then re-accelerate as inflation expectations and wages rise.

There was one dissenting voice, board member Nakamura, who argued for greater flexibility for yields and seemed to support a firm move to +/- 1%, unlike the existing flexibility provision, which seems to suggest a ‘maybe 1%’ situation. Nakamura emphasized the need to confirm the rise in firms’ earnings power before deciding on YCC.

The Bank of Japan (BOJ) Governor, Kazuo Ueda, in his press conference, stated the

• Need for patience in continuing monetary easing to support the Japanese economy amidst high uncertainty.
• He expressed the Bank’s readiness to further ease policy if required. The recent decision to maintain yield curve control (YCC) and other policies is aimed at making YCC more sustainable.
• Ueda suggested that long-term rates could potentially exceed the 0.50% cap and that the BOJ would intervene if these rates exceed a 1% mark. However, he clarified that he does not expect long-term yields to reach the 1% level.
• If long-term rates were to move beyond the 0.50% mark, the BOJ would respond accordingly, but Ueda emphasized that there is still a way to go in achieving their 2% inflation target.
• He acknowledged that the Bank relies on markets to determine long-term rates, but this approach has its limitations.
• The Governor further explained that the 0.50% to 1.00% framework is intended to respond to future risks.
• He reassured that the policy decision is not biased towards tightening, and the additional room for interest rate increases is a precautionary measure.
• The 1.00% mark is defined as a “just in case” cap, confirming the Bank’s commitment to maintain strong monetary easing.

Comments from some ECB voting members a day after they raised rates by 25 basis points:

• ECB’s François Villeroy highlighted that French data shows inflation is falling without causing a recession. He emphasized the necessity for pragmatism in upcoming rate meetings, stating that decisions will be open and entirely data-driven. Villeroy underlined the importance of patience, given the time required for the full transmission of monetary policy, and asserted his confidence in the fall in inflation towards 2%, which is backed by the good transmission of monetary policy.
• ECB’s Peter Kazimir suggested that the ECB is nearing the completion of policy tightening but insisted that the Bank’s mission is not yet fulfilled. He proposed a firmer step forward and warned that any break in September would be premature to consider as the end. He added that the ECB is seeking the appropriate state of policy to maintain for a substantial part of the next year. It should be noted that Kazimir is known for his hawkish stance on monetary policy.

Germany just released preliminary July CPI showing a 0.3% gain which was as expected. The YoY dipped to 6.2% from 6.4% last month (as expected). The HICP came in at 0.5% (as expected) with the YoY falling to 6.5% from 6.8% last month (and lower than 6.6% expected).

On the earnings front, the after-the-close earnings in the US showed mostly better than expected earnings from the larger companies reporting. The gains were led by Intel and Ford which both surprised. Live Nation has had a great summer concert season and it was reflected in their earnings. First Solar also had a great quarter.

• Intel Corp (INTC) – BEAT: Adj. EPS: $0.13, Expected: -$0.03, Revenue: $12.90bn, Expected: $12.13bn.
• T-Mobile US Inc (TMUS) – MISS: EPS: $1.86, Expected: $1.69, Revenue: $19.2bn, Expected: $19.31bn.
• Ford Motor Co (F) – BEAT: Adj. EPS: $0.72, Expected: $0.55, Revenue: $45bn, Expected: $40.38bn.
• Mondelez International Inc (MDLZ) – BEAT: Adj. EPS: $0.76, Expected: $0.69.
• Roku Inc (ROKU) – BEAT: EPS: -$0.76, Expected: -$1.27, Revenue: $815m, Expected: $770m.
• KLA Corp (KLAC) – BEAT: EPS: $4.97, Expected: $4.85, Revenue: $2.355bn, Expected: $2.26bn.
• Live Nation Entertainment Inc (LYV) – BEAT: EPS: $1.02, Expected: $0.63, Revenue: $5.63bn, Expected: $4.95bn.
• First Solar Inc (FSLR) – BEAT: EPS: $1.59, Expected: $0.96, Revenue: $811m, Expected: $720m.
• Dexcom Inc (DXCM) – BEAT: Adj. EPS: $0.34, Expected: $0.23, Revenue: $876m, Expected: $840m.
• Skechers U S A Inc (SKX) – BEAT: EPS: $0.98, Expected: $0.54, Revenue: $2.01bn, Expected: $1.93bn.

The earnings today are not showing as good a trend with Exxon and Chevron both missing. Exxon missed on EPS while Chevron was short on the revenue side. Both blamed lower oil prices.

• Procter & Gamble Co (PG) – BEAT: Q2 2023 (USD), EPS: 1.37, Expected: 1.32, Revenue: 20.553bln, Expected: 19.98bln.
• Exxon Mobil Corp (XOM) – MISS: Q2 2023 (USD), Adjusted EPS: 1.94, Expected: 2.01, Revenue: 82.9bln, Expected: 80.19bln.
• Chevron Corp (CVX) – MISS: Q2 2023 (USD), EPS: 3.20, Expected: 3.13, Revenue: 47.2bln, Expected: 48.17bln.
• Aon PLC (AON) – MISS: Q2 2023 (USD), Adjusted EPS: 2.76, Expected: 2.84, Revenue: 3.2bln, Expected: 3.17bln.

A snapshot of the markets as the NA session gets underway shows:

• Crude oil is trading down $0.21 or -0.26% at $79.88
• Spot gold is trading up $11 or 0.56% at $1956.67
• Silver is trading up $0.18 or 0.74% at $24.28
• Bitcoin is trading $29,210 that’s near the 5 PM level from yesterday at around $29,150

In the premarket for US stocks, the major indices are trading higher help by the earnings releases after the close yesterday. The Dow Industrial Average snapped its 13-day consecutive up streak (and thankfully so – markets don’t just go up).

• Dow Industrial Average is trading up 144 points after falling -237.40 points yesterday
• S&P index is trading up 28.5 points after yesterday’s -29.34 points:
• NASDAQ index is trading up 161 points after declining -77.1 points yesterday

In the European equity markets, the major Indices are little changed.

• German DAX, up 0.07%
• France’s CAC, up -0.11%
• UK’s FTSE 100, up 0.04%
• Spain’s Ibex, down -0.05%
• Italy’s FTSE MIB, -0.36% (delayed).

In the Asian Pacific market today, markets closed mixed:

• Japan’s Nikkei 225, down -0.40%
• China’s Shanghai Composite, up +1.84%
• Hong Kong’s Hang Seng, up 1.41 percent
• Australia’s S&P/ASX 200, down -0.70%

In the US debt market, yields are lower reversing most of the gains from yesterday

• 2-year yield, 4.866%, -7.3 basis points
• 5-year yield, 4.170% -8.1 basis points
• 10-year yield, 3.952% -5.9 basis points
• 30-year yield, 4.015% -4.4 basis points

In the European debt market, benchmark 10-year yields are little changed:

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