Friday looks to have shown FX traders to be the smartest guys in the room. Traditionally referred to as the ‘last market to clear’ (and so giving FX analysts such as this scribe a career) the dollar had put on a strong showing during the APAC session. The late NY day comments from San Francisco Fed President John Williams, claiming a September Fed hike should definitely be in play and that the view the Fed is on hold for the next year is not consistent with the economic outlook, were ostensibly the catalyst. Yet the US rates market hardly moved during the Asia session.

Fast forward to the New York day, and US yields climbed steadily higher through the session, to end as much as 5.5bps higher. The dollar meanwhile gave back a little of its earlier gains in NY pm trade. There was no new news of note during offshore trading hours, the northern hemisphere summer and re-runs of Usain Bolt’s latest Rio victories and celebrations providing more than enough distraction from market matters.

This morning, we come in to a particularly upbeat speech delivered yesterday by Fed vice-chairman Stanley Fischer, saying core inflation was within ‘hailing distance’ of the 2% target while employment had increased ‘impressively’ since its nadir in 2010. This should resonate in APAC markets.

US stocks closed Friday modestly lower alongside higher rates, the S&P500 -0.14% to 2183.9. Dow -0.24% and the NASDAQ -0.03%. Despite which, the VIX ended slightly lower, 11.34 from 11.43.

In rates, 2-year Treasuries closed +4.5bps at 0.748% and 10s +4.3bps at. Earlier Bunds added 5bps to -0.032%.

In FX, thee narrow DXY index ended NY 0.38% higher at 94.5 and the broader BBDXY +0.44%. The big dollar was higher against every G10 currency and pretty much the entire EM spectrum (e.g. ADXY -0.52%).  The NOK was the biggest loser (having been the biggest winner in the previous week or so), -0.83% and followed by the AUD. The latter flirted briefly with a 0.75 handle in Europe (low of 0.7599) before recovering to close in NY -0.77% at 0.7627.  It’s back to 0.76 at Monday’s re-open.

USD/CAD was among the biggest gainers Friday, +0.7% to 1.2871 with some impetus from very weak June retail sales data (-0.8% ex-autos against +0.3% expected) and which could mean a negative Q2 GDP outcome.

Commodities saw gold lose $11 to $1340 while oil was mixed, WTI +$0.2 to $48.57 and Brent -$0.1 to $50.79 (+3.82 on the week). Iron ore firmed by $.20 to $60.95.

Coming Up

The annual Jackson Hole Fed/central bankers’ economic symposium – starting Thursday night and running over next weekend – dominates the week-ahead calendar.  The theme for papers and speeches this year is “Designing resilient monetary policy frameworks for the future”.  Fed Chair Yellen is speaking on Friday.

San Francisco Fed President John Williams may have already set the scene for this year’s symposium with his essay published last week on ‘Monetary Policy in a Low R-star (neutral rate) World’.

Late last week, we saw Williams, as well as others such as NY Fed President Bill Dudley, at pains to stress that while the question of the new long term equilibrium interest rate is a key topic of debate within central banking circles, this has few if any implications for the near term (2016/2017) course of Fed policy.

Others may beg to differ, and the US rates market continues to tell the Fed to ‘Show me the money’, still ascribing less than a 50% probability to even one Fed rate rise this year.

Australia has Q2 Construction Work Done on Wednesday, the first investment partial ahead of GDP a fortnight later.

NZ has the latest trade report on Wednesday which comes with new residential lending.  The market will also be on the lookout for any change to Fonterra’s 2016/17 milk price forecast.

Jackson Hole aside, it’s a light US data week. They’ll be some housing market focus with new and existing home sales and house price reports followed later in the week by durable goods orders.

In Japan BOJ Governor Kuroda speaks on Tuesday at a BoJ event. This could well be the most influential factor for all things JPY this week. We also get July CPI data on Friday.

Eurozone Manufacturing PMIs and Consumer Confidence readings are both due on Tuesday. The UK has the CBI trends survey on Tuesday and the CBI Retail survey on Wednesday.

Overnight

On global stock markets, the S&P 500 was +0.08%. Bond markets saw US 10-years +4.25bp to 1.58%. In commodities, Brent crude oil +2.07% to $50.88, gold-0.2% to $1,340, iron ore +0.1% to $60.95. AUD is at 0.7604 and the range since Friday 5pm Sydney time is 0.7601 to 0.7644.

For full analysis, download report:

• Markets Today:  22 August 2016 (PDF, 88KB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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