- Japanese stocks down over 1% on poor inflation release
- Vestas shares look strong following solid Q2: Garnry
- Copper risks selloff below $2/lb., says Ole Hansen
- Fixed income space quiet ahead of landmark Yellen speech
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By Michael McKenna
Hunters and hikers alike know that in the moments before a large predator arrives, the forest grows deathly quiet. Far away near the horizon, one might see a flock of indistinct birds. But beyond that, nothing.
Today, of course, the rough beast approaching is the US Federal Reserve, whose chair Janet Yellen is set to speak at the ongoing central bankers' summit in Jackson Hole, Wyoming.
Is it outperforming and ready to continue down the path of policy normalisation? Or is it so flawed and distorted by continual stimulus that it cannot withstand even the smallest of hawkish incursions?
"We need to get past Yellen's speech for any real action in the bond market," says Saxo Bank fixed income trader Michael Boye, adding that yields are edging stealthily higher ahead of the 1400 GMT speech.
Boye also reports that the Jackson Hole summit is not traditionally a venue for direct policy statements, so there remains a distinct possibility that Yellen's remarks could fail to clear up the current uncertainty.
One data point in favour of an uneventful Wyoming address, notes the Saxo bond trader, is the fact that Saudi Arabia has postponed its bond issue until after the Federal Open Market Committee's September 20-21 meeting in Washington.
"We could be in for a disappointment," concludes Boye.
Whatever the content of today's speech, however, knees are bound to jerk – if only because they have been so still for so long. Three venues where this may play out most notable are the USDJPY, gold, and crude oil.
In yen terms, today's address will come at an interesting inflexion point as poor inflation data released overnight appear likely to weigh on the Japanese yen in the medium-term (read: after Janet).
According to Singapore-based Saxo trader Edmund Liu, the Tokyo core CPI reading came in at minus 0.4% with the national print out at minus 0.5%. Markets had expected minus 0.3% and minus 0.5% respectively.
The soft inflation release may, says Liu, point to further easing from the Bank of Japan at its September 21 meeting. The BoJ has been out lately speaking of unconventional measures, including so-called "helicopter money", as part of its effort to boost growth and rein in a surging yen.
If this trend materialises at the same time as a hawkish fed-spurred bout of USD strength, the USDJPY chart could change dramatically.
Sideways into the speech (USDJPY 15-minute):
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Source: Saxo Bank
In gold, Saxo Bank head of commodity strategy Ole Hansen reports that the yellow metal is resting near a one-month low, adding that exchange-traded product holdings have begun to increase over the past five days.
"Gold is in a narrow range between $1,319/oz and $1,357/oz," says Hansen, adding that silver is at risk of a 3.5% drop if prices slip below $18.48/oz while platinum is exposed below $1,074/oz.
These trends, of course, will jump into action should today's Jackson Hole speech underwhelm, knocking the wind out of King dollar.
In oil, Hansen tells us that crude is caught between weak supply/demand fundamentals and a steady buzz of Opec chatter. At present, Iranian officials appear likely to attend the upcoming summit in Algiers while the Saudis are talking of output freezes again. Whatever the truth behind this latest flurry of verbal intervention, though, crude prices will likely be one venue in which dollar sentiment moves the needle rather dramatically in today's New York session.
Finally, Garnry also reports that he sees gains ahead of Danish wind-power specialist Vestas, whose Q2 earnings release showed a strong order book and a sales forecast upgrade.
Saxo's equities head also notes that the firm has acquired UpWind and Availon, "increasing Vestas' exposure to the post-installation service business".
In the short term, though, it's all Jackson Hole and it's all Janet Yellen. While the US has posted some very strong gains in employment of late, inflation and wage growth are proving harder to boost and recent talk of expanding the Fed's toolbox could be read as hinting that the situation is more fragile than it may appear.
As of this morning in Europe, however, it's all speculation. We don't know what she'll say and how markets will react. The forest is deathly still and as was once noted in a more esoteric context, "the predator's mind is baroque, contradictory, morose".
If this was easy, though, we'd all be rich already.
"Do you hear something?" Photo: iStock
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