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Waiting for Powell at Jackson Hole

Good morning

Not a huge amount to write about the currency markets right now, a touch of USD weakness sees GBPUSD and EURUSD a touch higher at 1.2790 and 1.0925 respectively, even USDJPY which had traded up to 146.40 overnight has shifted back below 146.00. That puts GBPJPY currently 186.50, just 20 pips or so off the overnight highs, which in turn mark new highs since late 2015.

It is Jackson Hole week, Powell will be speaking on Friday afternoon, Lagarde is also scheduled to speak. We do have a couple of Fed officials speaking today. Of interest will be where he sees peak rates, that is of course important, but also whether there is any indication of when the first rate cuts may be seen. They seem to be getting pushed further back each time I look. Look for mention of R*, the real neutral rate of interest that is neither restrictive nor expansionary. Many suggest this is on the rise, to be honest I’m not surprised given such a period of low interest rates, but just how far this has risen could be key here.

In China, PBoC set the CNY fix at 7.1992, again a long way below reasonable market expectations, which had been up around 7.3000. It isn’t looking good in China, while I was out the Chinese property firm Evergrande filed for bankruptcy in New York and surely only a bailout by the Chinese government will save the firm. Whether they are willing and able remains to be seen.

BRICS annual conference begins today in Johannesburg. I mentioned yesterday that China will be looking to turn BRICS into a real G7 rival, moving away from the US dollar, no doubt they would like to use CNY instead. South Africa do need to be a little careful here. Remember they were recently accused of sending arms to Russia and any ongoing sign of support could well see sanctions from the West. ZAR is already at weak levels, any sanctions would certainly send ZAR lower. OK, so its not necessarily likely right now but I do think South Africa will ultimately have to choose which side they are on. Bear in mind though that Putin won’t be at the BRICS show, South Africa have signed up to agree to arrest him were he to set foot in the country.

Elsewhere in the world it is difficult to see any news report that doesn’t talk of extreme weather somewhere. At the moment it is in the US where the West coast are taking a battering from Hurricane Hilary, leading to highly unusual weather in places such as Palm Springs which sees floods and mud flows. Even Death Valleym which earlier this year saw the highest temperatures pretty much ever recorded, has been closed due to flooding and risk of mudslides after a years worth of rain fell in one day.

Meanwhile, slightly further away, India’s moon lander Vikram is scheduled to land tomorrow. We await news.

And finally, the funniest joke of the Edinburgh Fringe Festival has been named. I have to be honest, I don’t think it’s the funniest thing I’ve heard and I’m sure its not a new joke. It goes…..’I started dating a zookeeper, but it turned out he was a Cheetah’. I’ll leave you to make your own minds up…..

- 15.00 US existing home sales

- 19.30 Feds Bowman, Goolsbee speak

- 23.45 NZ retail sales

- 00.00 AUS S&P manufacturing, services PMI

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