Ten Bullets on What is Shaping Today's Markets

1.  RBNZ cut rates 25 bp to 2.75%.  It was already discounted, but what punished the kiwi was the intimation by Wheeler of scope for additional rate cuts.  Another cut looks likely by the end of the year.   The New Zealand dollar is off by nearly 2%, fully retracing the past two days of gains.  Stops thought to lie below $0.6240.   There is a large option struck at $0.6300 reportedly expires tomorrow. 

 2.  China CPI was stronger than expected at 2.0%, reflecting the increase in food prices.  Non food was unchanged at 1.1%.  Food prices up 3.7%.   The PPI was -5.9%.  This was more deflation than expected.  

3.  Australian employment was better than expected, with unemployment falling to 6.2% from 6.1%  July job growth was revised up.  Aussie weighed by cousin Kiwi, falling to about $0.6945 before finding a strong bid.  After breaking the monthly uptrend line going back to 2001, the Aussie is flirting with it from underneath.   It is set to challenge yesterday highs near $0.7070. 

4.  Japan's Aug PPI was -3.6% and July machine tool orders fell 3.6% on the month (consensus was 3.0%).  This points to weak price pressures and softer capex.  Helped spur interest in Japan MP and economic advisor (from growth wing of LDP) that BOJ should consider increasing QQE in Oct by JPY10 trillion.  Despite the equity market weakness, the dollar remains firm against the yen and briefly traded above yesterday's highs.  It pushed above the 20-day moving average for the first time August 19 (~JPY121.15).  A retest of the Asian high near JPY121.35 looks likely, but the late August high (~JPY121.75) may be too much. 

5.  Following slide in US shares yesterday, Asia shares were lower including China.   Korea was lone exception.  The European bourses are set to snap a three day advance.  However, the S&P 500 is stabilizing after yesterday's sharp decline. 

6.  USD fixed at CNY6.3770.  Spot had closed at CNY6.3782 previously.  Today spot closed at CNY6.3856.   The fix should be within about 20 pips of this tomorrow.  Of note the spread between the onshore (CNY) and offshore (CNH) yuan has narrowed from 0.114 on to below 0.07 today. 

7.  Brazil's downgrade below investment grade (S&P) is not surprising and Brazil bonds had already been trading more like that in any event.  S&P often seems to be more aggressive than the others.    The negative outlook warns that of the likelihood of another cut in the next 9-12 months.  According to S&P, the negative outlook means that there is "greater than one-in-three" chance of "another downgrade in the near future."

 8.  BOE meets today.  Surprise could be in McCafferty gave up his lone dissent.  More likely he kept it.   After a strong two-day advance, sterling is drifting lower for the second session.  The initial retracement objective is found near $1.5320.  A hawkish surprise by the BOE could quickly see sterling test the $1.5400 area again.   

 9) US JOLTS data yesterday showed large jump in total job opening though hires lagged behind (for sixth month).  Market volatility more the economy per se seems to be the main factor encouraging ideas that Fed does not hike rates next week.  Hilsenrath piece in WSJ says not consensus yet at Fed.  Of course there is no consensus.  There is a dovish wing that does not want to raise rates until next year.  There is a hawkish wing that thinks economic fundamentals no longer justify a near-zero interest rate stance. 

10.  The euro built on yesterday's gains to reach $1.1245 in early Asia.  It has been drifting lower ever since to slip below $1.12 in early Europe.  There is scope for additional losses into the $1.1150 area.  A break of yesterday's lows near $1.1130 is needed to signal anything of importance. 

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