Daily Market Digest: Fed’s Brainard takes center stage amid a quiet day

Lael Brainard, a member of the U.S. Federal Reserve’s Board of Governors; Image via World Economic Forum

Market Summary

• Japan core machinery orders rebound in July
• Japan PPI declines, but at a slower pace
• US dollar trades mixed, weaker against yen, stronger against commodity risk currencies
• Fed’s Brainard expected to speak later today

Today’s Economic events

• Japan core machinery orders m/m 4.90% vs. -2.80%
• Japan PPI y/y -3.60% vs. -3.50%
• Italy quarterly unemployment rate 11.50% vs. 11.50%

Coming Up

• FOMC Member Brainard speech
• RBA Asst. Gov. Kent speech

Japan’s producer price index declines slower than a month ago

Producer price index in Japan fell 3.60% in August, marking a decline for the 17th month in a row, missing estimates of 3.50% declines. Still, the rate of decline was better compared to July’s drop of 3.90%. On a month over month basis, producer prices fell 0.30% after coming out unchanged in July, data from the Bank of Japan showed on Monday.

Export prices gained 0.10% on a month over month basis, but down 2.60% on the year, while import prices fell 0.60% and down 9.90% on the year. The weak PPI was consistent with the BoJ’s report in July which cautioned to the downside risks in inflation in the near term.

In a separate report, Japan’s core machinery orders jumped 4.90% in July, data from Cabinet Office showed, recorded at 891.9 billion yen. The headline print was higher than forecasts of 2.90% decline. In June, machinery orders jumped 8.30%. On a year over year basis, core machinery orders rose 5.20% beating estimates of a 0.30% increase and reversed the 0.90% declines in the previous month.

The Japanese yen was seen trading stronger in the Asian session this morning as fears of the Fed’s decision next week and the BoJ’s meeting continued to keep investors on the edge. FOMC member, Brainard is expected to speak later today. She will be the last FOMC member to give her views ahead of the week-long blackout period.

Fed’s Brainard’s speech in focus

Fed Governor, Lael Brainard is due to speak in Chicago later today. The markets, which closed on Friday as the Fed rate hike fear increased, will be closely watching the last FOMC member’s speech ahead of a one-week blackout period before the FOMC meeting on September 21.

Brainard considered one of Fed members with a dovish inclination could potentially keep the dollar supported if she comes out hawkish, supporting a rate hike.

Last week, Fed members Tarullo and Kaplan gave their speeches, including Eric Rosengren from the Boston Federal Reserve. Rosengren argued that the Fed’s rate hikes should not be delayed for too long. Tarullo appeared more cautious, hinting at waiting for more data while Kaplan was clearly in favor of the Fed hiking rates.

Considering that the decision to hike rates will be taken by a vote, Brainard’s speech today no matter how dovish could only prove to be a short-term, knee-jerk reaction. Still, the current volatility could see short term spikes.

The US dollar has been trading mixed for the most part today. The yen continued to strengthen and at last look, USDJPY was seen trading near the 102.00 price level, which is a key support level. A break below which could see the declines extend towards 101.00. However, the dollar was seen trading stronger against the euro and the commodity risk currencies on the whole.

Oil prices give up gains from last week

Crude oil prices extended their declines from last Friday after prices rallied towards $47.50 after the weekly EIA inventory report showed a massive draw down in the US crude oil stock piles.

Oil prices declined for the second day in a row as speculators were seen cutting their bullish bets on oil prices, the most in three months. Other data showed that US crude drilling rigs continued to rise for the tenth week. The developments saw oil prices down 1.86% at the time of writing with Crude oil futures for October delivery seen trading near $44.79. Some analysts attribute last week’s drawdown in oil inventories to be driven by the inclement weather rather than increased demand, noting that prices are likely to correct in anticipation of a similar sized build up. The API crude oil inventories will be released tomorrow.

The weakness in oil prices saw the US dollar extend its gains against the Canadian dollar. USDCAD rallied 0.60% at the time of writing, trading above $1.3100, with similar declines coming off other oil related currencies including the NOK, which is down 0.23% on the day.