Mohicans markets ：Focus on Whether Non-farm Payrolls Will Continue to Boost the Dollar

17:30 The monthly PPI rate of the euro zone in July was announced, the market expected it to be 2.5%, and the previous value was 1.1%.

20:30 The US non-farm payrolls and unemployment rate will be announced in August seasonally adjusted. Wells Fargo expects U.S. non-farm payrolls to increase by 325,000 in August;

Markets expect the U.S. unemployment rate to remain at 3.5% in August, unchanged from July.

Today is the last day for Russia to suspend the supply of natural gas to Germany via the “Beixi-1” pipeline for three days. The market expects that the subsequent gas supply of the “Beixi-1” will lead to continuous fluctuations in natural gas futures and spot prices.

According to Iranian media, today is the earliest deadline for Iran to respond to the Biden administration's reply to the text of the EUs “Iran Nuclear Agreement”.

Global Views - List of Major Markets

On Thursday September 1, spot gold fell below the $1,690 mark in intraday trading, and rose slightly below the $1,700 mark in late trading, and finally closed down -0.74% at $1,698.1 per ounce; Spot silver fell 2% during the session, then narrowed the decline, and finally closed down 1% at $17.79 per ounce.

The US dollar index once stood at the 110 mark, hitting a new 20-year high, and finally closed up 0.92% at 109.68; the US dollar stood at the 140 mark against the yen, the first time since 1998; GBP/USD fell below 1.15 for the first time since March 2020; U.S. bond yields rose together, with the 10-year U.S. Treasury yield standing at 3.2%, a new high since June 28.

In terms of crude oil, WTI crude oil fluctuated downward, fluctuated around the $86 mark in late trading, and finally closed down 2.77% at $86.34 per barrel;

Brent crude oil fell below $92 a barrel for the first time since August 17, and finally closed down 2.91% at $92.16 a barrel.

The trend of the three major U.S. stocks diverged. The Dow closed up 0.46%, the Nasdaq closed down 0.26%, and the S&P 500 closed up 0.30%, Ideal Motors fell by about 3%, Weilai Motors fell by more than 5%, Xiaopeng Motors fell by more than 6%, and Xiaopeng and Ideal's August deliveries recorded a month-on-month decline.

European stocks opened lower, with Germany's DAX down 1.6%, Britain's FTSE 100 down 1.86%, France's CAC down 1.48%, Spain's IBEX35 down 1.04%, and Spain's IBEX35 down 1.72%.

Hong Kong stocks opened lower and moved lower, with the Hang Seng Index down 1.79% and the Hang Seng Technology Index down 1.63%. Meituan closed down 5.85%, and BYD shares closed down nearly 4%.

Precious Metals

In early trading hours on Friday September 2, Beijing time, spot gold was currently trading at $1,698.22 per ounce, and the price of gold fell for the third day in a row, falling below the 1,700 mark for the first time since July; Gold's appeal was dented by a rising dollar and expectations of aggressive interest rate hikes. “If the U.S. Federal Reserve sticks to its inflation mandate and keeps interest rates high, not even cutting them in a recession, it doesn't bode well for gold,” said Daniel Ghali, commodity strategist at TD Securities. If gold breaks below the $1675 range, we would expect a lot of selling pressure.

Fed officials continued to signal to the market that they were actively tightening monetary policy. The Feds expectations for a 75 basis point rate hike in September further increased, and the U.S. dollar index remained near a 20-year high; Inflation in the euro zone jumped to a record high in August, indicating that the European Central Bank will implement multiple sharp interest rate hikes, and the opportunity cost of holding gold has increased.

In addition, investors are reminded to avoid “intuitive thinking”, as the market is ready for the Fed to continue to aggressively raise interest rates, and the US dollar index is higher. Upcoming U.S. non-farm payrolls data showing that the U.S. economy remains strong could instead be seen as a negative factor, as it could lead the Federal Reserve to continue aggressive rate hikes. Expectations for the Federal Reserve to continue aggressive rate hikes are on the rise due to solid economic data. If the U.S. non-farm payrolls data to be released in the evening continues to be hot, it may help the dollar to start a new rally, and the downward trend of gold will strengthen. Because many Fed officials are emphasizing that they attach importance to high inflation and solve the problem of high inflation at the expense of employment stability.

Therefore, we need to correct the firm bullish thinking of the 1700 mark seen in the previous purely technical analysis. As the Fed continues to be hawkish, the dollar and bond yields continue to strengthen, and the price of gold trading fell to a 6-week low. ETF outflows also indicate waning investor interest, and gold has pulled back sharply from recent highs...but unless the dollar and bond yields pull back sharply, we may see a continuation of the decline.

At the same time, prepare for the short-term rebound of the market. This is also the time when some investors consult us. We have repeatedly emphasized the market sentiment of the big cycle. Please do a good job of risk management!

Crude Oil 

In the early trading hours of Beijing time on Friday September 2, the U.S. oil is now at $ 87.57 per barrel; oil prices extended losses on Thursday, closing down nearly 3%, as concerns about high inflation and interest rate hikes weakening fuel demand intensify. Julius Baer analyst Norbert Rucker said: “The world‘s oil demand is stagnant, while supply is gradually increasing, mainly due to the glory of U.S. shale oil”. The survey on Thursday showed that manufacturing activity in Asia fell in August, dimming the region’s already fragile recovery prospects.

OPEC and U.S. production both rose to their highest levels since the early days of the COVID-19. The survey showed that OPEC production reached 29.6 million barrels per day in the latest month, while U.S. output rose to 11.82 million barrels per day in June. Both are at their highest levels since April 2020. The survey found that Libyan production increased the most, to 400,000 barrels per day, because output recovered from the turmoil at the end of July. The second-largest increase of 100,000 bpd came from Saudi Arabia, which is the largest exporter. The survey also showed that Nigeria increased production by 50,000 barrels per day in August. Iraqi production rose by 70,000 bpd due to increased exports. According to the Organization of Petroleum Exporting Countries (OPEC) and the OPEC+ coalition of its allies, the oil market will still see a small surplus of just 400,000 barrels per day in 2022, which is well below previous forecasts, due to insufficient production from member countries. The supply imbalance was turned upside down, with the repeated mention of supply shortfalls in the early part of the year being influenced by short-term demand fundamentals, and oil prices dipped in the short term.

But at the same time, OPEC+ is also forecasting a shortage of 300,000 barrels per day in the oil market in 2023.

For its part, the U.K. said it would work toward a U.S.-led cap on the price of Russian oil. A senior Russian official, meanwhile, said the country would refuse to sell oil at the capped price. British Finance Minister David Zahavi yesterday said he believed the price cap plan will work. G-7 finance ministers are expected to meet on Friday and approve an outline to limit the price of Russian oil. But the plan faces several major questions, including the level at which the cap would be set and whether Russia would agree to sell oil at the capped price.

Foreign Exchange

The dollar index is slightly lower in the early trading session on Friday, September 2, Beijing time, which is currently trading around 109.66. The dollar index hit a new 20-year high on Thursday, with the interest-rate-sensitive yen touching a 24-year high. This comes after U.S. data showed a resilient economy, giving the Federal Reserve more room to aggressively raise interest rates to curb inflation. The market is focused on the evening release of the U.S. non-farm payrolls report for August, which will be one of the key data guiding Fed policymakers at their meeting in September.

A government report earlier showed that U.S. initial jobless claims fell further last week, which is in line with strong demand for workers and tight labor market conditions. Subsequently, the dollar climbed.

The dollar index closed up 0.91% at 109.66 on Thursday.

Expectations for a third consecutive 75 basis point rate hike by the Federal Reserve at its September 20-21 meeting are rising, supported by solid economic data. The end-of-day federal funds rate futures market showed that the likelihood of a 75 basis point rate hike is about 77.1%. 

The markets attention will now turn to the U.S. non-farm payrolls report for August, due out on Friday, which will be one of the key figures guiding Federal Reserve policymakers at their September meeting. A strong report could help the safe-haven dollar attract more demand.

EURUSD fell back below parity on Thursday, closing down 1.07% at 0.9944. A survey showed that manufacturing activity across the Eurozone contracted for a second straight month in August. European energy prices eased slightly this week, but remain high.

USDJPY rose to 140.26 on Thursday, which was the highest level since 1998, and then it closed up 0.89% at 140.19.

The risk-sensitive Australian dollar and New Zealand dollar also sold off, partly due to a shift to safe-haven assets, both of which touched their lowest since July. The AUDUSD closed down 0.79% at 0.6787 on Thursday, while NZDUSD closed down 0.67% at 0.6078.

Due to the political uncertainty in the U.K. and the cost-of-living crisis put the pound under tremendous pressure, the British pound experienced its worst month against the U.S. dollar in August since the EU referendum. The pound fell by a cumulative 4.5% against the dollar in August, and the pound continued to fall on Thursday and once fell below the 1.15 handle to a low of 1.1498, closing down 0.66% at 1.1543.

Capital Economics chief British economist Paul Dales pointed out in a research report that the pound will weaken further against the dollar and the Euro, and expects the pound to “hit a new bottom” as political and economic uncertainty continues to hit British assets.

Institutional Currency Viewpoint

1. Mitsubishi UFJ: Expect the dollar to strengthen further in the near term

2. Standard Chartered: Stopping the yen‘s decline will require a change in the Bank of Japan’s interest rate policy

3. Fintech Ebury: Even if the ECB raises rates more aggressively, it may not be enough to support a sharp rise in the euro

4. Citigroup: South Koreas trade deficit widened, and the Korean won may face downward pressure 

5. Danske Bank: The Fed will send the U.S. economy into recession in 2023

6. Holland International Group: the dollar may ignore the impact of a possible reduction in U.S. employment

7. Holland International Group: Foreign investors sell British debt, and the pound weakens, may testing 1.1415 low

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