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 Overview: The Antipodeans and sterling lead the G10 currencies today. The New Zealand dollar is the strongest, though the central bank is likely to deliver its first rate cut tomorrow. The Australian dollar rose to a three-week near $0.6610. Sterling was lifted by a stronger than expected employment report (though wage growth slowed) ahead of tomorrow’s CPI. The yen and Swiss franc nursing modest losses. Emerging market currencies are mostly stronger, with a few central European currencies (not the Polish zloty), and the South Korean won and Taiwanese dollar nursing small losses. Risk appetites appear to be healing. Outside of India, Asia Pacific stocks rallied, led by the return of Japan from a holiday-long weekend. Europe’s Stoxx 600 snapped a four-day advance yesterday but is trading with a firmer bias today. US index futures are around 0.25%-0.60% higher. European benchmark yields are narrowly mixed, while the 10-year US Treasury yield is nearly two basis points higher at 3.92%. Gold posted a record-high settlement yesterday slightly below $2473. It has come back softer and hovering around $2460. Fear of an escalation of Middle East tensions helped lift September WTI 4.2%, its fifth consecutive advance. It reached about $80.15 yesterday, its best level since July 19. It is consolidating slightly below $80 so far today. 
 Asia PacificJapanese market re-opened after celebrating the Mountain Day holiday yesterday. The Topix jumped 2.8% and bonds traded with a firmer bias. Today’s PPI and preliminary July machine tool orders had little market impact. Japanese producer prices rose at 4% annualized rate in H1 24 after falling at an annualized pace of 1.4% in H1 23. On a year-over-year basis, producer prices rose for the sixth consecutive month, and at 3%, are rising at the fastest clip since the end of 2022. Japanese machine tool orders rose to 8.4% year-over-year in July, downshifting from 9.7% in June. Japan’s Q2 GDP is early Thursday and a rebound from the contraction in Q1 is widely expected. The swaps market is pricing in about eight basis points of tightening before the end of the year. The week’s highlight though is arguably the Ministry of Finance weekly portfolio flows. Recall that in the week through August 2 that covered the period of the BOJ and Fed meetings and US jobs data, Japanese investors took advantage of the stronger yen to buy foreign bonds and stocks. Australia reported the Q2 wage prices index was unchanged at 4.1% from Q1 year-over-year. This week’s highlight from Down Under is the Australia’s jobs report early Thursday and the Reserve Bank of New Zealand meeting first thing Wednesday. The Bloomberg survey found around 40% of the economists expect a cut while the swaps market has around 2/3 of a cut discounted. Lastly, China reported aggregate financing rose by about CNY770 bln in July after rising by CNY5.36 trillion in the previous two months. The US dollar reached about JPY148.20 yesterday, a six-day high, a little shy of the (50%) retracement of the leg lower since the July 30 high near JPY155.20. It stalled and the pullback in the US 10-year yield may helped curb the dollar buying. It tested initial support near JPY147.00 and is pushing slightly below JPY148 in the European morning, still inside yesterday’s range. The Australian dollar remained mostly in the pre-weekend range. It settled slightly higher, but after posting an outside up day last Thursday, it has made little headway. The Aussie has unable to settled above $0.6600, despite intraday penetration last Friday and yesterday. It managed to marginally extend the gains to almost $0.6610 today but is struggling to maintain the upside momentum. Meanwhile, the dollar continued to consolidate against the offshore yuan. It continues to trade within last Friday’s range (~CNH7.1635-CNH7.1900). If it were not for the yuan being so intensively managed, the consolidation pattern forged in the last few days looks constructive for the dollar. The PBOC set the dollar’s reference rate at CNY7.1479 (CNY7.1449 yesterday), a new high since last November. 
 EuropeThe busy week for high-frequency UK economic data kicked off today with the employment data. The takeaway is that the UK labor market showed unexpected resilience. The three-month unemployment rate unexpectedly ticked down in June to 4.2% from 4.4% and is unchanged from June 2023. Employment surged by 97k, blowing away the 3k increase the median projection in Bloomberg’s survey anticipated. From the BOE’s point of view that softening of average weekly earnings (three-month, year-over-year) to 4.5% in June from 5.7% is a welcome relief. It is the first pullback this year and had been in the 5.6%-5.9% range for the previous six months. It is the most moderate increase since November 2021. Tomorrow, the UK reports July CPI. Due to the base effect, a 0.1% decline month-over-month in the headline rate would see the year-over-year rate firm to 2.3% from 2.0%. However, the core rate and services inflation may slow. PPI is also out tomorrow but is considerably less important for policy. The swaps market has downgraded the chances of a cut at the September 19 BOE meeting to less than 35weco %, the least since the central bank met on August 1. Separately, and with little fanfare, Germany ZEW survey showed a deterioration in the assessment of the current situation and expectations. The -77.3 (from -68.9) brought the current assessment is a four-month low, while expectations component collapse to 19.2 (from 41.8), for the second consecutive month after improving for 11 months. It has returned to its lowest level since January. The euro recorded session lows near $1.0915 in response to the disappointing ZEW survey. The euro traded firmly yesterday but continues to trade in last Thursday’s range (~$1.0880-$1.0945). In fact, since the North American afternoon on August 8, the euro has hardly ventured out of a $1.0910-$1.10935 trading range. The US two-year premium over Germany was above 180 bp in late July and briefly traded below 155 bp in early August. It recovered to almost 168 bp by the end of last week and is slightly below 165 bp now. Recall that the premium peaked about 200 bp in mid-April. Sterling reached a six-day high today slightly below $1.2815. It is straddling the $1.28 level where options for about GBP435 mln struck at $1.28 expire tomorrow. The $1.2810 area is the (38.2%) retracement of the sterling’s decline from the July 17 high near $1.3045. The 20-day moving average is a little higher around $1.2840, while the (50%) retracement objective is closer to $1.2855.
 AmericaUS producer prices are expected to have risen by 0.2% last month at both the headline and core levels. Given the rise in July 2023, the year-over-year rates will likely moderate to 2.3% (from 2.6%) for the headline and 2.6% (from 3.0%) for the core measure. In this cycle, it is more widely recognized that some components of the PPI combine with CPI to feed into the PCE deflator. It is still common to refer to the core PCE rate as the “Fed’s preferred measure,” but it is not clear what that really means as the Fed targets the headline PCE deflator. Fed Chair Powell has been clear that when it comes to the labor market, there are several metrics that are needed, but the headline PCE deflator is the best measure for the price stability mandate. The Fed funds futures are pricing a little more than a 50% chance of a 50 bp cut next month, the least since August 1.The US dollar has forged a near-term base around CAD1.3720. It set the year’s high amid the frantic moves on August 5 (~CAD1.3945). The greenback snapped a six-day decline yesterday, rising to almost CAD1.3750, which has held so far today, too. The momentum indicators suggest the CAD1.37 can break for the first time in nearly a month. After recovering by about 4% in the previous three sessions, the Mexican peso took one on the chin yesterday, falling by around 1.2% as the dollar resurfaced above MXN19.00. It had the dubious honor of being the weakest emerging market currency yesterday, with the exception of the Russian ruble. It did not seem to be a regional phenomenon as the Colombian peso was the third best in the EM world and the Brazilian real managed to eke out a small gain. The greenback has come back softer today and is trading below MXN19.00 in the European morning. President Lula is expected to shortly appoint the central bank’s monetary policy director, Galipolo to replace Neto whose terms ends this year. At the same time and partly to protect the central bank’s independence, constitutional amendment is being debated in the Senate that give financial and budgetary autonomy to the central bank. From the mid-July low (~BRL5.37) the dollar rallied 9% to set a record high on August 5 (~BRL5.8550). The greenback’s subsequent pullback has retraced around three-quarters of the leg higher. It looks poised to recover. The initial target may be around BRL5.55 then the BRL5.60 area. More By This Author:Subdued Market Compared To A Week Ago: Is The Dramatic Position Unwinding Over? Week Ahead: Price Action Might be More Important than Data, Barring US CPI SurpriseNo, Chicken Little, The Sky Is Not Falling