(23 AUGUST 2019) DAILY MARKET BRIEF 1：JPY on the sideline ahead of Jackson Hole Symposium

Financial markets continue to advance in opposing trends, with the stock market in the green while the greenback appears gaining traction ahead of the annual Jackson Hole Symposium and particularly Fed Chairman Powell speech, expected to take place at 1 p.m. GMT+2. Yet, it seems that equity traders are rather misguided considering the policy Minutes, which confirmed a divided rate cut decision in July, without mentioning the recent statement made by three policy makers confirming their resistance over further interest rate cuts. It is therefore better to assume that a more hawkish tone should push equities lower and strengthen USD on Friday. Inflation and PMI data releases from Japan are pointing to stabilization, despite mounting discords with South Korea and the recent cancellation of the intelligence-sharing pact. On a side note, the US administration as well as Chinese officials are willing to resume talks with a face-to-face meeting in September.

Japan’s consumer prices stay in a moderate upward trend in July, with year-on-year core consumer prices, excluding fresh food and energy prices, up 0.60% (prior: 0.50%) while the headline gauge points to 0.50%, a decline of 0.20% compared to prior month due to a slowing pace in food prices while energy costs are balanced. Manufacturing PMI is also stabilizing at 49.5 (prior: 49.4), although in contraction territory for the fourth time in a row, and in six different months year-to-date. Meanwhile, US and Japan ministerial negotiations are ongoing as both counterparts have decided to extend trade discussions by an additional day, suggesting that talks are consolidating solid groundworks for upcoming G7 summit due from 24-26 August 2019 in Biarritz, France, where both PM Shinzo Abe and US President Donald Trump should settle a meeting to discuss the matter. Dragging issues relating to improved market access for US beef and pork, wheat or dairy products as well as the removal of US tariffs on imports of Japanese vehicles and auto parts remain. The EU is also expected to try to ease trade tensions with the US during the G7 summit following the US threat to impose tariffs on EU goods and car imports in early July 2019. Topics such as trade, Iran and climate change should be discussed accordingly.

As Jay Powell opening speech is approaching and should probably sound less dovish than expected, USD/JPY is likely to bounce further, approaching 106.80 short-term.

By Vincent Mivelaz