Finally, Trump and Harris agreed on the terms for a presidential debate, with the first to be held on the 10th September; this will be a historical pivot point and given Harris’s background, a debate that Trump will be wary of. Further, with Waltz as the new running mate for Harris, it seems again that Trump is slowly becoming old news. The question will be how he gets the focus back on him and the Republicans. Albeit the polls remain tight. Although global equity markets have bounced, sentiment remains mixed regarding whether the US will slip into a recession. Economic numbers have not been that supportive of a strengthened economy.  This week, CPI and PPI data will be a telling point for the state of the economy and data the Fed will be focused on. In China, last week’s inflation data picked up, helping to reverse the deflationary trend and signs that the economy is picking up. News that the Bank of Japan is looking to normalise interest rates after 30-odd years caught the market by surprise. Interest rates notched higher, the equity market collapsed, and the yen dramatically firmed as investors unwound the carry trade. In Australia, the RBA, in its monthly statement on interest rates and the economy, announced that inflation was still too high, interest rates were not coming, and the economy was looking weak. 

But first, let’s take a look at what is happening in Japan. For decades, the Bank of Japan (BoJ) has implemented an ultra-loose monetary policy with extremely low or negative interest rates. This approach was intended to combat deflation and stimulate economic growth in a persistently sluggish economy. The BoJ’s commitment to maintaining such a policy signalled its focus on fostering consumption and investment by reducing the cost of borrowing.

The recent unexpected move to raise interest rates marks a significant shift in the BoJ's strategy, suggesting a readiness to exit this prolonged phase of economic support and stabilise inflation within a more conventional framework. This normalisation effort indicates broader confidence in the domestic economy's ability to sustain growth without the crutch of such extraordinary monetary measures. The recent increase in interest rates directly raises borrowing costs for consumers and businesses, which can have a cooling effect on spending and investment. While this might suppress excessive inflation and curb asset bubbles, it also risks slowing economic growth if not carefully managed. The key for the BoJ will be to communicate its plans clearly to ensure that businesses and consumers can adjust to these changes without undue disruption.

After the announcement, the Japanese equity markets experienced a sudden slump down 25% as investors, accustomed to low borrowing costs and abundant liquidity, reacted negatively as higher rates make financing more expensive and reduce corporate profit margins. Further, the local currency appreciated from Yen 162 to 142, as it became more attractive to foreign investors seeking higher returns, leading to increased capital inflow and a stronger yen. Global equity markets also took a hit as investors unwound Yen “carry” trades. This is where investors borrow in Yen to purchase higher-yielding assets overseas. Since the announcement, the equity markets have clawed back 5000pts, and the Yen has weakened by 5 yen. We feel that the volatility in both the equity markets and currency will continue, albeit at the moment, we are amidst a corrective bounce in both.

In the US the scheduled presidential debate on September 10th between Donald Trump and Kamala Harris represents a critical juncture in the current US political scene. Harris, known for her sharp oratory skills and extensive legal background as a former prosecutor and Attorney General of California, will likely leverage her experience to project competence and authority. Her ability to articulate policy points clearly and connect with diverse voter demographics could be advantageous. A successful debate performance could further consolidate her lead among undecided voters who view knowledgeable and steady leadership as essential.

For Donald Trump, this debate offers a chance to redefine his campaign and reclaim the media's gradually shifting focus. Known for his unconventional debate styles and adeptness at commanding the stage, Trump must balance reinforcing his base's loyalty with attracting moderate or undecided voters. Integrating current national issues into his messaging, such as economic recovery and international relations, could play pivotal roles.

 Despite these developments, polls remain tight, suggesting a deeply divided electorate. This division underscores the importance of debate outcomes and how campaign narratives shape public perceptions. Both candidates will aim to leverage post-debate momentum, possibly shifting strategies based on debate responses to current issues such as economic recovery plans or international trade policies. However, we feel that Harris will gain more of an advantage and expect here to edge ahead in the polls.

 In Australia, economic conditions reflect persistent challenges, with the RBA adopting a vigilant stance on inflation and interest rates. Despite inflation moderating from its peak, the RBA continues to view it as too high, signalling in its latest statement no immediate rate cuts. This decision highlights ongoing concerns about economic weakness and the challenge of balancing growth with inflation control. The RBA’s caution reflects similar dilemmas faced by central banks globally as they navigate complex economic landscapes.

 Australia’s economic stance, particularly amid high inflation, underscores vulnerability to global economic conditions, such as changes in commodity demand linked to China’s economic recovery. Additionally, shifts in international interest rate trends, like those initiated by Japan, influence Australia’s economic calculations, affecting everything from export competitiveness to foreign investment attractiveness. We get a sense that Australia could dip into a recession sooner rather than later.

 What can we expect this week? The focus in the US will be on the CPI and PPI reports, as well as speeches by Federal Reserve officials. Other key data releases will include retail sales, Michigan consumer confidence, export and import prices, housing starts, building permits, and industrial production. China will report on retail sales and the unemployment rate. Meanwhile, in Australia, the NAB Business Confidence and Westpac Consumer Confidence will be released.

On the position front, we have made some good profits. On the … S+P position, we took some profits, albeit still have a core … position in place. After closing … in the local market for a good profit, we reentered short positions at … We closed the … USD/JPY with good returns and went long at … The … AUD/USD (US…) is doing ok.  We remain long Dec Wheat and breakeven in Silver at …

Trade Focus:

AUDUSD

Fundamentals:

For some time, we have been bullish on the AUD. We had a great run; however, the recent RBA announcement and global uncertainty in economic growth from China and the US raise a few questions about how … we are… 

Technical Analysis:

It’s been a tough few weeks for our … positions. Technically, we broke through tough resistance, but this has been rejected, so we go into consolidation mode and see a range developing between US… and US…

Support              …

Resistance         …

Momentum        …