Action on the Yen, no action in the Gulf

Well, we've been here before President Trump wanting to unleash almighty military action on Iran, only the Gulf states have said, "Don't do that, let's get a deal," and Donald Trump has said, "Okay, but oil still not flowing very much, and at OPEC have announced that they're going to uptarger, it's even though many states in the Gulf won't be able to realize them." Plus, Japan, inflation, currency intervention, and a Bosch holding off as long as they can, and how long can the Fed hang on for a few speakers over the weekend have suggested not long, and it's non-farm payrolls as well for the United States this week. It's Monday, it's the 3rd of August, 2026. It's the morning call from Nav, good morning. Well there wasn't much movement in the US dollar on Friday, but over the week it did fall 1.6%, but really the only significant movement on Friday was a 1.3% rise in the year, that is 3.7% it's risen to get cost two sessions now. The shares were higher, 1% for the Nasdaq, 0.7% for the S&P, we had smaller moves in Europe, in fact the FTSE 100 fell, 0.3% and the Nikkei rose 4% on Friday and Bonnale rose as well, 6 basis points in the US for 10 years, and the same across much of Europe, Aussie 10 years were down 7 basis points on Friday, the 4.93%, but they are back over 5% now on futures, and oil creeping back up 1.2% added to Brent, now just below 88 a barrel, although it was over 90 for part of the session on Friday, and we kick off the week with Nab's Skymasters, so yeah, I mean oil is reacting I guess and maybe we'll get a bit more of that today, although which direction I'm not really quite sure, because there is that deja vu feeling as I said in the introduction, I mean Donald Trump, the city was going to hit Iran hard, then the Gulf states all tried to talk him out of it, he said it was going to be military power and terror not seen since World War II, but then Iran have said no, please don't do that, and so he said he's going to reneg on that, and the picker say hope they're going to have a piece deal sorted out, Iran has said no, we never asked for that, it's just more the same, isn't it really, it's just no resolution, but at least no military action. Good morning Phil, as you say, lots of noise around what's going on in the Middle East, Trump has said Trump has announced over the weekend that he has cancelled his potentially massive US military assault on Iran, and to end the week I guess, oil prices, had a fairly quiet session on Friday, bit of volatility, but sort of hanging around, holding those levels that they reached in the latter part of the week, so I had Brent closing it around US dollars 88 and WTI around around 85, so the Middle East is still a focus for investors, what's going on in the oil prices of focus, but there was a lot going on on Friday, Phil, outside of the oil price, which I'm sure you are going to unpack with me. Yeah, I am, just quickly and finally on oil, just because it's just over the last few hours, Opec as announced, because they met on Sunday, they've agreed an increase in oil production of 188,000 barrels a day from September, and not that that's really going to make much difference if we can't get it out through the Gulf, but this completely reverses all of the voluntary cuts that were made from 2023, but yes, other stuff on Friday, the Bosch kept rates on hold in Japan, but we also had big changes in Japan. As I said, the Yen rose affair, but the Nikkei was up 4%, so it seems more currency intervention was happening with the help of the United States, it seems. Yes, so as you say, more intervention, Phil, and this time from the US, there are reports that the Bank of New York took the unusual move of conducting a sale of euros to buy Yen on behalf of the Treasury. That's the room of the thought is that was done through all the FTs reporting, that that was done through Goldman Sachs and Morgan Stanley. So the FTs are also reporting that this is the first time that Tokyo and Washington have joined forces to support the Yen via outright purchases in nearly 30 years. So you're getting that actual intervention, but then you're also getting the jawbone coming out of Japan's finance minister, but also US Treasuries, Secretary of the Senate. So all of that did cause a big move higher in the Yen, so I've got it close Friday, 157, 66, so it's back near its strongest level since May. So some big moves there, but the question really is, will this be sustained? And there are expectations that if you do start to see that strengthening that we saw in the latter part of the week start to be unwound that you may see further action from Japan or the US. And there's also an expectation that Japan's finance minister will today, as early as today, announce that Japan and the US are working in a partnership to support the Yen. Right, so it's going to become official. So, but in the background, I mean, the Bank of Japan didn't do anything on Friday. We got Tokyo's CPI figure, which was higher than expected. So 2% year on year for July up from 1.7% in the month before. I mean, the Bosch is going to have to act sometime soon, isn't it? Yeah, look, they definitely will fill. And this is the big question, and this is something that Rain Rodrigo wrote in a note that they published, published yesterday on the Yen, is that the forces behind the waking of the Yen are still there and haven't been addressed. So this intervention may limit how much the Yen can weaken, but it's not the start of a trend strengthening. You know, the Bosch still needs to address those factors that, you know, the strengthening of inflation and the need for them to tighten policy. So, you know, NAB saying they're now seeing the Yen in a range of around 155 to 162. So slightly lower range than what they're previously forecasting. But yeah, as we all know, intervention can maybe hold a trend move in the currency, but you still need to address the underlying factors that were driving the weakness. Well, also they had a 4.1% drop-in retail sales in June. So year on year the rise was just half a percent. So yeah, not much growth happening there. Look, it wasn't just their bond movements in Japan, of course. We saw a rise in bond yields across the board, but in the United States, some of that, I think, is the repercussions from Fed speakers. We had three Fed speakers voicing their concerns about inflation not being tamed with that pushing rates up. So yeah, that's changing expectations for the Fed, isn't it? Yeah. So as you said, it's a big move in bond yields too and in the week. This time, you know, we have seen through the week and move higher in in longer-dated bond yields, whereas frontend yields had been supported, because you know, we did have three central bank meetings last week and all were on hold. But on Friday, we did see frontend yields pushing higher, higher as well. And as you said, you did have those three dissenters out of the FOMC speaking on Friday and all pointing to, you know, warning that waiting too long to act against inflation could risk the need for even more aggressive policy action going forward. So, you know, that did sort of get that reprising in yields. And, you know, I can't help but feel that, you know, there's this growing uneasiness amongst investors around what's going on in the global backdrop, you know, the geopolitics, the de-globalization, the growing budget deficit, which is all finally resulting in that reprising in longer-dated yields that we've been sort of looking for for quite a while. And I think it's a correct move to the reflect the risks ahead. And I do wonder if that's what, you know, washes is sort of looking for as well, you know, bond yields to reprise, to correctly price the risk in the global backdrop. Now, the question for me is, you know, what does percent, what is percent's view of that? Because we do know that the US Treasury has been tilting their issuance into the front end to try and anchor longer-dated yields, but maybe at the moment he's got other things on his mind, like supporting the, the, yeah. Yeah, for today or so. So, 30-year yields, up at 5.27%. I mean, there has been steadily rising all year, haven't they? But much more pronounced since the Fed. And that is the highest yield since 2007. Yeah, it is. And, you know, the cash rate is high and potentially going to be tight and later in the year. So, you know, as I said, I think, you know, there are, yes, it's the highest it's been since 2007, but we can't sort of get too caught up in looking at where it is in history. We need to sort of look at what's happening today. And markets pricing in the risks of the current backdrop correctly. And I I think that's what we're starting to see. But in terms of. In terms of like fed pricing, if I'm looking at the OAS curve at the moment, the market's pricing in a full fed rate hike by October. So the pricing is 77% chance of a rate hike at the September meeting. - And then for Europe, the headline inflation rate rose a bit in July, 2.9% from 2.8% in June, not much, but it's going the wrong way. And the unemployment rate rose as well from 6.3% to 6.4% in Germany. So next to 6,000 unemployed people in July. So not great news from Europe on Friday. - No, it wasn't. As you said, Phil, a rise in the core inflation rate did edge up from, it was forecast to be 2.4, it came in at 2.5. So heading in the wrong direction and I guess supporting the market's expectation that the ECB may have to tighten later in the year. And I think the market's pretty much fully priced for a rate hike in the September meeting. And I think it's cumulatively pricing in the 40 base points of tightening. So the risk of another rate hike after September as well. - And China just finishing off Friday's news, their PMI's did below 50 for both manufacturing and non-manufacturing. So 49.2 for manufacturing, 49 for non-manufacturing. So that's officially contraction. If you're allowed to use that word, slow growth anyway for China. And we get the unofficial rating dog PMI today. So we'll that mirror that. Otherwise today, well, it's a quiet, quietish day, but US manufacturing ISM today, which is, is expected to be well over 50. And then a fairly quiet week, although it is non-farm payrolls week. So lots of jobs data for the United States. And locally household spending for Australia, retail sales for Europe. But after the onslaught of the last week or so with central banks, it is fairly quiet out there this week. - Yeah, it is a quiet, quite calendar to start the week, feel as you say. And really the focus will be on, in terms of the economic data, will be on the US payrolls, which comes out on Friday. Consensus is for an 85,000 rising payrolls, which is bigger than the, I think it was 57,000 the previous month. And the expectation is that the unemployment rate will remain unchanged at 4.2%. So nothing in there suggesting that the Fed may not have to tighten policy later in the year. But obviously to start the week, the folks will be on what goes on with the end. And continue to watch what goes on in the Middle East and the oil price. - Well, thanks for getting up and joining us this morning's sky, have a great day and we'll catch you next time. - Very good, thanks Phil. - As we love ourselves into another week on the morning call, Sally Old is joining me tomorrow morning and Phil Dobby for now, but I will see you then. (upbeat music)