Bitcoin Rises But Remains in Narrow Range — Market Talk

0939 ET - Bitcoin rises slightly as markets trim U.S. interest-rate rise expectations but the cryptocurrency continues to trade in a tight range. Bitcoin has spent the past six weeks stuck between the technical support level around $62,000 and resistance at $66,000, Trade Nation's David Morrison says in a note. This has become rather frustrating for crypto traders as the lack of volatility has lessened interest in digital assets, he says. AI-adjacent stocks, particularly semiconductors, have caught traders' attention this year at the expense of cryptos, he says. The slow progress of crypto regulation also hasn't helped, he says. Bitcoin rises 0.8% to $63,553, according to LSEG. ([email protected])0938 ET - A relatively soft-inflation backdrop in Canada is offering a counterbalance to recent economic strength and a pickup in hiring, says Bradley Saunders, economist at Capital Economics. He notes the Bank of Canada's preferred measures of core inflation rose 0.23% in July from June, or the strongest pickup in nearly a year. "The key drivers were temporary factors," Saunders says, citing higher travel costs associated with the World Cup in North America and price rises implemented by internet-service providers. Given some of the temporary inflation drivers and that core inflation remains near 2%, "we don't see cause for concern" at the Bank of Canada. ([email protected]; @paulvieira)0933 ET - Canada's core-inflation readings heated up in July, although still bouncing around the 2% level on a six- and 12-month basis, says Robert Kavcic, economist at BMO Capital Markets. Two of the Bank of Canada's preferred core-CPI measures rose a tad from the prior month, with the average core inflation measure at 1.95% from a year ago, versus the 1.9% average in June. Kavcic says the average of 3-month annualized core-CPI rates are now running at 2.5% in July, up from 2.0% in the prior month. "The breadth of core components did shift more toward the high side in July," Kavcic says, before concluding that inflation, overall, does appear well-behaved. Kavcic projects the BOC keeping its policy rate unchanged through 2026. ([email protected]; @paulvieira)0930 ET - Euro credit spreads are likely to stay fairly stable due to strong investor demand, healthy corporate financial positions and resilient growth in the eurozone, Metzler Capital Markets' Stoyan Toshev says in a note. Credit spreads have stayed relatively steady despite volatility in stock markets and sovereign yields amid the Middle East conflict. However, a possible escalation in the U.S.-Iran war, weaker corporate earnings, or a sharp economic downturn could cause euro credit spreads to widen, he says. ([email protected])0923 ET - Bank of Canada won't be in any rush to reconsider rate policy based on the July CPI report, says CIBC Capital Markets' economist Andrew Grantham. Headline inflation accelerated to 3.0%, a tad above expectations, with energy prices and World Cup-fueled travel costs leading the way. Core inflation, which strips out volatile items, remained fairly subdued, at near 2%, and inflation excluding gasoline was unchanged at 2.2%. Grantham says BOC officials have the luxury to assess the impact of both energy prices and US-Canada trade tensions before deciding on when to pivot on rate policy. BOC issues its next decision Sept. 2. Grantham adds that BOC minutes indicated policymakers exhibited caution that recent economic momentum might not have staying power. ([email protected]; @paulvieira)0858 ET - Treasury yields rise while the U.S.-Iran standoff remains unresolved and crude prices edge higher. In coming days, investors will be awaiting Fed minutes Wednesday and Chairman Warsh's first Jackson Hole speech later this month. Manufacturing activity increases more than expected in August's New York Fed Empire State survey. The 10-year yield rises to 4.712% from Friday's 4.695% settle. The two-year increases to 4.175% from 4.170%. ([email protected]; @ptrevisani)0749 ET - Escalating hostilities between Russia and Ukraine threaten to raise global food prices further, Oxford Economics' Tatiana Orlova says in a note. Global food prices are expected to increase by 11.8% this year and 4.8% in 2027, she says. "But given that Russia is the largest grain exporter globally and Ukraine is the fifth largest, the recent escalation of fighting in the Azov and Black Sea basin could result in a more severe global food price shock." Alternative routes for exports developed following Russia's invasion of Ukraine in 2022 will help mitigate the damage, but they could be targeted by strikes, Orlova says. Moreover, shipping via the River Danube is hindered by the current drought and low water levels, she adds. ([email protected])0747 ET - Morgan Stanley recommends selling the euro against the Australian dollar if foreign exchange volatility remains subdued, supporting demand for carry trades where investors borrow in low-yielding currencies to invest in higher-yielding currencies. Forward-implied Australian dollar yields are the highest within the G-10 and implied volatility--a measure of expected price swings in the options market--is very low, Morgan Stanley analysts say in a note. This should attract capital flows to Australia in relatively calm FX markets, they say. For the euro, markets could shift the implied European Central Bank policy path lower as rate-rise bets look overdone, they say. Morgan Stanley targets the euro falling to 1.53 Australian dollars with a stop loss of 1.69, compared to 1.6267 currently. ([email protected])0743 ET - Subdued G-10 foreign exchange volatility looks set to persist in late August and early September, Morgan Stanley analysts say in a note. Data between now and the September Federal Reserve meeting should be consistent with the central bank keeping interest rates on hold this year, prompting markets to increasingly price out rate-rise expectations, they say. "We expect downward pressure on FX volatility given the modest longterm relationship between Fed pricing and FX volatility." Furthermore, Middle East risks could continue to be priced out ahead of the U.S. midterms, while August is historically quiet, they say. ([email protected])0736 ET - The euro credit market is expected to see rising new issuance in the coming weeks as the summer break draws to an end, Metzler Capital Markets' Stoyan Toshev says in a note. Supply of financial and non-financial bonds is expected to pick up given strong demand for the assets and issuers' refinancing needs, he says. Nonetheless, new credit supply is likely to remain within manageable volumes, Toshev says. ([email protected])0726 ET - The renewed rise in long-dated government bond yields is somewhat worrying but not yet a major problem for equities, Capital Economics' Jonas Goltermann says in a note. "Treasury yields would probably need to rise quite a bit further before that became a major headwind for equities," the chief market economist says. The recent rise in long-dated yields has come despite generally softer U.S. economic data and a consequent drop in shorter-dated yields. This is somewhat surprising in the context of a decline of Federal Reserve interest-rate hike probabilities to their lowest level since the U.S. central bank's June meeting, he says. ([email protected])0719 ET - Fundamental improvements in Japan's economy point to a slightly stronger yen, Commerzbank's Volkmar Baur says in a note. Japan's economy grew 0.3% quarter-on-quarter in real terms in the second quarter, missing expectations. In nominal terms, however, growth was 1.2%, meaning overall economic inflation was higher than anticipated, he says. This could keep pressure on the Bank of Japan to raise interest rates again in September or October, which should support the yen, he says. Furthermore, concerns about Japan's fiscal position look exaggerated, he says. Japan has one of the lowest budget deficits among the G-10 countries. High nominal growth should lead to higher tax revenues and thus an improved fiscal situation, he says. The dollar falls 0.1% to 159.22 yen.([email protected])