Another intervention, or was it...?

Oil up 10% on the week, through $90 a barrel, as the US resumed attacks on Iran. A V-shaped week for gold, dipping and recovering in step with fluctuating odds of a Fed hike – back to where we started but plenty of fun along the way. US equity markets continue to brush off headwinds and push higher. 25bp hike delivered by the RBNZ, as expected. Cryptos recovering from brief dip, Bitcoin back up through $80k and up 4% on the week. And the yen flying after a month of weakness, but was it another intervention..? Read on for more details and a preview of what will move markets next week.

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Selling begets selling

Following the Bank of Japan's most recent confirmed intervention in the currency markets, a month ago, the yen has slowly but surely reversed the resultant move. Along the way, questions were naturally raised about the effectiveness of such a play by the Japanese authorities, or rather the lack thereof. Close to $100 billion spent by the BoJ, as well as support from the US, yet essentially back to where we started. Complacent traders were snapped awake in yesterday's Asian session. But what was initially assumed to be a fresh round of intervention now appears to be everything but. Renewed speculation that the GPIF will boost its domestic allocation, combined with increased bets that the BoJ will hike rates in September, combined with selling of USDJPY in itself, begetting further selling...and an unwinding of carry trades, saw the yen strengthen by close to 2% in swift fashion.

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Dovish comments later in the session from Federal Reserve Governor Christopher Waller moved interest rate differential expectations further still, pushing USDJPY to lows of around 155.30. The question now is, will it stick the landing this time? Or do we position for another gradual reversion? JPMorgan strategists have flagged the $103 billion worth of bearish yen positions still in the market. They see 155 as a key level in USDJPY, warning that if the pair drops through it, the snowball of selling could trigger a far more serious unwind towards the 142-146 range. The BoJ's next meeting is scheduled for 18 September. A rate hike is now widely expected, but more important will be the language in the ensuing press conference and the indicated likelihood of further hikes  or otherwise to come.

Gold price following hike odds

Despite rallying 10% in August, gold finished last month very much on the backfoot, having previously been on track for its strongest month this century. That negative momentum continued into the start of September, as it slid to a four-week low to start the month. Rising Treasury yields and a stronger dollar weighed heavily on metal prices. Fed Chair Kevin Warsh's hawkish speech at Jackson Hole further fuelled the selloff. Governor Waller's comments overnight though have arrested the slide. He pointed to inflation's three-month trend, versus more widely used annual figures, as cause for optimism. And the market was happy to get behind Mr Waller; odds of a hike this month now close to even monies, down from 65% at the start of the week. It appears to be a fairly simple correlation at this point then - hike odds down, gold price up?

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Next week

Nonfarm Payrolls still to come this evening, another key factor in determining the very much live odds of a hike or otherwise from the Fed this month. On Thursday next week, the ECB will hand down its own decision on rates. Following confirmation of a significant jump in inflation in the Eurozone this week, driven by a 14% jump in energy prices, another 25bp hike is now fully priced in for this month there. Then on Friday all eyes turn back to the States, for the August CPI figures and report.

Highlights in the US earnings department are GameStop, Oracle and Adobe. Go well out there.