s&p500

Market echoes

The US dollar index ticked higher yesterday, as the euro fell across board during ECB Lagarde's presser. But any further weakness in today's PCE numbers could limit the upside move in the dollar index and throw a floor under the EURUSD's weakness around the 200-DMA.

It would sure be absurd if the Fed started cutting the rates with such a strong underlying US economy before the ECB, which, in opposition, deals with a serious economic slowdown across the euro area. But the Fed doesn't (need to) decide based on other central banks' actions. As such, a possible earlier Fed cut could slow down the euro depreciation but should not stop it.

Key Market Shift Confirmed

Key Market Shift Confirmed

Monica Kingsley Monica Kingsley 18.10.2021 11:57
S&P 500 bulls didn‘t look back, and the credit markets spurt at close confirmed. The VIX is getting serious about reaching for early Sep lows, and it shows in the sharp upside reversal of value. The tech upswing hasn‘t been sold into either, and the overall picture is of improving market breadth. Such was my assessment going into yesterday‘s session: (…) So, how far could the bulls make it? 4,420 is one resistance level, and then prior local highs at 4,470 await. The fate of this correction is being decided right there, and it‘s my view we have lower than 4,260 to go still. Therefore, I‘m taking a big picture view, and that is one of continuous inflation surprises to the upside forcing the Fed to taper, which it may or may not do. The policy risks of letting inflation run wild are increasing, so the central bank would find it hard not to deliver fast – the market would consider that a policy mistake. The tone of yesterday‘s FOMC minutes has calmed the Treasury market jitters, and the dollar succumbed. So did inflation expectations, but the shape of the TIP:TLT candle suggests that inflation isn‘t done and out. The Fed is in no position to break it, supply chain pressures, energy crunch and heating job market guarantee that it will be stubbornly with us for longer than the steadily increasing number of quarters Fed officials are admitting to. Counting on the Fed being behind the curve, inflation has the power to derail the S&P 500 bull run – the more so it runs unchecked. The 1970s stagflation brought several wild swings, cutting the index in half as it spent the decade in a trading range. And given the breadth characteristics of the 500-strong index these days, the risks to the downside can‘t be underestimated. What‘s my target of 4,260 in this light? Let‘s consider that from the portfolio point of view – purely stock market traders might prefer to short exhaustion at 4,420 or the approach to 4,470, or balance the short position‘s risk in the stock market with precious metals, cryptos and commodity bets they way I do it – and it‘s working just fine as the precious metals and crypto positions do great while I‘m waiting for retracement in oil and copper (in price or in time). Let‘s check that against the following market performance – bonds aren‘t throwing a tantrum anymore, and continue being pleased by the Fed‘s pronouncements. Inflation expectations haven‘t been revolting over the last three days either. S&P 500 has a great chance of confirming the break back above the 50-day moving average. Neither oil nor copper have offered a reasonably modest retracement of their recent upswings (orderly in the former, stellar in the latter). Reassessing the developments way earlier today (have you already subscribed to enjoy the real-time benefits?) – both from the total portfolio and stock market point of views – has unequivocally led me to join the profitable bullish S&P 500 side (the upswing is likely to easily overcome 4,470s and then 4,510s too) and enjoy the meteoric long copper gains. This represents more conviction behind the still rising tide of accomodative monetary policy (undaunted by the taper prospects, crucially) that is likely to keep positively affecting the open precious metals positions, and further extend the extraordinary crypto gains. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 early stage bullish upswing goes on, and the next two days are likely to confirm – the cyclically sensitive sectors are behaving favorably. That‘s consumer discretionaries, financials and real estate. Credit Markets Quality debt instruments and HYG are rebounding accordingly, and I like particularly the HYG strength. Gold, Silver and Miners Gold is having trouble overcoming $1,800 but miners and silver are saying the issues are only temporary. Lower volume and lower knot yesterday mean that a brief consolidation is likely ahead. Crude Oil Crude oil consolidation in a very narrow range is likely to give way to price gains extension, if oil stocks are to be taken seriously. Likely, they are to. Copper Copper steep upswing continues unabated, and volume isn‘t drying up. Just as in the CRB Index, the path of least resistance is up – and continued copper outperfomance in the face of downgraded economic growth, is the most encouraging sign. Bitcoin and Ethereum The expected crypto pause came, and is again gone. Fresh highs await, and Ethereum is closer to these than Bitcoin is. Summary Stock market rebound has good odds of extending gains, but the most profitable case is to be made when it comes to commodities, cryptos and precious metals. Finally, if ever so slowly, the truth about no transitory but permanently elevated inflation that I had been hammering since early spring, is being acknowledged by even the Fed officials for what it is – let alone the banking sector. Remember, we‘re getting started, and I wouldn‘t be surprised if 5-7% inflation rates were being the predictable, ongoing result. At the same time, inflation isn‘t yet strong enough to force S&P 500 into a bear market, let alone extend the way less than 10% correction just experienced. The path of slowly but surely increasing resistance in the S&P 500 remains up for now as the break above 50-day moving average foretells. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals. Thank you, Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co * * * * * All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
Ever More Risk-On

Ever More Risk-On

Monica Kingsley Monica Kingsley 20.10.2021 16:12
S&P 500 keeps grinding higher, beyond 4,520 towards fresh ATHs. The VIX is approaching 15, and that means some volatility is likely to return as the current lull won‘t last indefinitely. Yields are steadily rising again, in line with my prior thesis of a summer lull followed by renewed march higher – the 10-year is at 1.65% already, but inflation expectations aren‘t as raging yet as in May when a similar rate was hit (this is part of the explanation why gold is lagging behind currently – it‘s not about hot present inflation figures only). Tech stocks couldn‘t care less – long gone seem the Mar and late Apr woes accompanied by similar Treasury moves. Value is similarly catching fire, and the improving market breadth bodes well for the stock market bulls. Credit markets have turned more constructive since these yesterday‘s words: (…) So far so good, and the stock market run continues without marked credit markets confirmation as the risk-on turn there isn‘t complete (yet). Treasury yields aren‘t retreating, yet tech is the driver of the S&P 500 upswing while value keeps treading water. Encouragingly, financials do well – it‘s cyclicals‘ time, and the open S&P 500 long position is very solidly profitable already. Not only that stock market profits are growing, I‘ve cashed some nice long copper profits before the overnight dive well below 4.70. Both crude oil and natural gas look like taking a breather – shallow one in case of black gold, and one probably more protracted around the 5.00 level (50-day moving average essentially) in case of its more volatile cousin. Cryptos open profits also keep doing great – there is no correction attempt to speak of really. Coming full circle to precious metals, all that‘s needed is one serious Fed policy misstep. Just imagine if they didn‘t deliver on Nov taper, or if the rate raising speculation was promptly snuffed while inflation fires just kept burning (no, this can‘t be blamed on supply chains really). The Fed is though well aware of market expectations that they themselves had been feeding since Jun. Still, they‘ll in my view easily make the Monday discussed intentional „mistake“: (…) we have moved from 1H 2021 Fed saying that inflation was transitory to the current phrase that inflation is transitory, but would last longer than we though. The next stage (arriving latest in Q1 2022) will likely be that inflation is sticky but we have tools to deal with it, followed by putting up a happy face that it‘s a good thing we have inflation after all. Reflation is slowly giving way to stagflation – GDP growth is slowing down while inflation isn‘t disappearing, to put it mildly. The copper upswing isn‘t so much a function of improving economy prospects but of record low stockpiles. Anyway, much more to look for in the commodities and precious metals bull markets that are likely to appreciate much more than stocks this decade. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 gapped again higher, and the steady move upwards continues – still without obstacles. Credit Markets Debt instruments have turned to risk-on, confirming the stock market advance. Rising yields don‘t look to be a problem for now. Gold, Silver and Miners Gold upswing hasn‘t been dashed, but merely delayed – the rest of the precious metals sector isn‘t as weak, and that‘s to be expected. Crude Oil Crude oil again didn‘t correct, and oil stocks didn‘t even pause yesterday – but as the pace of price increases is slowing down, the shallow downswing looks very much approaching (if not here already). Copper Copper is ready to consolidate prior steep gains, and its correction would likely be a sideways one not reaching overly far. Then, even higher prices await. Bitcoin and Ethereum Crypto gains consolidation with an upward bias continues today, and further gains are ahead – just like I wrote yesterday. Summary Stock market rebound goes on, practically nibbling at 4,520. Fresh ATHs are approaching, but given the ascent‘s pace and VIX, aren‘t probably a matter of a few short days. Still, the overall momentum is on the bulls‘ side as credit markets have also turned risk-on yesterday. Commodities aren‘t selling off in the least, but a brief oil and copper consolidation is likely now. Gold seems waiting for a dual confirmation of declining dollar and nominal yields, while silver isn‘t waiting – and it shouldn‘t as the white metal would be leading this unfolding upswing. Cryptos aren‘t hesitating either. Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals. Thank you, Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co   * * * * * All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
Russia-Ukraine Conflict And The US Reaction Act On Markets

S&P 500’s Rally – Record Breaking Advance Or a Bull Trap?

Paul Rejczak Paul Rejczak 20.10.2021 16:32
Stocks prices got even higher yesterday, as investors reacted to corporate earnings releases. Will the S&P 500 reach the new record high? The S&P 500 index gained 0.74% on Tuesday, Oct 19 after breaking above the 4,500 price level. The broad stock market’ s gauge went closer to its Sep. 2 record high of 4,545.85. The quarterly corporate earnings releases are positive for the market and they are only starting to gain traction. Today we will get the TSLA earnings release and tomorrow INTC, among others. The market seems overbought in the short-term. However, there have been no confirmed negative signals so far. The support level is now at 4,485-4,500, marked by the yesterday’s daily gap up of 4,488.75-4,496.41 and the previous resistance level. The next support level is at 4,440-4,450, marked by the last Friday’s daily gap up of 4,439.73-4,447.69. On the other hand, the resistance level is at 4,525-4,555, marked by the previous local highs and the early September topping pattern. The S&P 500 extends its advance after breaking above a month-long downward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com): Let’s take a look at the Dow Jones Industrial Average chart. The blue-chip index broke above its over month-long downward trend line on Thursday, and on Friday it accelerated up above the 35,000 mark. Now, the nearest important resistance level is now at 35,500, marked by some previous local highs. The resistance level is also at the record high level of 35,631.19, as we can see on the daily chart: Apple’s Relative Weakness Apple stock weighs around 6.1% in the S&P 500 index, so it is important for the whole broad stock market picture. The stock broke above its short-term resistance level of around $144-145. The nearest important resistance level is at $148-150. The stock is relatively weaker than the broad stock market, as it’s still trading below the July-August local highs. Futures Contract Gets Closer to the Record High Let’s take a look at the hourly chart of the S&P 500 futures contract. On Friday, the market broke above its downward trend line and it broke above its previous local high of around 4,470. The nearest important resistance level is now at around 4,520-4,550, marked by the early September topping pattern. In our opinion no positions are currently justified from the risk/reward point of view. (chart by courtesy of http://tradingview.com): Conclusion The S&P 500 index further extended its uptrend yesterday, as it broke above the 4,500 level. It’s getting closer to the Sep. 2 record high of 4,545.85. The market seems overbought in the short term. However, the coming quarterly corporate earnings releases (today it’s TSLA, and INTC on Thursday, among others) are supporting buyers here. Today the market is expected to open virtually flat and we may see an intraday consolidation along the 4,500 level or a downward correction. The risk/reward perspective seems less favorable right now and no positions are currently justified. Here’s the breakdown: The S&P 500 extended its short-term uptrend on Tuesday again, as it broke above the 4,500 level. We are waiting for a more favorable risk/reward situation and will probably enter a new speculative short position in the near term. Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today! Thank you. Paul Rejczak, Stock Trading Strategist Sunshine Profits: Effective Investments through Diligence and Care * * * * * The information above represents analyses and opinions of Paul Rejczak & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Paul Rejczak and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Rejczak is not a Registered Securities Advisor. By reading his reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
This Is When Risk-On Returns

Whiff of Risk-Off Next

Finance Press Release Finance Press Release 22.10.2021 09:01
S&P 500 indeed overcame 4,520, but wavered at the same time – tech didn‘t rise. Volatility though remained meek, inching ever closer to 15, and the option traders also look a bit too complacent at the moment. A modest correction of recent sharp gains is the most likely scenario, especially since rising yields didn‘t sink tech even on a daily basis. Inflation expectations though have risen again, and that‘s tailwind for precious metals, which have taken advantage thereof just as much as of the declining dollar. The yesterday discussed dynamic of yields – inflation – inflation expectations and by extension the dollar, is playing out. So, the open S&P 500 long position remains solidly profitable while precious metals posture is improving, and commodities are entering a brief consolidation. Still, the yesterday open oil position is nicely in the black too, let alone crypto ones. Remembering yesterday‘s words: (…) Coming full circle to precious metals, all that‘s needed is one serious Fed policy misstep. Just imagine if they didn‘t deliver on Nov taper, or if the rate raising speculation was promptly snuffed while inflation fires just kept burning (no, this can‘t be blamed on supply chains really). The Fed is though well aware of market expectations that they themselves had been feeding since Jun. Still, they‘ll in my view easily make the Monday discussed intentional „mistake“ of attempting to pretend readiness to deploy tools to fight it (pretend is the key word), and finally spin inflation as something good. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 gapped a little higher again, but has met some selling into the close – consolidation looks to be ahead. Credit Markets Credit markets are still risk-on, but likely to take a breather, and that‘s likely to entail a pause in rising yields. Gold, Silver and Miners Gold and silver are swinging higher, and miners are on the move too – $1,800 awaits again. Should a whiff of risk-off indeed arrive, look for silver to waver more than gold. Crude Oil Crude oil intraday dip was again bought – too much and lasting downside isn‘t yet to be expected really. It‘s likely to remain a primarily sideways move before another upswing. Copper Copper smartly recovered, but perhaps a bit too fast – the prior two days‘ hesitation though means it won‘t likely keep the downside in check as well as oil did. Bitcoin and Ethereum Crypto gains are being consolidated, and the bears are finally stepping in – the lower knot shows that a downswing targeting $62-60K in Bitcoin might very well develop. Summary Stocks are likely to consolidate prior sharp gains before taking on the ATHs. Depending upon the credit markets risk-off breather I anticipate, the S&P 500 might retreat noticeably below 4,520, but this wouldn‘t mean the end of the upswing. The overall momentum remains on the bulls‘ side, including in commodities undergoing a brief (oil and copper) consolidation. Gold was indeed waiting for a dual confirmation of declining dollar and nominal yields, while silver wasn‘t cautious – and it shouldn‘t as the white metal would be leading this unfolding upswing. Finally, cryptos daily hesitation is adding to the mounting risk-off move odds.   Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.   Thank you,   Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co   * * * * * All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
European Rate Surge Continues

Gold: The S&P 500 Stirs the Pot

Przemysław Radomski Przemysław Radomski 23.10.2021 12:08
With the S&P 500 back at its all-time highs, gold stopped lagging behind. However, how long can this unsustainable growth last? The FOMO Rally While the S&P 500 has demonstrated a resounding ability to shake off bad news, an epic divergence has developed between positioning and economic expectations. And while ‘fear of missing out’ (FOMO) keeps sentiment near the high-end of its range, Q3 GDP growth is projected near the low-end of its range. For example, while the Atlanta Fed’s third-quarter GDP growth estimate was north of 5% in early September, the bank reduced the estimate to 1.3% on Oct. 5. Moreover, with the outlook even worse now, the Atlanta Fed cut its Q3 GDP growth estimate to 0.5% on Oct. 19. Please see below: To explain, the blue line above tracks the Blue Chip consensus GDP growth estimate for the third quarter, and the shaded blue area represents the range of economists’ estimates. If you analyze the depth, you can see that economists expect a print in the ~2% to ~5.5% range. In stark contrast, the green line above tracks the Atlanta Fed’s GDPNow estimate – which has sunk like a stone and now implies 0.5% GDP growth in the third quarter. What’s more, Bank of America also released its latest Global Fund Manager Survey on Oct. 19. And with institutional investors increasing their equity exposure when their economic expectations have turned negative for the first time in 18 months, FOMO is now on full display. Please see below: To explain, the dark blue line above tracks the net percentage of respondents that are overweight equities, while the light blue line above tracks the net percentage of respondents that expect stronger economic growth. If you analyze the right side of the chart, you can see that intuitional investors’ equity positioning still far exceeds what’s implied from economic growth prospects. As a result, if the dark blue line moves lower and reconnects with the light blue line, plenty of sell orders will hit the market. On top of that, with stagflation fears now front and center, institutional investors are hitting the bid even when their better judgment tells them otherwise. Please see below: To explain, the dark blue line above tracks the net percentage of respondents that expect above-trend growth and above-trend inflation, while the light blue line above tracks the net percentage of respondents that expect below-trend growth and above-trend inflation. If you analyze the red circle on the right side of the chart, you can see that growth-with-inflation prophecies are losing momentum (the dark blue line), while fears of low growth and persistent inflation are increasing (the light blue line). Will We See an Inflation Miracle? Moreover, with the Fed stuck between a rock (high inflation) and a hard place (weak growth), the margin for error has dwindled and one policy mistake could bring down equities’ entire house of cards. To that point, while I’ve been warning for months that the Fed was (and still is) materially behind the inflation curve, FOMC officials aren’t the only ones displaying inflationary anxiety. Please see below: To explain, inflationary concerns have surged in October. And while the spread between institutional investors’ concerns over “Inflation” and the “Fed taper” is quite the oxymoron, persistent inflation makes another hawkish surprise even more likely. Moreover, with the death of QE unlikely to solve the inflationary conundrum on its own, the Fed will likely forecast further tightening in 2022. To that point, slowly but surely, institutional investors are waking up to this reality. For context, Q3 earnings calls have been riddled with mentions of inflation and many CEOs that dabble in real goods have projected a further acceleration in 2022. As a result, with the “transitory” camp now suffering a death by a thousand cuts, it will likely take a miracle for the Fed’s 2022 inflation forecast to come to fruition. To explain, 69% (28%) of respondents viewed inflation as “transitory” (“permanent”) in September. However, the script has flipped to 58% and 38% in October. As a result, it’s likely only a matter of time before the majority of institutional investors (and the Fed) realize what’s actually happening on the ground. Case in point: Unilever – a consumer goods company with 149,000 employees and 400 brands that operates in more than 190 countries – released its third-quarter earnings on Oct. 21. CFO Graeme Pitkethly said that Q4 price increases should at least rival Q3 and extend into 2022: Source: Reuters Moreover, Unilever CEO Alan Jope told Bloomberg on Oct. 21: “Peak inflation will be in the first half of 2022, and it will moderate as we move towards the second half…. We continue to responsibly take pricing, and that’s in relation to the very high levels of inflation we’re seeing.” The S&P 500 Ahead of a Deep Correction? Furthermore, I highlighted on Oct. 21 that rising commodity prices over the last month should filter into the Commodity Producer Price Index (PPI) and headline Consumer Price Index (CPI) in the coming months. I wrote: The commodity PPI is a reliable leading indicator of the following month’s headline Consumer CPI. And if the former stays flat for the next three months (which is unlikely) – referencing releases in November 2021, December 2021 and January 2022 – the readings will still imply year-over-year (YoY) percentage increases in the headline CPI in the 4.75% to 5.50% range. Furthermore, this is an extremely conservative forecast since the commodity PPI has increased month-over-month (MoM) for the last 17 months. Thus, it’s more likely that the headline CPI rises above 6% YoY than it falls below 4% YoY. To that point, Union Pacific Railroad – a shipping company that operates 8,300 locomotives in 23 U.S. states – released its third-quarter earnings on Oct. 21. And with freight revenue up by 12% and average revenue per car up by 9%, EVP Kenny Rocker said that the results reflected “strong core pricing gains and higher fuel surcharge revenue.” More importantly, though, with the input surge intensifying “over the last 30 days,” the cost-push inflationary spiral remains alive and well, and it signals something important. Source: Union Pacific Railroad/ The Motley Fool Finally, the reason why inflation is so important in terms of its direct effect on the general stock market and its indirect effect on the PMs is due to the composition of the S&P 500. With information technology and communication services stocks accounting for roughly 39% of the S&P 500’s movement, deflationary assets have been the go-to source for returns since 2009. However, if the “transitory” narrative suffers a painful death, a material unwind could ensure. Please see below: To explain, the “Deflation basket” (the dark blue line) has materially outperformed the “Inflation basket” (the light blue line) since the global financial crisis (GFC). Thus, if surging inflation encourages a reversion to the mean, immense volatility could strike the S&P 500. The bottom line? With investors prioritizing FOMO over fundamentals, the general stock market’s recent uprising has helped uplift the PMs. However, with the Fed losing its inflation battle and the USD Index poised to benefit from more hawkish momentum over the next few months, a profound correction of the S&P 500 will only enhance the U.S. dollar’s already robust fundamentals. Moreover, with the PMs often moving inversely to the U.S. dollar, their performance should suffer along the way. In conclusion, the PMs declined on Oct. 21, as the USD Index regained its mojo. Furthermore, the front-end of the U.S. yield curve surged (2-year yield up by 21% rounded), and the U.S. 10-Year Treasury yield closed at its highest level (1.7% rounded) since Apr. 4. Thus, while the PMs borrow confidence from the S&P 500, their fundamentals are actually deteriorating rather quickly. Thank you for reading our free analysis today. Please note that the above is just a small fraction of today’s all-encompassing Gold & Silver Trading Alert. The latter includes multiple premium details such as the targets for gold and mining stocks that could be reached in the next few weeks. If you’d like to read those premium details, we have good news for you. As soon as you sign up for our free gold newsletter, you’ll get a free 7-day no-obligation trial access to our premium Gold & Silver Trading Alerts. It’s really free – sign up today. Przemyslaw Radomski, CFA Founder, Editor-in-chief Sunshine Profits: Effective Investment through Diligence & Care * * * * * All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
Getting Back To Risky Assets As A Result Of Russian Move?

Against Bond Market Odds

Monica Kingsley Monica Kingsley 25.10.2021 00:22
Such was the S&P 500 correction, how did you like it? The whiff of risk-off that I was looking for yesterday, was a very shallow one in stocks, and much deeper in real assets. What‘s remarkable about the stock market upswing, is that it was led by tech while value barely clung to its opening values – and yields rose yet again. But the dynamic is supposed to work the other way – even financials felt the pinch, but at least real estate rose. Another characteristic worth noting is that the dollar increased yesterday too, and stocks didn‘t mind. The VIX closed almost at 15, which is its lowest value since the beginning of Jul. S&P 500 indeed didn‘t hesitate at 4,520, and broke above similarly to the prior turning point (that wasn‘t) at 4,420. I‘m letting the open long S&P 500 profits run as rising yields aren‘t yet a problem for stocks, and inflation isn‘t still strong enough to break the bulls‘ back – but inflation expectations keep rising, and that‘s a factor once again underpinning precious metals. When a brief risk-off moment arrives though, commodities are to feel the pinch, and that‘s true also about silver as opposed to gold. Indeed yesterday, the yellow metal did much better than the white one. Copper corrected with a delay to the fresh LME trading measures, and quite profoundly given that the London stockpile represents only a day‘s worth of China factory copper consumption. The dust in the red metal hasn‘t yet settled, but black gold recovered smartly from the steep intraday drop to $81, dealing open oil profits – and the selling in oil stocks looks to be overdone on a daily basis. Finally, the Bitcoin setback I was looking for, happened, but doesn‘t spell the end of the crypto run – more cypto gains to enjoy. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 buyers stepped in right at the opening hours, and the daily candle and volume confirms they have the upper hand. Credit Markets Credit markets turned risk-off, and it‘s especially up to HYG to get its act together. Gold, Silver and Miners Gold paused while silver declined  and miners kept steady – that‘s a reasonably good translation of much deeper commodity woes yesterday. Nothing unexpected, I was looking for silver to be affected more than gold in such circumstances. Crude Oil Crude oil intraday dip was again bought, but the bears have left a better impression than on Wednesday. The proof of a reversal is though still elusive. Copper Copper undershooting Wednesday‘s lows isn‘t a good sign for the short-term – and neither is the rising volume. Short-term outperformance of the CRB Index is also history, and it remains to be seen where would the bulls put up a fight. Bitcoin and Ethereum The bears stepped in some more yesterday, and today‘s upswing is lacking full vigor – the Bitcoin consolidation would likely take a few days. Ethereum still on the rise is a good sign. Summary Stocks have briefly consolidated prior sharp gains, and fresh ATHs are approaching. Credit markets should regain bullish posture as well though – yesterday‘s setback needs to be reversed so as not to be building negative divergences on the way. Precious metals are improving, and stand to benefit while commodities recover from yesterday‘s setback. Much easier in oil than in copper. Cryptos remain largely unaffected, and are set to assume their ascent shortly.   Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.   Thank you,   Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co   * * * * * All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
Russia-Ukraine Conflict And The US Reaction Act On Markets

Pause Before the Run

Monica Kingsley Monica Kingsley 26.10.2021 12:06
S&P 500 didn‘t decline much in spite of credit markets favoring a bigger daily setback – is the pendulum about to swing the other way then? It probably is, but it would take a while as I would like to see high yield corporate bonds turn up first. Rising yields are taking a toll on junk bonds as well, yet value stocks managed to eke out some daily gains regardless, and tech didn‘t crater. Bottom line, we saw a daily consolidation, whose key feature was 4,520 support holding up, and that means not too much downside is likely next. VIX was rejected both on the upside and downside, meaning that larger moves aren‘t favored now – and probably won‘t happen on Monday. The slow grind higher in S&P 500 is likely to continue, and the dollar is still in a precarious position – having gone down in spite of increase in yields. Well, inflation remains sticky, and Powell‘s latest pronouncements on Nov taper readiness don‘t pack the same punch as they did in Jun. So, as the Treasury markets revolt over inflation calms down for a while, gold and silver are welcoming more negative real rates. Apart from the miners supporting the upswing (I‘m not too worried about gold giving up much of its intraday gains), commodities continue running. We‘re at a moment of deceptive copper weakness – while the dust hasn‘t settled yet, the red metals is likely to consolidate and rebound next. Crude oil intraday correction didn‘t reach too far, but still triggered taking long oil profits off the table – and the same is true about the long S&P 500 position also. The crypto correction is also turning out to be quite shallow, so let the open profits run. Let‘s move right into the charts (all courtesy of www.stockcharts.com). S&P 500 and Nasdaq Outlook S&P 500 didn‘t keep the opening gains, but recovered from the ensuing downswing – the balance of power between the buyers and sellers is likely to carry over into today‘s session. Credit Markets The risk-off posture in bonds would merit an S&P 500 selloff, but that didn‘t happen - and I‘m not looking for stocks to catch up on the downside with vengeance. Gold, Silver and Miners The heavy volume upswing in gold still favors the bulls in spite of the long upper knot – both miners and silver keep pulling ahead, and don‘t forget about ever more negative real rates. Crude Oil Crude oil intraday dip was shallower than on Wednesday and Thursday, and again readily bought. While Monday isn‘t likely to bring stellar gains, the upswing is set to continue. Copper Copper lower knot is a promising sign that finally, the downswing was bought, and the upper knot gives bulls a chance to attempt a reversal soon. Anyway, the rising volume is a positive sign – now, it‘s about follow through. Bitcoin and Ethereum The Bitcoin correction indeed stopped in the $60K region, and joined by Ethereum, cryptos are peeking higher again as Friday‘s decline has been erased. Summary Stocks are consolidating above 4,520, and more likely to go up over the next two days than down. Especially since credit markets will probably turn risk-on now that Powell‘s speech is again over, and didn‘t result in as much temporary selling as prior taper mentions – it‘s that inflation is increasingly biting, and it‘s getting more broadly recognized as not so transitory. The woes are likely to help real assets keep rising – both commodities and precious metals. Look for continued silver leadership accompanied by stock upswings, and for gold performing better during whiffs of risk-off. The run in energy isn‘t over, and that concerns both crude oil and natural gas. Cryptos are well positioned to benefit too.     Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for all the five publications: Stock Trading Signals, Gold Trading Signals, Oil Trading Signals, Copper Trading Signals and Bitcoin Trading Signals.   Thank you,   Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co   * * * * * All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.
DJI (Dow Jones) And SPX (S&P 500) Are Likely To Recover Slowly

DJI (Dow Jones) And SPX (S&P 500) Are Likely To Recover Slowly

Alex Kuptsikevich Alex Kuptsikevich 09.02.2022 09:26
Stock markets continue their shaky recovery. On Tuesday, intraday trading patterns in US equities point to a buying trend on declines. The S&P500 and Dow Jones indices rebounded from their 200-day simple moving average. Both indices were below those levels in the second half of January. Still, by the beginning of February, they managed to get back above them on the substantial buying activity of the retail investors. Yesterday's stock market dynamics slightly reduced the tension. Increased buying at the end of the session indicates a buying mood for professional market participants. There have been increasing reports from US investment banks that markets have already priced in a tight monetary policy scenario and will not press equity prices further. Moreover, BlackRock recently noted that markets had priced in overly hawkish expectations. The bond market also looks oversold, declining in previous weeks at the fastest pace since 2008. This is a good reason, at least for a technical rebound. In addition, buyers are supported by strong economic and wage growth, promising corporate earnings stability for the foreseeable future. The switch to a monetary tightening phase turns the market into a more frequent and deeper corrective pullback mode but does not trigger a bear market before a rate hike even begins. Strong fundamentals support a bullish technical picture, with a recovery from the strongest oversold S&P500 RSI and the ability to pop above the 200-day average. From this perspective, the January drawdown has cleared the way for growth, recharging buyers. On an equity level, we can see stabilisation and sharp upward moves in stocks that have been weak since June and shone in the pandemic before that: Peloton, Netflix, GameStop. In theory, this could be a dead cat bounce, but it reduces the selling pressure in blue-chip stocks such as Apple, Amazon, Microsoft, Google and straightens out the overall market sentiment.
Swissquote MarketTalk: A Look At XAUUSD, Swiss Secrets, Tesla And More

Reviewing Effects Of Easing The Conflict And Awaiting US PPI

Swissquote Bank Swissquote Bank 15.02.2022 13:24
There is a certain relief in the Ukraine-Russia crisis as the two sides seem willing to continue their diplomatic efforts to avoid a military action. The latter could help reversing a part of yesterday’s aggressive selloff in the European markets, and the FTSE 100 could outperform its peers on the back of firm energy and oil prices. Base case: no war Ukrainian president criticized news giving a date for a potential Russian invasion and said that it could eventually drop its dream to become part of NATO, as a powerful sign of its commitment to de-escalate the tensions at its Russian border. US producer prices: The S&P500 slid 0.38% and closed just near the 4400 mark, the Dow dropped near 0.50%, as Nasdaq closed Monday’s session flat. Today, the inflation talk continues with the US producer prices due later in the session. Analysts expect a certain easing in the PPI index to 9.1% from last month’s surprise to 9.7%. Given the rise in oil and commodity prices, there is a higher chance of seeing a positive than a negative surprise. Any positive surprise could send the PPI index above the 10% psychological mark and keep the bears in charge of the market, regardless of a more hopeful mood due to the diplomatic efforts between Russia and Ukraine. Watch the full episode to find out more! 0:00 Intro 0:24 Market update 2:48 FTSE led higher by energy, mining stocks 4:54 S&P500, Nasdaq futures rebound, but PPI data is a risk 7:23 Super Bowl advertisements pointed at cryptocurrencies! 8:21 EURUSD: opportunity for ECB hawks? Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020.
Equities Of Europe Are Under Pressure

Speaking Of nVidia Stock, S&P500 (SPX), The Conflict In Eastern Europe And GBP State

Swissquote Bank Swissquote Bank 17.02.2022 10:42
Good mood didn’t last long as the US didn’t let the tensions de-escalate insisting that Russia is certainly not pulling back its troops but is rather increasing its presence at the Ukrainian border. The US warning hit the investor appetite at yesterday’s session and reversed the earlier week gains in stock indices. As a result, the safe have flows boosted gold, again, as crude oil remained steady around the $92 per barrel. US equities were soft but the S&P500 erased a part of losses at a late-session rally after the release of the Federal Reserve (Fed) minutes, the pricing on the fed funds front flipped to give more chance for a 25bp hike in March, instead of a 50-bp hike. In the FX markets, the US dollar remains strong, while the pound-dollar is eking out gains above the 1.35 mark as the high inflation in the UK keeps the Bank of England (BoE) hawks in charge of the market. Bitcoin is pointed as a risk to the global financial stability, as Fidelity launches Europe's cheapest Bitcoin ETP. In the individual stocks, Nvidia’s strong results didn’t boost the share price in the afterhours trading, Virgin Galactic couldn’t extend Tuesday’s days on worries that they may have some execution problems sending people to the moon and Roblox tanked 26% on softer results. Watch the full episode to find out more! 0:00 Intro 0:28 Ukraine update 1:22 Gold up, but gains vulnerable 1:54 US equities fine with the hawkish Fed minutes 3:38 Sterling gains on soaring inflation expectations 4:54 Cryptocurrencies: a risk to financial stability? 6:04 Why strong results don't boost appetite in Nvidia? 7:35 Why the space travel doesn't seduce investors? 8:34 And why Roblox is not in a good place to reverse losses? Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020.
Stock Market Showing Signs Of Slight Recovery Amidst U.S CPI Report Release

Stock Market Showing Signs Of Slight Recovery Amidst U.S CPI Report Release

Rebecca Duthie Rebecca Duthie 11.05.2022 18:05
Summary: S&P 500 has seen 0.72% growth today. The value of (XAUUSD) gold has shown bullish signals in the market today. Read next: Tech Stocks Plunging!? Trade Desk Earnings Announcement Pushes Tech Giant Stock Down, Russian Ruble Strengthening and Ford Motor Co.  S&P 500 is rising during trading today The U.S CPI report which offered an update on price increases across U.S for April was released by the U.S labour department on Wednesday. The report reflected there was some deceleration of inflation figures compared to March, however, the rate of price increases exceeded analyst expectations. The CPI for April decelerated marginally compared to the March figures. The figures represent how far the Fed will have to go in the future regarding tightening monetary policy to fight the rising prices. S&P 500 Price Chart Will Gold rally in the wake of the CPI report? Gold futures have increased in value today, the initial increase came before the CPI report was released by the U.S labor department, and the increase has continued after the release. The lower than expected CPI figures bode well in the favour of the gold prices as uncertainty arises amongst investors on the Fed's next move. With volatility in the stock markets likely to continue, perhaps investors are trying to hedge their bets, driving the price of gold upwards. Gold Futures Jun’22 Read next: (BTC) Bitcoin’s Price Tanks Along With Equities. U.S. Stock Market Awaits CPI Report, Poor Performance From The FTSE 100.  Sources: Finance.yahoo.com
NZD May Weaken In The Wake Of RBNZ Policy Decison, S&P 500 Retail Index Increased On Tuesday

NZD May Weaken In The Wake Of RBNZ Policy Decison, S&P 500 Retail Index Increased On Tuesday

Rebecca Duthie Rebecca Duthie 16.08.2022 23:18
Summary: Walmart and Home Depot rose. RBNZ due to give their midweek policy decision. S&P 500 end the trading day in the green The Nasdaq suffered on Tuesday as technology equities fell, weighing on the Dow, while Walmart and Home Depot rose as a result of better-than-expected results and outlooks. Along with the S&P 500 retail index, the consumer discretionary and basics sectors both experienced significant increases. Home Depot outperformed forecasts for the most recent quarter of sales, and Walmart predicted a lesser decline in full-year earnings than was originally anticipated. The 10-year Treasury yield increased, which hurt high-growth firms in the technology sector. Stocks have recovered since mid-June after stumbling for the most of the first half of the year, aided in part by Corporate America's better-than-expected results. Investors are also hopeful that the Federal Reserve will be able to provide a "soft landing" for the economy as it tightens monetary policy and increases interest rates to lower inflation that has been historically high. GSPC Price Chart NZD ahead of the RBNZ policy decision Following the Reserve Bank of New Zealand's (RBNZ) midweek policy update, analysts at investment banks Goldman Sachs and HSBC are watching for NZD depreciation. Markets anticipate that the RBNZ will increase interest rates by another 50 basis points to 3.0%, but any significant changes in the currency are more likely to be caused by the RBNZ's tone in its guidance. "Importantly, we would not be surprised to see slightly more dovish guidance from the RBNZ," says Kamakshya Trivedi, Co-head of Global Foreign Exchange Research at Goldman Sachs. The meeting, according to Goldman Sachs, is expected to be one of the major developments for the foreign exchange markets this week, and the results are most likely to support their bearish NZ Dollar thesis. Their economists continue to be less pessimistic than the market currently is about the trajectory of upcoming RBNZ rate hikes. Sources: finance.yahoo.com, poundsterlinglive.com
Tokyo Issues Warning as Yen Depreciates, USD/JPY in Positive Territory

S&P 500 Falls By Largest Amount In 2 Months, EUR/USD Test Below Parity

Rebecca Duthie Rebecca Duthie 22.08.2022 23:45
Summary: Stock market may continue to decline. EUR/USD falls below parity. S&P 500 down 2.14% Monday As Wall Street waits for Fed Chairman Jerome Powell's address later this week and worries about inflation and a weaker economy grow, the stock market may continue to decline as the currency strengthens. On August 22, U.S. markets plunged precipitously to open the week, with the S&P 500 down 2.14% and the Nasdaq down 2.55%. The cost of gold and oil decreased as well. The S&P 500 experienced its steepest fall in two months. Last week, the market's four-week winning streak came to an end as a result of investors' increased defensiveness and anticipation of slower economic development. According to Scott Minerd, global chief investment officer at Guggenheim, if the S&P does not rise above its 200-day moving average, the equity market could experience further losses. S&P 500 Price Chart EUR/USD pushing below parity The British Pound and the Euro are having a bad day on the foreign exchange markets, as the EUR/USD and GBP/USD prices both hit new yearly lows throughout the session. Senior Strategist James Stanley talked about the Euro's problems this morning, and we covered the UK's stagflation worries last week, which have been hurting the British Pound. It's true that the British Pound and the Euro's issues may be more closely related to what's occurring in energy markets and the crisis that is developing quickly ahead of the winter months than to a resurgent US Dollar ahead of the Federal Reserve's Jackson Hole Economic Policy Symposium. The cost of energy in Europe is rising everywhere you turn. Natural gas prices in the UK and the European benchmark, Dutch TTF, have achieved (or are approaching) all-time highs. Sources: finance.yahoo.com, dailyfx.com, thestreet.com
Chinese Manufacturing PMI: Accelerating Contraction Raises Concerns!  What if Russia didn't follow OPEC's output cuts?

Chinese Manufacturing PMI: Accelerating Contraction Raises Concerns! What if Russia didn't follow OPEC's output cuts?

Ipek Ozkardeskaya Ipek Ozkardeskaya 31.05.2023 08:15
The US 2-year yield fell sharply, while the S&P500 ended flat after hitting a fresh high since last summer on optimism that the US will finally agree to raise the debt ceiling.     The House will vote today to decide whether the debt limit bill gets approved at time to get a Senate approval by next Monday deadline.     The deal between Biden and McCarthy freezes discretionary spending for the next two years, which excludes weighty plans like Medicare or social care, and will only have a minor impact on around $20 trillion budget deficit projected for the next decade. Frozen spending means a spending cut in real terms as long as inflation remains high. The higher the inflation, the higher the spending cut in real terms.   But the problem is that at least 20 conservative Republicans of the House rejected Kevin McCarthy's compromise on debt ceiling, saying that spending cuts are not enough. One hardcore Republican, Dan Bishop of North Carolina, threatened to vote to oust McCarthy because he 'capitulated' to Democrats. Democrats, on the other hand, are not fully happy either as they don't want to freeze or to cut spending.     This is what a compromise is: accepting something without being fully satisfied to avoid a self-induced world economic crisis!    Anyway, any misstep at today's House vote could send the US yields higher and stocks lower.     So far, there has been a widening gap between the way the stock and bond markets priced the threat of a US government default. While the US sovereign bonds cheapened across the board, and violently at the short end, stock investors were confident that a ceiling deal would be reached and weren't discouraged by the rising US yields to stop buying.     And even the fact that the Federal Reserve's (Fed) hawkish stance has a material impact on yields' upside trajectory since the bank-stress dip, stock markets kept on climbing. Looking at how Nasdaq behaved since the bank stress rebound in yields, you could barely guess that there are rate-sensitive stocks in it.    But the reality check is that Nasdaq stocks are rate sensitive, and cannot be rate-hike proof if the Fed continues hiking the rates. It would, however, also be a good thing for the Fed members to consider pulling some liquidity out of the market as the Fed's balance sheet is still worth more than before the bank crisis.    What if Russia refuses to cut output?  In energy, US crude tanked nearly 5% yesterday, and tipped a toe below the $69 pb mark on worries that Russia may not follow OPEC's output cuts, in which case the internal conflict may prevent the cartel from reducing supply in a way to give a jolt to oil prices.   There is little chance that we see the kind of discord like back in 2020, as the Ukrainian war strengthen the ties between two allies. But any Russian veto could materially reduce OPEC's power of hit on oil prices.    Elsewhere, the Chinese manufacturing PMI showed that contraction in activity accelerated in May instead of stepping back to the expansion zone. The faster Chinese manufacturing contraction also weighs on the sentiment this morning.     We shouldn't expect China to post growth numbers comparable to levels pre-2020 because China under Xi Jinping's rule is willing to avoid euphoric, and unhealthy growth.   This is why the government put in place severe crackdown measures on real estate, tech and education. That does not mean that China won't get back in shape, but recovery will likely take longer, and growth will likely be more reasonable and a better reflection of the reality of the field.    
US Inflation Eases, Fed Holds Rates; BoE Faces Dilemma Amid Strong Jobs Data; China Implements Stimulus Measures

US Inflation Eases, Fed Holds Rates; BoE Faces Dilemma Amid Strong Jobs Data; China Implements Stimulus Measures

Ipek Ozkardeskaya Ipek Ozkardeskaya 14.06.2023 08:32
US inflation data gave investors a good reason to cheer up yesterday. The headline number fell more than expected to 4%, and core inflation met analysts' expectations at 5.3%. The biggest takeaway from yesterday's CPI report was, again, that easing in inflation was mostly driven by cooling energy prices, but shelter costs remained sticky – up by more than 8% on a yearly basis.   Yet because these shelter costs represent more than 40% of the core CPI, and private sector data is pointing at cooling housing costs, investors didn't see the sticky core inflation as a major issue. The producer price inflation data is due today, before the Federal Reserve's (Fed) policy decision, but the latter will unlikely change expectations for today's announcement. A softer-than-expected PPI number – due to soft energy and raw material prices, could, on the contrary, further soften the Fed hawks' hand.     In numbers, the expectation of a no rate hike at today's decision jumped past 90%, while the expectation of a no rate hike in July meeting rose from below 30% to above 35%. The S&P500 extended its advance to 4375, while Nasdaq 100 rallied past the 14900 level. Small companies followed suit, with Russell 2000 jumping to the highest levels since the mini banking crisis.     Tough accompanying talk?  The Fed's decision for today is considered as done and dusted with a no rate hike. But the chances are that Fed Chair Jerome Powell will sound sufficiently hawkish to let investors know that the war is not won just yet, because 1. Core inflation remains well above the Fed's 2% target, 2. US jobs market remains too strong to call victory on inflation, and 3. Equity valuations point at an overly optimistic market, at the current levels, the S&P500 trades at around 18 times its earnings forecast over the next year, and these levels are typically associated with times of healthy economic growth and rising corporate profits. But we are now in a period of looming recession odds, and falling profits.     Ouch, BoE!  Yesterday's jobs data in Britain printed blowout figures for April and May. The employment change rocketed to 250K in April, while the expectation was a fall from 180K to 150K. The unemployment rate unexpectedly dropped to 3.8%, and average earnings excluding bonus rose from 6.8% to 7.2%. Then, the jobless claims fell by more than 13K – while analysts expected a surge of more than 20K – hinting that the British job market will likely print solid figures for May as well.     While these are excellent news for Brits who could at least see their purchasing power partly resist to the terrible cost-of-living crisis – where eggs, milk and bread for example saw their prices rise by a whooping 30-and-something per cent, it makes the end of the BoE tightening look impossible for now.     The market prices in another 125bp hike this year, which will take the British policy rate to 5.75%, and there is around 20% chance for an additional 25bp by February next year.     And all this in a market where mortgage rates rise unbearably, and house prices tumble. The 2-year gilt yield took a lift yesterday and is preparing to flirt with the 5% mark. We are now at levels above the mini-budget crisis of Liz Truss, while the spread with the 10-year yield is widening, suggesting that the UK economy will hardly come out of this unharmed. On top, the FTSE 100 index has fallen well behind the rally recorded by the US and European stocks this month because of falling energy and commodity prices due to a disappointing Chinese growth. The only good news for the Brits is that the pound is being boosted by hawkish BoE expectations. Cable rallied past the 1.26 level and is slowly drilling above a long-term downtrending channel top. The trend and momentum indicators remain tilted to the upside, and the divergence between the Fed – preparing to call the end of its tightening cycle sometime in the coming meetings, and the BoE – which has no choice but to keep raising rates – remains supportive of further gains in Cable. We could see the pair regain the 1.30 level, last seen back in April 2022.      China cuts.  The People's Bank of China (PBoC) lowered its 7-day reverse repurchase rate by 10bp to 1.9% yesterday, a week after asking the state-run banks to lower their deposit rates. These are signals that the PBoC is preparing to lower its one-year loan rate tomorrow to give a jolt to its economy that has been unable to gather a healthy growth momentum after Covid measures were relaxed by the end of last year.     Copper futures jumped above their 200-DMA yesterday, though they remain comfortably within a broad downtrending channel building since the second half of January, while US crude rebounded from a two-week low yesterday but remains comfortably below its 50-DMA.     Final word.  Because the rally in tech stocks now looks overstretched and China is getting serious about boosting growth, we will likely start seeing investors take profit on their Long Big Tech positions and return to energy and mining sector to catch the next train which could be the one that leads to profits on an eventual Chinese reopening.   
Understanding the Bank of England's Approach to Interest Rates Amidst Heightened Expectations: A Balancing Act with Inflation and Market Pressures

Fed's Rate Hike Guessing Game: Managing Market Expectations. Inflation Concerns and Tightening Credit Conditions: Fed's Decision and Market Reaction

Ipek Ozkardeskaya Ipek Ozkardeskaya 15.06.2023 08:52
The Federal Reserve (Fed) refrained from raising interest rates at this week's monetary policy meeting. Yet the median forecast on the Fed's dot plot suggested that there could be two more rate hikes before the end of this year. That came as a slap on the face of those expecting a rate cut by the end of the year, even though, I think that the doves haven't said their last word just yet. The credit conditions in the US are tightening, inflation is falling. Yesterday's PPI data revealed a faster than expected contraction in producer prices in May, while both headline and core CPI figures continued to ease over the same month.    Why, on earth, has the Fed started playing a guessing game, instead of hiking the rates right away?   It is because the US policymakers know that the idea of a 25bp hike - or two 25bp hikes - is more powerful than a 25bp hike itself, as future rate hikes are more effective in managing market expectations. The market is keen to go back to pricing the end of rate hikes - and rate cuts - when they know that the Fed is coming toward the end of the tightening cycle. To avoid that end-of-tunnel enthusiasm from jeopardizing tightening efforts, the Fed keeps the tightening suspense alive, without however acting on the rates. If all goes well - if inflation continues easing, and tighter financial conditions begin weighing on US jobs market - the Fed will have the option to step back and simply... not hike.  But for now, 'nearly all policymakers' remain concerned with the moderate cooling in core inflation, and they don't see inflation going below 3% this year.       Mild reaction  The US 2-year yield continues pushing higher, while enthusiasm at the long end of the yield curve is lesser, as higher rates increase recession odds. The S&P500 hit a fresh high since last year but closed almost flat. The US dollar rebounded off its 100-DMA, and the EURUSD rallied above its own 100-DMA and holds ground above the 1.08 mark this morning, into the widely watched European Central Bank (ECB) decision.    A hawkish ECB hike?  The ECB is broadly expected to hike the interest rates by 25bp when it meets today, and ECB chief Lagarde will likely sound hawkish at the press conference following the decision and insist that despite the recent easing in inflationary pressures – and perhaps the deteriorating economic outlook, the ECB will continue its efforts to fight.  Note that 500-billion-euro TLTROS will mature on June 28th and will pull a good amount of liquidity out of the market. While there is still around 4 trillion euros of excess liquidity in the financial system, the draining liquidity could cause anxiety among investors, especially if some European banks fail to find enough financing in the market to replace their TLTRO funding – a scenario which could sap investors' confidence and appetite in the coming weeks.     In this respect, Italian banks are under a close watch as they are behind their European pears in repaying their TLTRO and the funding through TLTROs are more than the excess cash its lenders parked with the ECB. That means that Italian banks must find money somewhere else – but where? – to repay their TLTROs.   I am not particularly worried about the stability of the European financial system, but I can hardly imagine European stocks extend rally in the environment of draining liquidity and rising rates. The Stoxx 600 index spiked above its 50-DMA yesterday, as a stronger euro may have reinforced appetite, yet European stocks will likely return to the 435-450 area.       China cuts.  In China, we have a completely different ambiance when it comes to inflation and monetary policy. The Chinese inflation remains flat and under pressure near 26-month lows, growth is not picking up the anticipated post-Covid momentum, and the People's Bank of China (PBoC) cut its one-year MLF rate by 10bp today, as broadly expected, to give a shake to the depressed Chinese economy. The problem is, there is now a talk that China could be entering a liquidity trap, meaning a period where lower rates fail to boost appetite and don't translate into faster growth.  
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Rising Rates and Stock Markets: Finding Comfort in Unconventional Pairings

Michael Hewson Michael Hewson 19.06.2023 09:44
Rising rates and rising stock markets aren't usually a combination that sits comfortably with a lot of investors but that's exactly what we saw last week, with European markets enjoying their best week in over 2 months, while US markets and the S&P500 enjoying its best week since March.     One of the reasons behind this rebound is a belief that Chinese demand may well pick up as the authorities there implement stimulus measures to support their struggling economy.   There is also a belief that despite seeing the Federal Reserve deliver a hawkish pause to its rate hiking cycle and the ECB deliver another 25bps rate hike last week, that we are close to the peak when it comes to rate rises, even though there is a growing acceptance that interest rates aren't coming down any time soon.     We did have one notable outlier from last week and that was the Bank of Japan who left their current policy settings unchanged in the monetary policy equivalent of what could be described as sticking one's fingers in one's ears and shouting loudly, and pretending core inflation isn't already at 40-year highs.   This week, attention turns to the Swiss National Bank, as well as the Bank of England, who are both expected to follow in the ECB's footsteps and hike rates by 25bps.   The UK especially has a big inflation problem, with average wages up by 7.2% for the 3-months to April, the Bank of England, not for the first time, has allowed inflation expectations to get out of control. This was despite many warnings over the last 18-months that they were acting too slowly, even though they were the first central bank to start hiking rates.     We heard over the weekend from former Bank of England governor Mark Carney that this state of affairs wasn't surprising to him, and that Brexit was partly to blame for the UK's high inflation rate and that he was proved correct when he warned of the long-term effects back in 2016.   Aside from the fact that UK inflation is not that much higher than its European peers, Carney's intervention is a helpful reminder of what a poor job he did as Bank of England governor. At the time he warned of an economic apocalypse warning that growth would collapse and unemployment would soar, and yet here we are with a participation rate at near record levels, and an economy that isn't in recession, unlike Germany and the EU, which are.     The reality is that two huge supply shocks have hit the global economy, firstly Covid and then the Russian invasion of Ukraine, and that the UK's reliance on imported energy and lack of gas storage which has served to magnify the shock on the UK economy.   That would have happened with or without Brexit and to pretend otherwise is nonsense on stilts. If anything is to blame it is decades of poor energy policy and economic planning by successive and existing UK governments. UK inflation is also taking longer to come down due to the residual effects of the energy price cap, another misguided, and ultimately costly government policy.   Carney is probably correct about one thing, and that is interest rates are unlikely to come down any time soon, and could stay at current levels for years.   This week is likely to be a big week for the pound, currently at 14-month highs against the US dollar, with markets pricing in the prospect of another 100bps of rate hikes. UK 2-year gilt yields are already above their October peaks and at 15-year highs, although 5- and 10-year yields aren't.     This feels like an overreaction and while many UK mortgage holders are looking at UK rates with trepidation, this comes across as overpriced. It seems highly likely we will get one rate rise this week and perhaps another in August, but beyond another 50bps seems a stretch and would be a surprise.        With some US markets closed for the Juneteenth public holiday, today's European session is likely to be a quiet one, with a modestly negative open after US markets finished the end of a positive week, with their first daily decline in six days.       EUR/USD – pushed up to the 1.0970 area last week having broken above the 50-day SMA at 1.0880. We now look set for a move towards the April highs at the 1.1095 area. Support comes in at the 50-day SMA between the 1.0870/80 area.     GBP/USD – broken above previous highs this year at 1.2680 last week as well as moving above the 1.2760a area which is 61.8% retracement of the 1.4250/1.0344 down move. This puts us on course for a move towards the 1.3000 area. We now have support at 1.2630.      EUR/GBP – broken below the 0.8530/40 area negating the key reversal day last week and opening up the risk of further losses towards the 0.8350 area. Initial support at the 0.8470/80 area. Resistance at 0.8620.     USD/JPY – continues to push higher and on towards the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Support now comes in at 140.20/30      FTSE100 is expected to open 35 points lower at 7,608     DAX is expected to open 92 points lower at 16,265     CAC40 is expected to open 34 points lower at 7,354   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
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Rising Rates and Stock Markets: Finding Comfort in Unconventional Pairings - 19.06.2023

Michael Hewson Michael Hewson 19.06.2023 09:44
Rising rates and rising stock markets aren't usually a combination that sits comfortably with a lot of investors but that's exactly what we saw last week, with European markets enjoying their best week in over 2 months, while US markets and the S&P500 enjoying its best week since March.     One of the reasons behind this rebound is a belief that Chinese demand may well pick up as the authorities there implement stimulus measures to support their struggling economy.   There is also a belief that despite seeing the Federal Reserve deliver a hawkish pause to its rate hiking cycle and the ECB deliver another 25bps rate hike last week, that we are close to the peak when it comes to rate rises, even though there is a growing acceptance that interest rates aren't coming down any time soon.     We did have one notable outlier from last week and that was the Bank of Japan who left their current policy settings unchanged in the monetary policy equivalent of what could be described as sticking one's fingers in one's ears and shouting loudly, and pretending core inflation isn't already at 40-year highs.   This week, attention turns to the Swiss National Bank, as well as the Bank of England, who are both expected to follow in the ECB's footsteps and hike rates by 25bps.   The UK especially has a big inflation problem, with average wages up by 7.2% for the 3-months to April, the Bank of England, not for the first time, has allowed inflation expectations to get out of control. This was despite many warnings over the last 18-months that they were acting too slowly, even though they were the first central bank to start hiking rates.     We heard over the weekend from former Bank of England governor Mark Carney that this state of affairs wasn't surprising to him, and that Brexit was partly to blame for the UK's high inflation rate and that he was proved correct when he warned of the long-term effects back in 2016.   Aside from the fact that UK inflation is not that much higher than its European peers, Carney's intervention is a helpful reminder of what a poor job he did as Bank of England governor. At the time he warned of an economic apocalypse warning that growth would collapse and unemployment would soar, and yet here we are with a participation rate at near record levels, and an economy that isn't in recession, unlike Germany and the EU, which are.     The reality is that two huge supply shocks have hit the global economy, firstly Covid and then the Russian invasion of Ukraine, and that the UK's reliance on imported energy and lack of gas storage which has served to magnify the shock on the UK economy.   That would have happened with or without Brexit and to pretend otherwise is nonsense on stilts. If anything is to blame it is decades of poor energy policy and economic planning by successive and existing UK governments. UK inflation is also taking longer to come down due to the residual effects of the energy price cap, another misguided, and ultimately costly government policy.   Carney is probably correct about one thing, and that is interest rates are unlikely to come down any time soon, and could stay at current levels for years.   This week is likely to be a big week for the pound, currently at 14-month highs against the US dollar, with markets pricing in the prospect of another 100bps of rate hikes. UK 2-year gilt yields are already above their October peaks and at 15-year highs, although 5- and 10-year yields aren't.     This feels like an overreaction and while many UK mortgage holders are looking at UK rates with trepidation, this comes across as overpriced. It seems highly likely we will get one rate rise this week and perhaps another in August, but beyond another 50bps seems a stretch and would be a surprise.        With some US markets closed for the Juneteenth public holiday, today's European session is likely to be a quiet one, with a modestly negative open after US markets finished the end of a positive week, with their first daily decline in six days.       EUR/USD – pushed up to the 1.0970 area last week having broken above the 50-day SMA at 1.0880. We now look set for a move towards the April highs at the 1.1095 area. Support comes in at the 50-day SMA between the 1.0870/80 area.     GBP/USD – broken above previous highs this year at 1.2680 last week as well as moving above the 1.2760a area which is 61.8% retracement of the 1.4250/1.0344 down move. This puts us on course for a move towards the 1.3000 area. We now have support at 1.2630.      EUR/GBP – broken below the 0.8530/40 area negating the key reversal day last week and opening up the risk of further losses towards the 0.8350 area. Initial support at the 0.8470/80 area. Resistance at 0.8620.     USD/JPY – continues to push higher and on towards the next resistance at 142.50 which is 61.8% retracement of the 151.95/127.20 down move. Support now comes in at 140.20/30      FTSE100 is expected to open 35 points lower at 7,608     DAX is expected to open 92 points lower at 16,265     CAC40 is expected to open 34 points lower at 7,354   By Michael Hewson (Chief Market Analyst at CMC Markets UK)  
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Geopolitical Talks and Fed Uncertainty: Market Updates and Expectations for Rate Hikes

Ipek Ozkardeskaya Ipek Ozkardeskaya 19.06.2023 09:45
The week kicks off on positive geopolitical vibes as the weekend talks between the US and China went well, and more senior level talks, including Xi Jinping are expected in the next few hours.  Despite this, Asian indices remained mostly sold on Monday, while US futures traded in the negative. It's certainly because last week was a bit confusing in terms of where the Federal Reserve (Fed) is headed to, after the dot plot showed two more possible rate hikes before the year ends, versus a final rate hike expected in July.   Activity on Fed funds futures gives more than 70% for a July hike, and more than 75% for a September hike on fear that inflation wouldn't slow as much as expected, and that the US jobs market will remain too robust to call the end of the US rate hikes. Fed Chair Powell will testify before the Senate this week and will certainly stick to the Fed's hawkish stance.      The S&P500 and Nasdaq both fell on Friday, but the S&P500 ended last week having gained 2.6%. It was the 5th straight week of gains for the S&P500, while Nasdaq closed the week 3.3% higher than where it had started. Both indices are now at the highest levels since last spring, and both are in overbought territory. Volatility continues fading, while any investors questions whether this is the calm before storm.   On good thing is that the Fed's reverse repo operations are trending lower, as a result of a flood of US bond issuance following the debt ceiling agreement and keep market liquidity sustained for equities.   But the US 2-year yield is headed toward the 5% mark – which is negative for equity valuations, whereas upside potential remains contained at the long end of the curve. And the widening spread means that bond investors continue pricing in recession in the foreseeable future, which is, in theory, negative for equity valuations as well.   Big Tech is responsible for around 80% of the gains in the S&P500 this year due to the AI-rally, but Russell 2000 gives signs of willingness of joining the rally as well. And because there is nothing much encouraging happening on the Fed end, the overall direction of the market, and market mood, will depend on the performance of the Big Tech. And they are now in the overbought market.       Soft dollar  The US dollar trades below its 50-DMA, as other central banks are as aggressive as the Fed – if not more! The Bundesbank President Nagel for example hinted that the ECB hikes could extend into autumn and may persist beyond September if core inflation doesn't slow persistently. The EURUSD is back on track for further gains and will likely continue pushing into the 1.10 psychological mark. Price pullbacks are interesting opportunities to strengthen long positions for a further rise toward the 1.12 mark.      Across the Channel, Cable consolidates above the 1.28 mark ahead of the next inflation update, due Wednesday and the next Bank of England (BoE) decision due Thursday. Inflation in Britain is expected to have eased from 8.7% to 8.4%, but the BoE – which has been telling us since a while that these numbers would get smashed by the H2, is now questioning their inflation forecast model – as a clear sign that even they don't believe that inflation will take the direction their model says it will. The BoE expectations remain comfortably hawkish, with another 125bp hike priced in before the end of this year. The latter could help push Cable toward the 1.30 mark.    In Switzerland, the Swiss National Bank (SNB) is also preparing to hike the rates by 25bp this week to follow the European peers, while in Turkey, the central bank, with its new leadership, is expected to hike the one-week repo rate from 8.5% to 20% in an effort to normalize the monetary policy that has been put to coma since around two years. Normalization will be painful, both for the economy and the lira, and the dollar-TRY will be left to float free from time to time to test the strength of the negative pressure from the market. The USDTRY remains – is kept - steady around the 23 mark, while the upside is the only direction that the pair could take even despite a monstrous rate hike that will hit the fan this week.  
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The Resilience of Equities and Bond Correlation: Fed Testimony, Inflation Pressures, and Housing Market Surprises

Ipek Ozkardeskaya Ipek Ozkardeskaya 21.06.2023 08:33
Risk takers are not out dancing on the Wall Street this week before the Federal Reserve (Fed) President Powell's semiannual congressional testimony scheduled for today and tomorrow. Equities are down, oil is down, sovereign bonds are up. And the rally in equities versus a selloff in sovereign bonds is a pattern that we have been seeing since the rebound following the mini banking crisis, and the correlation between stocks and sovereign bonds are reestablished, again, after last year's visit to the positive territory.   This – the return of negative equity-bond correlation - is what we expected to happen this year, but for the exact opposite reason. We were expecting the sovereign bonds to recover, as the US was supposed to be in recession by now, whereas the sovereign bonds were supposed to find buyers as a result of softening, and even reversing Fed policy. But none of it happened. Equities rallied, the Fed became more aggressive on tightening its monetary policy, and now the American housing market starts printing surprisingly positive data, with housing starts and building permits flashing strong figures for May, defying the rising mortgage rates in the US due to the rising Fed rates. I mean housing starts jumped more than 20% in May, but loans for residential real estate slumped. We no longer know what to do with this data, and that's a cause for concern per se... not understanding the data.     What we know and understand very well, however, is, a strong housing market and tight jobs market will encourage Fed to hike more, and encourage other central banks to do more, as well. But not everyone is as lucky as Powell, because in Britain, the skyrocketing mortgage rates are turning into a serious headache that no one can solve for now. The UK home-loan approvals have been dropping after a post-pandemic peak, the refinancing costs took a lift, and political dispute is gaining momentum with Liberal Democrats asking for a £3 billion mortgage protection package to help people keep their homes, and their mortgages, while Jeremy Hunt says there is no money in the coffers for such fiscal support. The 2-year gilt yield slid below 5% yesterday, as a result of a broad-based flight to safer sovereign bonds, but the relief will likely remain short-lived and the outlook for Gilt market will likely remain negative with further, and significant rate hikes seen on the BoE's horizon.   Released this morning, the British inflation was expected to ease from 8.7% to 8.4% but did not ease... while core inflation unexpectedly jumped past the 7% mark again. These numbers warn that inflationary pressures in the UK are not under control and call for further rate hikes which will further squeeze the British households, without a guarantee of easing inflation. We will see what the BoE will do and say tomorrow, but we know that they now have a few doubts regarding the reliability of their inflation model which was pointing at a steep fall in H2 this year – a scenario that is unlikely to happen.   Cable jumped past the 1.28 mark following the inflation data, then rapidly fell back to the pre-data levels. The short-term direction will depend on a broad US dollar appetite, yet the medium-term outlook for the pound-dollar remains positive on the back of more hawkish BoE expectations, compared to the Fed's, and an advance toward the 1.30 is well possible, especially if the dollar appetite remains soft.     In the US, profit taking and flight to safety before Powell's testimony sent the S&P500 and Nasdaq stocks lower yesterday. The S&P500 slipped below the 4400 mark, while Nasdaq 100 tipped a toe below the 15000 mark but closed above this level.    The US dollar index traded higher for the 3rd session and is now testing the 50-DMA to the upside, while gold pushed below the 100-DMA as rising US yields and stronger dollar weigh on appetite for non-interest-bearing gold.    Yet, any hawkishness from Powell's testimony will likely be tempered by counter-expectation that the Fed may be going too fast too far, and could stop hiking before materializing the two rate hikes they revealed last week in their dot plot. It's true that the surprising data on housing and jobs front don't give a respite to the Fed, but a part of it is still believed to be the post-pandemic effect. For housing for example, insufficient number of homes due to the rising WFH demand, the retreat in material costs that exploded during the pandemic and the fading supply chain pressures help to explain why the market is not responding to the skyrocketing mortgage rates.   But the risk is there – it's not even hidden, and the meltdowns tend to happen without telling.   I mean, no one could tell that the US regional banks would go bankrupt a week before they did! Anyway, the risks are there, but the resilient eco data hints that Jerome Powell will confidently remain hawkish, and that could lead to some further downside correction in US big stocks which are now in overbought market. 
Bank of England Confronts Troubling Inflation Report; Fed Chair Powell's Testimony Echoes Expected Path

Bank of England Confronts Troubling Inflation Report; Fed Chair Powell's Testimony Echoes Expected Path

Ipek Ozkardeskaya Ipek Ozkardeskaya 22.06.2023 08:07
BoE decides after another bad inflation report.     Federal Reserve (Fed) Chair Powell didn't say anything we didn't know, or we wouldn't expect in the first day of his semiannual testimony before the American lawmakers yesterday. He said that the Fed will continue hiking rates, but because they are getting closer to the destination, it's normal to slow down the pace. He repeated that two more hikes are a good guess, and that the economy will suffer a period of tight credit conditions, below-average growth, and higher unemployment to return to lower inflation.   The US 2-year yield pushed higher. The 10-year yield was flat given that higher short term yields point at higher recession odds for the long term. The gap between the 2 and the 10-year yield is again at 100bp.  In equities, the S&P500 gave back some field, but not all sectors suffered. Tech stocks pulled the index lower, financials and real estate were down, but energy stocks led gains as US crude jumped past $72pb on news that the US inventories dipped by around 1.2 mio barrel last week. Industrial, materials and utilities were up, as well, as a sign that a rotation toward the laggards could be happening rather than a broad-based moody selloff.  In currencies, the US dollar fell and is now testing the April-to-date ascending base - not because the Fed's Powell sounded more dovish, but because what's happening beyond the US borders makes the Fed look more dovish than what it really is.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank
The cost of green steel production compared to conventional steel

Market Reaction and Potential Implications: Wagner Group's Rebellion, Inflation Reports, and Central Bank Policies

Ipek Ozkardeskaya Ipek Ozkardeskaya 26.06.2023 08:06
Slow start following an eventful weekend.    The weekend was eventful with the unexpected rebellion of the Wagner Group against the Kremlin. Yevgeny Prigozhin's men, who fight for Putin in the deadliest battles in Ukraine walked towards Moscow this weekend as Prigozhin accused the Kremlin of not providing enough arms to his troops. But suddenly, Prigozhin called off the attack following an agreement brokered by Belarus and agreed to go into exile. The Kremlin took back control of the situation, but we haven't seen Vladimit Putin, or Prigozhin talk since then. The Wagner incident may have exposed Putin's weakness, and was the most serious threat to his rule in two decades. It could be a turning point in the war in Ukraine. But nothing is more unsure. According to Volodymyr Zelensky, there are no indications that Wagner fighters are retreating from the battlefield.  The first reaction of the financial markets to Wagner's mini coup was relatively calm. Gold for example, which is a good indication of market stress at this kind of moment, remained flat, and even sold into the $1930 level. The dollar-swissy moved little near the 90 cents level. Crude oil was offered into the $70pb level, as nat gas futures jumped more than 2% at the weekly open, and specific stocks like United Co. Rusal International, a Russian aluminum producer that trades in Hong Kong, gapped lower at the open but recovered losses.  Equities in Asia were mostly under pressure from last week's selloff in the US, while US futures ticked higher and are slightly positive at the time of writing.    The Wagner incident will likely remain broadly ignored by investors, unless there are fresh developments that could change the course of the war in Ukraine. Until then, markets will be back to business as usual. There is nothing much on today's economic calendar, but the rest of the week will be busy with a series of inflation reports from Canada, Australia, Europe, the US, and Japan.     Except for Japan, where the Bank of Japan (BoJ) doesn't seem urged to hike the rates, higher-than-expected inflation figures could further fuel the hawkish central bank expectations and add to the weakening appetite in risk assets.     The Federal Reserve (Fed) will carry its annual bank stress test this week, to see how many more rate hikes the baking sector could take in and the potential for changes in capital requirements down the road. The big banks are likely not very vulnerable to higher capital requirements, yet the profitability of the US regional banks could be at jeopardy and that could cause investors to remain skeptical regarding the US banking stocks altogether. Invesco's KBW bank ETF slipped below its 50-DMA, following recovery in May on the back of decidedly aggressive Fed to continue hiking rates, and stricter requirements could further weigh on appetite.    Zooming out, the S&P500 is down by more than 2% since this month's peak, Nasdaq 100 lost more than 3% while Europe's Stoxx 600 dipped 3.70% between mid-June and now on the back of growing signs that the aggressive central bank rate hikes are finally slowing economic activity around the world. A series of PMI data released last Friday showed that activity in euro area's biggest economies fell to a 5-month low as manufacturing contracted faster and services grew slower than expected. The EURUSD tipped a toe below its 50-DMA last Friday but found buyers below this level. Weak data weakens the European Central Bank (ECB) expectations, but that could easily reverse with a strong inflation read given that the ECB is ready to induce more pain on the Eurozone economy to fight inflation.     Across the Channel, the picture isn't necessarily better. Both services and manufacturing came in softer than expected. And despite the positive surprise on the retail sales front, retail sales in Britain slumped more than 2% in May, due to the rising cost of living that led the Brits back from loosening their purse string. One thing though. UK's largest lenders agreed to give borrowers a 12-month grace period if they missed their mortgage payments as a result of whopping costs of keeping their mortgages due to the aggressively rising interest rates. Unless an accident – in real estate for example, the Bank of England (BoE) will continue hiking the rates and reach a peak rate of 6.25% by December.   The only way to slow down the pace of hikes is to find a solution to the sticky inflation problem. And because the BoE has limited influence on prices, Jeremy Hunt will meet industry regulatory this week to discuss how they could prevent companies from taking advantage of inflation and raising prices more than needed, which adds to inflationary pressures through what we call 'greeflation'. But until he finds a solution, the BoE has no choice but to keep hiking and the UK's 2-year gilt yield has further to run higher, whereas the widening gap between the 2 and 10-year yield hints at growing odds of recession in the UK, which should also prevent the pound from gaining strength on the back of hawkish BoE. Cable will more likely end up going back to 1.25, than extending gains to 1.30.       By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
USD/JPY Weekly Review: Strong Dollar and Yen's Resilience in G10 Currencies

Fed rate cuts fade, stock markets slide: A closer look at market reactions

Ipek Ozkardeskaya Ipek Ozkardeskaya 27.06.2023 10:44
Investors finally believe the Fed Financial markets kicked off the week on a weak note, but not because of the Wagner's mini, failed, or fake coup over the weekend, but because of the diminishing rate cut bets for the Federal Reserve (Fed) for this year - and the beginning of next year.   Activity on Fed funds futures gives more than 75% chance for another 25bp hike in July, and there is expectation for one more rate hike after that. A set of soft data could do the magic of bad news is good news, and that investors could gently return to longer-term quality bonds, as despite what the Fed says, the end of tightening is certainly near. We saw a heavy slump in open interest in US government bonds as a result of waning dovish bets, but we also see the US 2-year yield slump below a two-month rising trend this morning, as the 10-year yield remains paralyzed a touch below the 3.75% level. The dollar index hardly challenges the 50-100-DMA area, and the stock markets are down, with the S&P500 steadily giving back gains, while MAMAA stocks are seen most vulnerable to a further downside correction due to the recent AI-led rally. Nvidia for example lost almost 4% yesterday, while Tesla fell more than 6%. Small caps, on the other hand, were better bid this Monday, as a sign of a portfolio rebalancing effect before the quarter ends. In this respect, the Russell 2000 index saw support and traded above its 100-DMA despite a broad-basedselloff in big caps, and especially in Big Techs.      The softer US dollar maintains the EURUSD above the 50-DMA, near 1.0875. News from Germany were less than ideal yesterday. The German business climate and expectations deteriorated faster than expected in June, but the Spanish producer prices fell nearly 7% versus a steady deceleration of 4.5% expected by analysts. Slower inflation is the only way to soften the European Central Bank (ECB) rate hike expectations. The Italian PPI, due Wednesday, is expected to print a nearly 10% slump y-o-y in May, and more than 6% slump just in May.   Today, US durable goods orders and house prices will be under close watch while Canada will release the latest set of CPI data. Both headline and core inflation are expected to slow, as a result of continued policy efforts to bring price pressures lower. The dollar-CAD drifts lower, due to a hawkish Bank of Canada (BoC) stance and despite selling pressure in crude oil. The pair is now at the lowest levels since September and is preparing to test the 1.30 support shortly.   Speaking of oil, the barrel of US crude remains steady at around the $70pb level, bulls don't want to join in given the hawkish central bank stances and rising recession odds, while bears are not willing to push hard, as the geopolitical uncertainties maintain a high level of upside risks.   OPEC lately claimed that the global oil demand would rise to 110 mio barrels per day, with a 23% rise in overall energy demand expected by 2045. That goes perpendicularly against the IEA forecast of higher short-term demand but waning long term demand for oil because of energy transition to greener sources. You believe who you want to believe but the higher the traditional, dirty energy prices, the faster the transition will be.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
Assessing China's Economic Challenges: A Closer Look Beyond the Japanification Hypothesis"

Strong Economic Data and Soft Inflation Boost Market Sentiment

Ipek Ozkardeskaya Ipek Ozkardeskaya 28.06.2023 08:12
Strong data and soft inflation boost appetite US stocks shrugged off the early week pessimism on the back as of a set of strong economic data released yesterday.   The durable goods orders rose – along with strong jobs data, this is a sign that the US businesses are not in cash-saving mode, Richmond manufacturing index fell less than expected, house prices recovered and house sales beat expectations – in line with the rest of the strong data from US housing market over the past few weeks. US consumer confidence jumped more than expected in June, to the highest level since the beginning of last year.     We would've normally expected sentiment to be dampened by strong data because of more hawkish Federal Reserve (Fed) expectations, but the S&P500 jumped more than 1%, Nasdaq rallied almost 2%, while the Russell 2000 advanced around 1.5%.      Easing inflation is maybe why stock investors are happy with strong data The Australian inflation fell to a 13-month low, and the Canadian inflation fell more than expected, in a sign that the central bank efforts to pull prices lower is paying off. The AUDUSD was sharply sold below its 50-DMA which stands near the 0.6680 level, while the USDCAD rebounded off a fresh low since September on the back of soft inflation and a 2% fall in crude oil prices.   Across the Atlantic Ocean, some encouraging news came in regarding inflation, as well. The British shop prices dipped to 8.4% this month, down from 9% recorded in May. That was the sharpest decline in prices since the end of 2021 – when prices took a lift, and it was not thanks to the Bank if England (BoE) hikes, but it was because Tesco, Sainsbury's, Asda and Morrisons were asked to 'behave' in their pricing to prevent them from passing the higher costs, and higher wages on to their clients more than necessary. So, it is possible that Jeremy Hunt rolling up his sleeves would be more effective to bring inflation down than any BoE hike at this stage.   The good news for the Brits is that, Rishi Sunak and Jeremy Hunt have all the motivation in the world to bring inflation down if they don't want to be minced at next year's election. The bad news is that, if they don't achieve fast results, they will still be minced because the BoE will continue hiking rates and that will leave millions of households facing an enormous rise in their housing costs.   And the Bank for International Settlements, known as the central bank of the central banks, warned that the final stretch of the monetary tightening will likely be the toughest, with some 'surprises' on the way. Another banking crisis, real estate chaos, a financial crisis? We will see. Today, the Fed will reveal the result of its stress test for the banks. If they see no issue, they will keep pushing, until something breaks.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank
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Equities Defy Expectations: A Strong First Half for Stocks and Bond Market Struggles

Ipek Ozkardeskaya Ipek Ozkardeskaya 03.07.2023 09:30
The first half of the year ends on a positive note for equities and not so much for the bonds. This is the exact opposite of what was predicted. The bond markets were supposed to recover due to economic pains which should have led to a more dovish central bank landscape, while equities should have suffered due to the economic woes, slowing spending and recession. But no. Equities did well. Even though profits fell, they fell less than expected and more importantly, AI saved the day sending the Big Tech stocks to a nice bull market. Bonds on the other hand tumbled as US spending and growth remained resilient. The latter convinced the Federal Reserve (FeD) that it should keep hiking the interest rates. The spread between the US 2 and 10-year yield hit nearly 110bp, as an indication of recession in the coming months.  But last week's strong economic data released in the US, combined with Friday's softer-than-expected PCE figures supported, yet again, the idea of a soft landing and further fueled the rally in stocks. As such, the S&P500 hit a fresh year high at the last trading day of the first half and gained more than 17% so far this year, while Nasdaq 100 soared more than 40%! Apple hit $194 per share, and closed last week with a valuation above $3 trillion.   Of course, this incredible performance makes many investors wonder whether the equit rally could continue in the second half.     On the data dock  The Reserve Bank of Australia (RBA) is expected to keep its rate unchanged at this week's policy meeting, after being partly responsible of the latest hawkish spree in global central bank expectations when it raised rates unexpectedly the last time. A no action from the RBA could calm down the nerves this week. But for that, we must also see loosening in US jobs data. Due Friday, the US NFP is expected to print more than 220K nonfarm job additions in June, with steady wage growth of around 0.3% over the month. The best scenario for stock investors is a strong NFP read combined with softening wages growth.   In China, Caixin manufacturing index for China came in slightly better than expected, and slightly above the 50 threshold, though sentiment weakened to an 8 month low and new orders rose at a softer pace. China could recover in the H2 amid People's Bank of China's (PBoC) efforts to boost growth, but we won't get the growth bang that we were looking for. That means that we will probably bypass a dangerous long-lasting rally in energy and commodity prices, which could help central banks contain inflationary pressures with more success.   For now, oil prices remain mostly ranged despite OPEC's malicious efforts to boost them artificially. The barrel of crude jumped past the $70 level on the back of a broad-based risk rally following the US softer than expected PCE read, which fueled some dovish central bank expectations. The Chinese data also give some support this morning, but the 50-DMA, near $71.30pb will likely act as a solid resistance. This week, risks remain tilted to the upside, as OPEC meets with the industry heads. This week's meeting is not a policy meeting so there won't be any production cuts, or any important decision from OPEC, but what we could well hear slowing demand forecasts, which would then bring traders to assess another production cut from OPEC down the road. In all cases, we have seen clearly that cutting production hasn't been enough for a sustained price rally so far. Therefore, any rally triggered by comments could be interesting top selling opportunities for short-term traders.   Tesla delivered a record number of cars worldwide in Q2, something like 466K cars, as Elon Musk is up to aggressively cutting prices to boost volume. It looks like it is paying off. The latest figures will likely keep Tesla shares on a positive path to challenge the $280 level again. But competition is not far. The Chinese BYD did better than Tesla, selling more than 700K cars last quarter, its best-ever quarter as well. BYD shares jumped 2.70% in Hong Kong.   
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US crude surges above 50-DMA as Fed minutes reveal hawkish stance

Ipek Ozkardeskaya Ipek Ozkardeskaya 06.07.2023 08:18
US crude jumps above 50-DMA  Minutes from the Federal Reserve's (Fed) latest policy meeting were more hawkish than expected. The minutes revealed that some officials preferred another 25bp hike right away instead of a pause. Almost all of them said that additional hiking would likely be appropriate, and the forecasts showed that they also expect mild recession.     The minutes came to confirm how serious the Fed is in further tightening monetary conditions, and boosted the Fed hike expectations. The US 2-year yield came very close to 5%, the stocks fell, but very slightly. The S&P500 closed the session just 0.20% lower, while Nasdaq 100 gave back only 0.03%. The US dollar gained however, the EURUSD slipped below its 50-DMA, as the Eurozone services PMI fell short of expectations. The June number still hinted at expansion, but the composite PMI slipped into the contraction zone for the first time since January, hinting that activity in Eurozone is slowing because of tightening monetary conditions in the Eurozone as well. On the inflation front, the producer prices fell 1.5% y-o-y in May, the first ever deflation since February 2021. The expectation for the 12-month inflation in EZ fell to 3.9% in May. It's still twice the ECB's 2% policy target, but it's coming down slowly. And the trajectory is certainly more important than the number itself.     Moving forward, further opinion divergence will likely appear along with softening data, but the ECB will continue hiking the rates because officials will be too afraid to stop hiking too early. And as the economic picture worsens, the credit conditions become tighter, the cheap loans dry up and the post-pandemic positivity on peripheral countries fade, we will likely see the yield spread between the core and periphery widen. And the latter could have a negative impact on the single currency's positive trajectory against the US dollar.     Due today, the ADP report is expected to reveal that the US economy added around 228K new private jobs in June, while the JOLTS is expected to have slipped below 10 mio job openings in May.      By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
Strong Jobs Data Spurs Fed Rate Hike Expectations, Pressures Equities

Strong Jobs Data Spurs Fed Rate Hike Expectations, Pressures Equities

Ipek Ozkardeskaya Ipek Ozkardeskaya 07.07.2023 08:52
Jobs surprise.  497'000 is the number of private jobs that the US economy added last month. 497'000. The number of quits rose to 250'000. But happily, the job openings fell by almost half a million, and more importantly for the Federal Reserve (Fed) – who is fighting to abate inflation and not necessarily jobs, the sector that saw the biggest jobs gains – which is leisure and hospitality which accounted for more than 230'000 of the jobs added – also saw the sharpest decline in annual pay growth. The pay for this sector's workers grew 7.9% last year, down from 8.4% printed a month earlier. But that detail went a bit unheard, and under the shadow of the stunning 497'000 new jobs added. And the too-strong ADP report that, again, hinted at a too-resilient US jobs market to the Fed's very aggressive rate hikes, ended up further fueling the Fed rate hike expectations. The US 2-year yield spiked above 5%, and above the peak that we saw before the mini banking crisis hit the US in March, while the 10-year yield took a lift as well, and hit 4%, on indication that, recession doesn't look around the corner... at least if you follow the US jobs numbers.  So today, the official US jobs data could or could not confirm the strength in the ADP figures, but we are all prepared for another month of strong NFP data, and lower unemployment. If anything, we could see the wages growth slow. If that's the case, investors could still have a reason to see the glass half full and bet that the US economy could achieve the soft landing that it's hoping for.     Equities pressured.  The S&P500 and Nasdaq fell yesterday as the US yields spiked on expectation that the Fed won't stop hiking rates with such a strong jobs data, as such a strong jobs market means resilient consumer spending, which in return means sticky inflation.   Other data confirmed the US' economy's good health as well. ISM services PMI showed faster-than-expected growth and faster-than-expected employment, and slower but higher-than-expected price growth in June. If we connect the dots, the US manufacturing is slowing but services continue to grow, and services account for around 80% of the US economic activity, so no wonder the US jobs data remains solid and consumer spending remains resilient, and the US GDP growth comes in better than expected, and we haven't seen that recession showing up its nose yet.   But the darker side of the story is, this much economic strength means sticky inflation, and tighter monetary conditions, and the dirty job of pricing it is done by the sovereign markets. And many investors think that when there is such a divergence of opinion between stock and bond traders, bond traders tend to be right.   But at the end of the day, the stock market's performance  will depend on how much pain the Fed will put on the Wall Street from the balance sheet reduction. If the Fed just continues hiking the rates and do little on the balance sheet front, it will only hit Main Street, and there will be no reason for the equity rally to stall. Voila.    By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
Eurozone PMIs Weigh on Euro as US Data Awaited

US Dollar Plunges: Implications for Global Markets

Ipek Ozkardeskaya Ipek Ozkardeskaya 13.07.2023 08:36
US dollar plunges  The selloff in the US dollar accelerates post-CPI, with the dollar index approaching the 100 level with big and steady steps. This is good news for inflation in the rest of the world, because the softer the US dollar, the softer the energy and raw material prices negotiated in terms of US dollars. In the same way the dollar appreciation fueled inflation globally, its depreciation could help ease it as well.   The EURUSD spiked to 1.1150, Cable advanced past the 1.30 level, while the dollar-yen extended losses below the 140 psychological mark. In precious metals, gold is thriving on the back of softer yields and the softer dollar. The price of an ounce rallied past $1960 and consolidates near $1955 at the time of writing.   In energy, oil bulls target the 200-DMA, that stands near the $77pb level, yet the $77/80 range will be hard to drill as the higher the energy the prices, the higher the inflation expectations, and the higher the inflation expectations, the tighter the Fed policy. The tighter the Fed policy, the stronger the odds of recession, and the stronger the odds of recession, the softer the global energy demand, and the softer the energy prices.        In equities, soft US inflation and decline in US yields pushed the S&P500 to a fresh high since April 2022. The index flirted with the 4500 level on expectation that the Fed will hike one more time and stop, and that the actual tightening cycle could very well end with a soft landing. Nasdaq 100, on the other hand, rallied to the highest levels since the beginning of last year. Meta for example jumped 3.70% on the back of inflation optimism and the news that its Threads platform is growing while dampening traffic on rival Twitter.  On a side note, because Nasdaq 100 is now over-concentrated in Mega Cap stocks, there will be a rebalancing in the weightings of the index. Nasdaq has a rule stating that the aggregate total of individual weights above 4.5% in the index shouldn't exceed 48% of the total weighting. And today, the Magnificent Seven is worth around 55% of Nasdaq 100. So, the changing weights could weigh on Nasdaq, as the best performing stocks will see their weight drawn down.    
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Global Markets React to Disinflationary Pressure as USD Weakens and Stocks Rally

ING Economics ING Economics 14.07.2023 08:24
Asia Morning Bites The RBA is to get a new Governor, Michelle Bullock, in September. In the US, James Bullard will step down from the St Louis Fed. More disinflationary pressure from June PPI data helps stocks to rally and the USD and US treasury yields to slide.   Global Macro and Markets Global markets:  Further disinflationary signs from US PPI data yesterday helped US Treasury yields to drop sharply. 2Y yields fell 11.6bp to 4.63%, while 10Y yields fell 9.4bp to 3.763%. This probably helped to spur further USD weakness. At 1.1224, it does really look as if the long-awaited USD turn has arrived. We haven’t seen levels like this since March 2022.  The AUD also made solid gains against the USD, rising to 0.6890. Cable too has surged, rising to 1.3131, and the JPY has plunged below 140 to 137.96. All Asian currencies were stronger against the USD yesterday, and it looks like a fair bet that this will be the theme in trading this morning. US stocks also seemed to like the additional disinflationary message from the PPI numbers. The NASDAQ rose 1.58% while the S&P500 rose 0.85%. Chinese stocks were also positive. The Hang Seng rose a very solid 2.6% while the CSI 300 rose 1.43%.   G-7 macro: US PPI rose just 0.1% MoM in June for both the headline and core measures. This resulted in a final demand PPI inflation rate of just 0.1%YoY, though the ex-food-and-energy PPI inflation rate was 2.4%YoY, down from 2.6% in the prior month. Initial jobless claims were a little lower though, so we shouldn’t get too carried away with the disinflationary theme.  Today, the US releases import and export price data, which should also indicate falling pipeline prices The University of Michigan confidence publication will also throw some light on inflation expectations, which are forecast to come down slightly on a 1Y horizon. There is May trade data out of the Eurozone. In Fed news, James Bullard, one of the FOMC hawks, and in this author’s view, one of the most thought-provoking and consensus-challenging members of the FOMC, is to step down to pursue a career in academia. Shame.  Meanwhile, Christopher Waller has said the Fed will need two more hikes to contain inflation because the negative impact of the banking turmoil earlier in the year has faded. Markets don’t agree.     Australia:  According to a Bloomberg article, the Reserve Bank of Australia’s Governor, Philip Lowe, will not be reappointed when his 7-year term ends on September 17. This may not come as a massive surprise following an independent review of the central bank, which criticized some of the RBA’s forward guidance on rates during Covid and the pace of the response to higher inflation. Lowe will be replaced by Michele Bullock, who is currently Deputy Governor.   China:  June FDI data is due anytime between now and 18 July. The last reading for May showed utilized FDI running almost flat from a year ago. Given the run of recent data, it is conceivable that we see a small negative number for June, indicating net FDI outflows.   India: Trade data took a sharply negative turn in May, and today’s June numbers, while likely to show exports still falling from a year ago, may have moderated slightly from the -10.3%YoY rate of decline in May. The trade deficit could shrink slightly from the May $22.12bn figure.     Singapore: 2Q GDP surprised on the upside and settled at 0.7%YoY compared to 1Q GDP growth of 0.4%YoY.  The Market consensus had estimated growth at 0.5%YoY. Compared to the previous quarter, GDP was up 0.3% after a 0.4% contraction in 1Q23. The upside surprise to growth may have been delivered by retail sales, with department store sales and recreational services supported by the return of visitor arrivals. Services industries as a whole expanded 3%YoY, much faster than the 1.8% gain reported in 1Q.  The rest of the economy, however, continues to face challenges with manufacturing down 7.5%YoY, tracking a similar downturn faced by non-oil domestic exports as global demand remains soft.    What to look out for: China FDI, India trade and US University of Michigan sentiment China FDI (14 July) Japan industrial production (14 July) India trade (14 July) US import prices and University of Michigan sentiment (14 July)
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US Dollar Faces Worst Weekly Decline Since November Amid Disinflation Concerns

Michael Hewson Michael Hewson 14.07.2023 08:26
US dollar set to post its worst weekly decline since November By Michael Hewson (Chief Market Analyst at CMC Markets UK)   If we could sum up the catalyst behind this week's market price action, it can probably be summed up in a single word, disinflation.   Starting with Chinese inflation numbers on Monday, to US CPI on Wednesday, and US PPI on Thursday, all this week's inflation numbers have pointed to one overarching theme, that of rapidly slowing prices, which has had markets pricing in the prospect that this month's Federal Reserve rate hike is likely to be the last one for a while.     Unsurprisingly this has prompted a sharp decline in global yields, a big selloff in the US dollar, as well as giving equity markets a real boost in a complete reversal from the gloom of last week, with the Nasdaq 100 and S&P500 rising to their highest levels since January 2022.     European markets have also undergone a decent rebound on the basis that the multiple rate hikes that investors had been pricing in from the ECB and the Bank of England may now not happen. That doesn't mean we won't see these central banks hike again, it's still very likely that the ECB will hike by 25bps this month and the Bank of England at the start of August. It is what comes after that which has started to become a lot less clear.     UK GDP numbers for May, were encouraging, despite showing a contraction due to the extra Bank Holiday, coming in better than forecast with the pound managing to post another daily gain, putting in its best run of gains this year, and reinforcing its position as the best performing G10 currency this year.     Yesterday's UK data also showed that the services sector performed better than expected, coming in at 0%, showing that despite the challenges currently facing the economy it has continued to hold up reasonably well. This would suggest that the Bank of England still has room to push rates up further with 25bps already priced in for August and potentially 50bps if next week's CPI doesn't show a material slowing. Judging by the current trends around global inflation the feeling is that UK inflation could start to fall rapidly by the end of Q3.     The slide in the US dollar this week has been astonishing, and with the Federal Reserve set to go into a blackout period tomorrow, ahead of its next meeting, there has been little sign that this week's data has swayed the FOMC's stance when it comes to their view that further multiple rate hikes are likely to be needed between now and the end of the year. The problem now is the market isn't buying it, with 2-year yields retreating sharply, as markets price in a goldilocks scenario of slowing prices and a resilient labour market.         Today's only economic numbers of note are US import and export prices for June, which are expected to reinforce the deflationary narrative of this week's data, with both month on month and annual numbers all expected to come in negative for the second month in succession.   We'll also be getting the latest University of Michigan sentiment numbers for July, which have up until recently been market movers when it comes to forward inflation expectations. After this week's CPI and PPI numbers they probably won't get the same level of attention.   On the earnings front the focus will be on the release of the Q2 numbers for JPMorgan Chase, Citigroup and Wells Fargo, and their respective views of the health of the US consumer, and how much they set plan to aside in additional provisions. Their guidance on how they see the US economy in Q3 is also likely to be crucial.     EUR/USD – surged through this year's previous peaks, and rising to its highest level since February 2022, the euro looks on course to test the 1.1500 area and the 2022 highs. The 1.1100 area should now act as support.     GBP/USD – having broken above the 1.3020 area, the pound should now head towards the 1.3300 area and March 2022 highs. Support remains a long way back at the 1.3020 area, and below that at 1.2850.        EUR/GBP – failed at the 0.8570/80 area yesterday as it continues to ping between this area of resistance and the lows this week at 0.8500/10.     USD/JPY – looks set to push lower as we move into the cloud support area with next support at the 200-day SMA at 137.20, and below that at 135.70. Resistance now comes in at the 140.20 area and 50-day SMA.     FTSE100 is expected to open 12 points lower at 7,428     DAX is expected to open 15 points lower at 16,126     CAC40 is expected to open 7 points lower at 7,362  
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Stock Rally Driven by Soft Inflation and Strong Earnings

Ipek Ozkardeskaya Ipek Ozkardeskaya 14.07.2023 08:30
Soft inflation, strong earnings fuel stock rally  We are having a great week in terms of US inflation news. After Wednesday's data showed that the US headline inflation slowed to 3%, and core inflation fell to 4.8% - both lower than what analysts had penciled in, yesterday's producer price inflation data also came in lower than expected. The monthly PPI eased to 0.1%, perhaps the last positive figure we see before sinking into negative territory in the coming months, and core PPI fell to 2.6%. One more good news, some underlying details in the PPI report, including health care and hotel accommodations, are used to compute the Fed's favourite PCE Price Index that will be released in the coming weeks – which could also benefit from softening inflation trend.    As a result, the US 2-year yield fell another 15bp yesterday and hit 4.60%, while the 10-year yield retreated below 3.80%. The US dollar index slipped below the 100 mark. This is the first time the US dollar index has traded below this level since April 2022, as the Federal Reserve (Fed) is not seen getting more aggressive than this when inflation is slowing. Plus, one of the most aggressively hawkish Fed members, James Bullard, resigned yesterday. The probability of another 25bp hike at the Fed's July meeting didn't change much. It's still given more than 90% probability. But the chances of another rate hike following the June hike are getting blurrier, so equity markets cheer the softening Fed expectations. The S&P500 extended gains yesterday and closed the session above the 4500 mark for the first time since April 2022, while Nasdaq 100 rallied another 1.73%. Amazon jumped to a 10-month high yesterday after reporting record sales during its Prime Day. Happily, this week's inflation numbers were sufficiently soothing, so that the record Prime Day sales didn't boost inflation expectations. MAMAA stocks were up by 1.72%. Crude oil on the other hand rallied past the 200-DMA, near $77pb, and consolidates at around that level this morning. Supply shortages in Libya and Nigeria are pushing price higher but the IEA says that global oil demand won't rise as much as they previously forecasted due to the weakened economies of developed nations. It will increase by around 2.2mbpd, +2%. This is 200'000 barrels less than previously forecasted. It could help bring the bears back to the market at around the 200-DMA. The $77/80 barrel resistance will be difficult to drill because the market is now approaching overbought conditions and a key technical level is generally a good moment to sell, and because otherwise it would be bad news for inflation expectations, and the Fed.    One good news is that, although the resilience of the US jobs market remains a major concern for the Fed, the stock market rally could be a much smaller concern because the Fed recently launched a financial conditions index, an index that takes into account bond yields, mortgage rates, the stock market, Zillow's house price index and the dollar's value on global currency markets to determine how the market conditions would impact growth. And the index showed that the financial conditions in the US became increasingly less favourable this year and hit an all-time peak in December when they were more of a drag on growth than at any time in recent decades, apart from the 2008 financial crisis. And at the current levels, the market conditions remain historically unfavourable to growth – and that despite the stock market rally.     Slow growth is bad for stock valuations, but investors remain focused on earnings, rather than the overall financial conditions, and we have good news on the earnings front so far. Delta Airlines for example jumped to the highest level since April 2021 yesterday after reporting after announcing record revenue and profit in Q2 andsaying that they are 'looking at a very, very strong Q3', as indicated by their guidance, and that they could have a strong Q4 as well. While PepsiCo rallied almost 2.40% after revealing a strong quarter thanks to higher prices they could ask from customers, and after raising its sales and earnings estimates. Today, some big US banks will go to the earnings confessional. The big banks benefited from ample deposit inflows following the Silicon Valley Bank (SVB) collapse in March, but their net interest income is expected to have declined, credit costs are normalizing, and they have increased expenses due to inflation. So, the numbers could be soft, but what matters for investors is the comparison between the numbers and expectations. If expectations are better than the actual numbers, stock prices will not be hurt. And that's why Goldman Sachs is out trying to dampen expectations, so that the results can more easily beat them!    By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    
Market Update: UK Inflation Softens, US Stocks Rally, Bank Earnings, and AI Dominate Headlines

Market Update: UK Inflation Softens, US Stocks Rally, Bank Earnings, and AI Dominate Headlines

Ipek Ozkardeskaya Ipek Ozkardeskaya 19.07.2023 09:51
Softer-than-expected UK inflation sends Cable below 1.30    The rally in US stocks extended on the back of good bank earnings and AI. BoFA and Morgan Stanley joined the club of big banks beating analyst expectations. BoFA's fixed income and equity trading posted a surprise gain and covered a slight miss on its net interest income, while Morgan Stanley's wealth management came to the rescue. Charles Swab on the other hand reported 7% deposit outflows but its shares surged 13%, yes 13% yesterday on expectation of deposit growth by year-end.    Then, Microsoft jumped up to 6% to a fresh all-time-high yesterday as progress on the regulatory front regarding the acquisition of Activision Blizzard, and the news that its Microsoft 365 Copilot, based on OpenAI's artificial intelligence, will be broadly available and cost $30 per month per user got investors rushing back to the stock and extend the November-to-date rally to 72%! Microsoft's AI bet has been disruptive this year, and the company is making huge progress in turning the buzz into profit as quickly as possible, and they have a great chance of success. Microsoft's AI will be a perfect assistant for $30 per month and Microsoft will cash in – and the weak dollar outlook could further help boost revenue.   Zooming out, the bank and AI rally pushed both the S&P500 and Nasdaq 100 to fresh highs since the first months of 2022. Nasdaq 100 is now in the overbought territory, the technical indicators call for correction, and the upcoming modification in the Magnificent Seven's weightings in the index should pull the valuation down, but the positive trend's strength remains impressive, and supported by both better-than-expected earnings, and economic data.   On the data front, the softer-than-expected retail sales and production data from the US came to soften the Federal Reserve (Fed) hawks' hands yesterday, and kept the US yields downbeat, which also helped boost stock valuations in parallel to earnings.   Today, Goldman Sachs will try to beat the expectations that it threw under a bus over the past few weeks, so that the stock price could get away despite a worst quarter in years, Netflix will reveal how well its password sharing ban ramped up subscriptions and Tesla will reveal how much money the company earned by selling a record number of cars at discounted prices to increase market share. There is potential for good surprises for both, but expectations for Netflix and Tesla are strong, so they will certainly be harder to beat than the banks – which had rather soft expectations walking into this earnings season.   Yet Goldman didn't only dampened expectations regarding its results but also lowered its recession odds from 25% to 20%. A latest survey of economists on Wall Street Journal also revealed that the probability of a downturn fell from 61% to 54% for the US. Weakening recession odds is good news for energy investors, and it keeps demand in oil upbeat. The barrel of US crude is back above the $75pb level this morning despite a smaller decline reported by the API report this week on US inventories compared to what was penciled in by analysts. But we need some good news from China for energy and mining assets to encourage some persistent rotation from AI, because AI just keeps on giving.    By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
EUR: Testing 1.0700 Support Ahead of ECB Meeting

A Week of Earnings and Central Bank Decisions: Fed, ECB, and BoJ Meetings in Focus

Ipek Ozkardeskaya Ipek Ozkardeskaya 24.07.2023 10:20
A week packed with earnings and central bank decisions Last week ended on a caution note after the first earnings from Big Tech companies were not bad, but not good enough to further boost an already impressive rally so far this year. The S&P500 closed the week just 0.7% higher, Nasdaq slipped 0.6%, while Dow Jones recorded its 10th straight week of gains, the longest in six years, hinting that the tech rally could be rotating toward other and more cyclical parts of the economy as well.   This week, the earnings season continues in full swing. 150 S&P500 companies are due to announce their second quarter earnings throughout this week. Among them we have Microsoft, which is pretty much the main responsible of this year's tech rally thanks to its ChatGPT, Meta, Alphabet, Visa, GM, Ford, Intel, Coca-Cola and some energy giants including Exxon Mobil and Chevron.   On the economic calendar, we have a busy agenda this week as well. Today, we will be watching a series of flash PMI figures to get a sense of how economies around the world felt so far in July, then important central bank meetings will hit the fan from tomorrow. The early data shows that both manufacturing and services in Australia remained in the contraction zone, as Japan's manufacturing PMI dropped to a 4-month low in July. German figures could also disappoint those watching the EZ numbers.   On the central banks front, the Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of Japan (BoJ) will meet this week, and the first two are expected to announce 25bp hike each to further tighten monetary conditions on both sides of the Atlantic.     Zooming into the Fed, activity on Fed funds futures gives almost 100% chance for this week's 25bp hike. But many think that this week's rate hike could be the last of this tightening cycle, as inflation is cooling. But the resilience of the US labour market, and household consumption will likely keep the Fed cautiously hawkish, and not announce the end of the tightening cycle this Wednesday. There is, on the contrary, a greater chance that we will hear Fed Chair Jerome Powell rectify the market expectations and talk about another rate hike in September or in November. Therefore, the risks tied to this week's FOMC meeting are tilted to the hawkish side, and we have more chance of hearing a hawkish surprise rather than a dovish one. Regarding the market reaction, as this week's Fed meetings falls in the middle of a jungle of earnings, stock investors will have a lot to price on their plate, so a hawkish statement from the Fed may not directly impact stock prices if earnings are good enough. Bond markets, however, will clearly be more vulnerable to another delay of the end of the tightening cycle. The US 2-year yield consolidates near the 4.85% level this morning, and risks are tilted to the upside. For the dollar, there is room for further recovery as the bearish dollar bets stand at the highest levels on record and a sufficiently hawkish Fed announcement could lead to correction and repositioning.  Elsewhere, another 25bp hike from the ECB is also seen as a done deal by most investors. What investors want to know is what will happen beyond this week's meeting. So far, at least 2 more 25bp hikes were seen as almost certain by investors. Then last week, some ECB officials cast doubt on that expectation. Now, a September rate hike in the EZ is all but certain. The EURUSD remains under selling pressure near the 1.1120 this morning, the inconclusive Spanish election is adding an extra pressure to the downside.   Finally, the BoJ is expected to do nothing, again, this week. Japanese policymakers will likely keep the policy rate steady in the negative territory and the YCC policy unchanged. The recent U-turn in BoJ expectations, and the broad-based rebound in the US dollar pushed the USDJPY above the 140 again last Friday, and there is nothing to prevent the pair from re-testing the 145 resistance if the Fed is sufficiently hawkish and the BoJ is sufficiently dovish.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
EUR Under Pressure as July PMIs Signal Economic Contraction

Fed Meeting and Microsoft Earnings: Economic Concerns and Market Expectations

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.07.2023 08:23
Fed meeting, Microsoft earnings  There was nothing in the list of flash PMI data released yesterday morning to make investors think that economic activity in Europe is doing fine. All numbers were in the red, they all missed expectations. German and French manufacturing plunged further in the contraction zone and German manufacturing PMI even plunged below 39, a number we have not seen since summer 2020, which was the heart of the pandemic. The war, the energy prices, and/or the European Central Bank (ECB) tightening are taking a toll on the German manufacturing. And even the German car sector is struggling. Tesla for example sold more cars in H1 than Volkswagen, BMW, Mercedes and Porsche combined. Cherry on top of the bad news, the Spanish PPI showed an 8% contraction versus -10% penciled in by analysts. The EURUSD plunged below the 1.11, the trend and momentum indicators turned negative hinting that the selloff in the runoff to Thursday's ECB meeting could extend toward the 1.10 mark, as the soft economic data brought forward the expectation that the ECB is certainly approaching the end the most aggressive tightening cycle of its relatively short history. But the softer-than-expected fall in Spanish PPI still keeps some hawks defending the idea that the ECB won't stop fighting inflation if inflation doesn't cool enough.     Don't look now, but across the Channel, the PMI numbers didn't look better. The UK manufacturing PMI fell to 45, while the composite PMI avoided the contraction territory by just a few points. Cable sold off to the lowest level in two weeks and is now testing the May to now ascending channel's base, as traders put more weight on the damage that the rising Bank of England (BoE) rates will do to the British economy, than on the good they might do to sterling holders.   Across the Atlantic Ocean, the picture was a little but more mixed. US manufacturing remained in the contraction zone but contracted much slower than expected by analysts, but services and overall activity grew more slowly than expected, still. The US dollar index gained for the 5th consecutive session and is consolidating above the 101 level at the time of writing, as investors continue positioning for the Fed meeting that starts today.   The Fed starts its two-day policy meeting in just a couple of hours from now, and will highly likely announce a 25bp hike on Wednesday. But what Fed officials will also do is to remind investors that the tightening cycle is probably not over and that there will probably be another rate hike on the US' horizon. So yes, there is a great chance that the Fed will spoil your mood if you are among those thinking that this week's rate hike will be the last for this tightening cycle in the US.     Markets  US stocks traded higher yesterday with the S&P500 adding 0.40% and Nasdaq 0.14% after its special rebalancing. The US 2-year yield advanced past 4.90% and fell this morning. While the VIX index shows no sign of a particular stress from equity traders, BoFA's MOVE index is close to 110 level, versus around the 60 level prior to the Q3 of 2021: bond traders remain very much uncertain about the number of additional rate hikes that the Fed could deliver. And there is no line in the sand, the Fed will continue hiking if the US jobs market, consumption and housing market remain resilient to interest rate hikes.    Microsoft earnings  Today, Microsoft is due to announce its Q2 earnings after the bell. Focus is on whether, and by how much Microsoft benefited from the AI craze and how much AI boosted growth for Azure – which was under pressure since a couple of quarters due to macro factors. On Friday, a Goldman Sachs analyst reiterated his buy rating for MSFT and revised his price target from $350 to $400 a share. But because  there is too much optimism in the market, it may be gently time to take profit, wait for the next bullish wave and rotate toward where the next action is expected to happen.  The Magnificent Seven thrived so far this year and the un-magnificent 493 other stocks remained mostly on the sidelines. What we see these days is that the un-magnificent other stocks are also catching up with the rally. Today, 70% of the S&P500 stocks trade above their 200-DMA. Morgan Stanley's Mike Wilson said that 'they were wrong' regarding their bearish stock market expectation this year, while JP Morgan's Kolanovic insists that a selloff is coming. And one day, he will be right!    By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank 
CHF/JPY Hits Fresh All-Time High in Strong Bullish Uptrend

Fed Set to Raise Rates to a 22-Year High Amidst Cautiously Positive Market Sentiment

Michael Hewson Michael Hewson 26.07.2023 08:18
Fed set to raise rates to a 22 year high   European markets have seen a cautiously positive start to the week, buoyed by hopes of further stimulus measures from Chinese authorities in the wake of recent poor economic data. The FTSE100 has been a key beneficiary of this, putting in a two-month high yesterday.   The modest improvement in sentiment has also been helped in some part by the recent retreat in short term yields which is being driven by the hope that central banks won't have to hike rates as aggressively as thought a few weeks ago. Both German and UK 2-year yields have fallen sharply from their highs this month on this basis, helped by inflation which appears to be slowing more quickly than expected.     US markets have also put together a strong run of gains with the Dow and S&P500 hitting their highest levels since April 2022, on the back of optimism that the start of this week's earnings numbers will live up to the high expectations place on them.   Last night's initial reaction to the numbers from Microsoft, and Google owner Alphabet would suggest that optimism might be justified against a backdrop of a still resilient US economy, and a Federal Reserve that looks set to be close to the end of its rate hiking cycle.           Today's expected 25bps Fed rate hike, after last month's pause, looks set to be the last rate rise this year, whatever Fed policymakers would have you believe.   We may hear officials try and make the case for at least one more between now and the end of the year but given recent trends around US inflation its quite likely that PPI will go negative in July.   While Powell will try and make the case for further rate hikes, his time would be better spent in making the case for rates remaining higher for longer, and projecting when the FOMC expected the 2% target to be met. Core prices remain too high even with headline CPI at 3%, and it is here that the Fed will likely focus its and the market's attention.     If headline CPI continues to fall in the way, it has been doing the Fed will struggle to convince the markets that it would continue hiking rates against such a backdrop.   As things stand markets are already pricing in the prospect that this will be the last rate rise in the current hiking cycle given recent declines in the US dollar and US yields. With the next Fed meeting coming in September the market will have to absorb two more inflation reports and two more jobs' reports. Nonetheless the Fed will be keen to prevent the market pricing in rate cuts which was one of the key challenges earlier this year.   With inflation slowing and the jobs market resilient the US economy is currently in a bit of a goldilocks moment. This will be the challenge for Powell today, as he tries to steer the market into believing that the Fed could hike rates some more. We also shouldn't forget that we will get fresh messaging at the end of August at the Jackson Hole annual symposium.     EUR/USD – retreated from the 1.1275 area which is 61.8% retracement of the 1.2350/0.9535 down move, with the next key support at the 1.0980 level.  Currently have resistance at the 1.1120 area.   GBP/USD – appears to have found a base at 1.2795/00, breaking a run of 7 daily losses. While above the 50-day SMA the uptrend from the March lows remains intact with the next resistance at the 1.3020 area.     EUR/GBP – last week's failure at the 0.8700 area has seen the euro slip back, with the risk that we could revisit the recent lows at 0.8500/10.   USD/JPY – the rebound from the 200-day SMA at 137.20, appears to have run out of steam at the 142.00 area, however the bias remains for a move lower while below the recent highs of 145.00.   FTSE100 is expected to open 10 points lower at 7,681   DAX is expected to open 25 points higher at 16,236   CAC40 is expected to open 35 points lower at 7,380  
US Inflation Rises but Core Inflation Falls to Two-Year Low, All Eyes on ECB Rate Decision on Thursday

Microsoft Falls, Google Jumps, and the Fed Makes a Decision - IMF Raises Global Growth Outlook

Ipek Ozkardeskaya Ipek Ozkardeskaya 26.07.2023 08:23
Microsoft falls, Google jumps, Fed decides Surprise, surprise: Microsoft failed to meet investor expectations when it announced its Q2 results yesterday. Both revenue and earnings beat expectations, but the company reported a decelerating demand for its cloud computing services to 26%, and projected Azure to grow between 25%-26% for the current quarter. We are far from the 35% growth that we got used to in the good old days. Microsoft stock plunged up to 4% in the afterhours trading. Alphabet on the other hand a strong quarter for its search business advertisement, hinting that Google search withstood so far with the AI competition and its cloud business posted a 28% growth, more than Microsoft's. Google shares jumped 6% after the bell. Elsewhere, Snap tanked almost 20% as the overall sales declined and the forecasts remained short of analyst expectations, while GM lost 3.50% yesterday after raising its earnings forecast. But there is a catch: the forecast holds only if the workers don't go on a strike, and according to Evercore ISI, the chances of a strike is about 50-50. Today, Meta, Coca-Cola and Boeing will be among the big names that will report their earnings. The S&P500 advanced to the highest levels since April 2022, while Nasdaq 100 was up by 0.73% yesterday.    IMF raises global growth outlook  Zooming out, the IMF raised its outlook for the world economy this year and it now expects the global GDP to expand 3% in 2023. But it also warned that Germany will probably be the only G7 economy to suffer an economic contraction this year. Of course, the IMF also warned that there are some risks to their optimistic forecast, including the higher interest rates, the Chinese recovery that doesn't come, the debt distress and shocks from war and climate related disasters. But all in all, the US economy will likely end this year as the champion of soft landing – if all goes well.   I insist - if all goes well - because PacWest has been the latest US regional bank to succumb to this year's bank stress and its shares plunged 27% after Banc of California agreed to buy it.     Decision time!  Anyway, positiveness around the US economy is obviously giving some hawkish ideas to the Federal Reserve (Fed), which will likely announce another 25bp hike today, and warn that there could be more in the store. The US 2-year yield is in a wait-and-see more near the 4.90% level, either it will go back above the 5% with a hawkish Fed statement or it will retreat toward the 50-DMA, near the 4.65%, with a reasonably hawkish Fed statement, if the Fed opts for another 'skip' for example. The US dollar index pushes higher as expectations for other central banks soften due to the softer-than-expected economic data suggesting softer action from the likes of European Central Bank (ECB) and the Bank of England (BoE) in the coming months. The EURUSD continued its nosedive yesterday on IMF's less than ideal Germany outlook and the news that corporate loan demand plunged by the most on record in Q2, as higher rates started to bite European businesses.   Unfortunately, however, inflation expectations are getting stronger globally as the rising energy and crop prices hint that the upcoming inflation figures won't be a piece of cake. The barrel of US crude flirted with the $80pb level on Chinese stimulus hopes and the pricing of a soft landing, while wheat futures continue rising along with the escalating tensions in the Black Sea and Danube. Corn and soybean futures rise as well as hot weather in the US belt is adding to the positive pressure for corn.     By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  
The Commodities Feed: Stronger Oil Prices Boost US Oil Production and Supply

Yen Moves Higher as Bank of Japan Considers Yield Curve Control Tweak

ING Economics ING Economics 28.07.2023 08:37
Yen moves higher as Bank of Japan tweaks YCC By Michael Hewson (Chief Market Analyst at CMC Markets UK) European markets saw a strong session yesterday, buoyed by the belief that the central banks could be done when it comes to further rate hikes, after the ECB followed the Fed by raising rates by 25bps and then suggesting that a pause might be on the table when they next meet in September. The mood was also helped by a strong set of US economic numbers which pointed to a goldilocks scenario for the US economy.     US markets also opened strongly with the S&P500 pushing above the 4,600 level and its highest level since March 2022, before retreating and closing sharply lower, with the Dow closing lower, breaking a run of 13 days of gains. Sentiment abruptly changed during the US session on reports that the Bank of Japan might look at a possible "tweak" to its yield curve control policy at its latest policy meeting earlier this morning.     This report, coming only hours before today's scheduled meeting, caught markets on the hop somewhat pushing the Japanese yen higher against the US dollar, while pushing US 10-year yields back above 4%. With Japanese core inflation above 4% there was always the possibility that the Bank of Japan might spring a surprise, or at least lay the groundwork for a possible tweak. The Bank of Japan has form for when it comes to wrong footing the market, and so it has proved, as at today's meeting they announced that they would allow the upper limit on the 10-year yield to move from 0.5% to 1%. They would do this by offering to purchase JGBs at 1% every day through fixed rate operations, effectively raising the current cap by 50bps, and sending the yen sharply higher. The central bank also raised its 2023 inflation forecast to 2.5% from 1.8%, while nudging its 2024 forecast lower to 1.9%.     As far as today's price action is concerned, the late decline in the US looks set to translate into a weaker European open, even though confidence is growing that the Fed is more or less done when it comes to its rate hiking cycle. Nonetheless, investors will be looking for further evidence of this with the latest core PCE deflator, as well as personal spending and income data for June, later this afternoon to support the idea of weaker inflation. Anything other than a PCE Core Deflator slowdown to 4.2% from 4.6%, could keep the prospect of a 25bps September hike on the table for a few weeks more. Both personal spending and income data are expected to improve to 0.4% and 0.5% respectively.     We're also expecting a tidal wave of European GDP and inflation numbers, which are expected to confirm a weaker economic performance than was the case in Q1, starting with France Q2 GDP which is expected to slow to 0.1% from 0.2%. The Spanish economy is also expected to slow from 0.6% to 0.4% in Q2. On the inflation front we'll be getting an early look at the latest inflation numbers for June from France and Germany as well as PPI numbers for Italy. France flash CPI for June is expected to slow to 5.1% from 5.3%, while Germany CPI is expected to slow to 6.6% from 6.8%. With PPI inflation acting as a leading indicator for weaker inflation for all of this year the latest Italy PPI numbers will be scrutinised for further weakness in the wake of a decline of -3.1% in May on a month-on-month basis and a -6.8% decline on a year-on-year basis.       EUR/USD – failed to follow through above the 1.1120 area, subsequently slipping back, falling below the 1.1000 area, which could see a retest of the 1.0850 area which is the lows of the last 2 weeks. Below 1.0850 targets a move back to the June lows at 1.0660.   GBP/USD – slipped back from the 1.3000 area, falling back below the Monday lows with the risk we could retest the 50-day SMA and trend line support at the 1.2710. While above this key support the uptrend from the March lows remains intact.       EUR/GBP – struggling to rally, with resistance at the 0.8600 area, and support at the recent lows at 0.8500/10. Above the 0.8600 area targets the highs last week at 0.8700/10.   USD/JPY – while below the 142.00 area, the bias remains for a move lower, with the move below 139.70 targeting a potential move towards the 200-day SMA at 137.20.   FTSE100 is expected to open 24 points lower at 7,668   DAX is expected to open 38 points lower at 16,368   CAC40 is expected to open 20 points lower at 7,445
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Late Friday US Sell-Off to Impact European Open: Market Analysis

Michael Hewson Michael Hewson 07.08.2023 08:44
Late Friday US sell-off set to weigh on European open    By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets managed to eke out some modest gains on Friday, at the end of what was a negative week overall as concerns over earnings guidance downgrades and rising long term yields weighed on broader market sentiment. A mixed US jobs report looked to have stabilised sentiment, pulling the DAX and FTSE100 off their lows of the week after another slowdown in jobs growth in July and downward revisions to previous months, spoke to the idea that central bank rate hikes have done their job, and that no more are coming. This uplift only lasted until just after European markets had closed with all the signs that US markets would be able to end a 3-day losing streak, however the early gains that we saw in the early part of the day soon evaporated with the Nasdaq 100 and S&P500 both posting their worst weekly performances since March.     In essence there was something for everyone in Friday's jobs report, weaker jobs growth, the unemployment rate inching lower, and robust wage growth. Ultimately it spoke to a resilient US economy, as well as a possible Fed pause in September, ahead of this week's CPI report, although there are some on the FOMC who are still on the "more rate hikes to come" line. One of these members is Governor Michelle Bowman who at the weekend expressed her view that more rate hikes were likely to be needed to return inflation to target. While this may now be starting to become a minority view on the FOMC, it merely serves to highlight the growing uncertainty that is not only starting to permeate central bank thinking but also investor sentiment more broadly, as well as raising broader questions. Has the Fed managed to engineer a soft landing, and should they cause a pause to allow more time to assess any lag effects on consumers as well as the broader economy. Or do they carry on hiking on the basis that we could have seen a short-term base when it comes to prices slowing down? While markets are still pricing in a 40% chance of one more rate hike before the end of the year, this figure could swing either way in the event of a hot CPI print later this week. If next month's jobs report is of a similar "goldilocks" variety then a pause seems the most likely outcome from the next Fed rate decision. Whichever way we go with the data in the coming weeks, a pause still seems the most plausible outcome. For the most part bond markets drove most of the price action in financial markets last week with sharp increases in longer term yields, despite the sharp falls on Friday, as the yield curve steepened sharply. Yields could be the main driver this week with the US set to issue $103bn across a range of maturities this week, in the wake of last week's credit rating downgrade by Fitch.   It's also worth keeping an eye on this week's China trade data for July, due tomorrow, and inflation date on Wednesday, against a backdrop of an economy that appears to be struggling with weak domestic demand, and where economic activity has been struggling. We also have preliminary Q2 GDP economic numbers for the UK at the end of the week as well as industrial and manufacturing production numbers for June.       EUR/USD – rallying off last week's lows just above the 1.0900 area, closing above the 50-day SMA in the process we need to see a move back above 1.1050 to have any chance of revisiting the July peaks at 1.1150.   GBP/USD – drifted down the 1.2620 area last week before rebounding strongly, but we need to see a back above the 1.2800 area to ensure this rally has legs. Below 1.2600 targets 1.2400. Resistance at the 1.2830 area as well as 1.3000.     EUR/GBP – feels like it wants to retest the 100-day SMA at 0.8680, having drifted back from the 0.8655 area last week. Support now comes in at the 0.8580 area, with the bias for a retest of the July highs at 0.8700/10. Below 0.8580 retargets the 0.8530 area.   USD/JPY – failed just below the 144.00 area last week, and has now slid back below the 142.00 area, which brings a move towards the 140.70 area into focus. Main resistance remains at the previous peaks at 145.00.   FTSE100 is expected to open 31 points lower at 7,533   DAX is expected to open 54 points lower at 15,898   CAC40 is expected to open 29 points lower at 7,296
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Assessing the Risk of Prolonged Economic Stagnation in China - Insights by Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank

Ipek Ozkardeskaya Ipek Ozkardeskaya 11.08.2023 08:09
Is China on path for longer economic stagnation?  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Released yesterday, the latest CPI data showed that the headline inflation in the US ticked higher from 3 to 3.2%. That was slightly lower than the 3.3% penciled in by analysts, core inflation eased to 4.7% in July from 4.8% expected by analysts and printed a month earlier.   But the rising energy and crop prices threaten to heat things up in the coming months and inflation's downward trajectory could rapidly be spoiled. That's certainly why an increasing number of investors and the Federal Reserve's (Fed) Mary Daly warned that this was 'not a data point that says victory is ours'.   And indeed, looking into details, the fact that the 20% fall in gasoline prices is what explains the decline in headline number is concerning. The barrel of US crude bounced lower yesterday after a 27% rally since the end of June, and the latest OPEC data indicated that we would see a sharp supply deficit of more than 2mbpd this quarter as Saudi cuts output to push prices higher. And this gap could further widen as global demand continues growing and shift to alternative energy sources is nowhere fast enough to reverse that upside pressure.   On the other hand, we also know that the rising energy prices fuel inflation expectations and further rate hikes expectations around the world. And that means that oil bears are certainly waiting in ambush to start trading the recession narrative and sell the top. The $85pb could be the level that could trigger that downside correction despite the evidence of tightening supply and increasing gap between rising demand and falling supply.   Today, eyes will be on the July PPI figures before the weekly closing bell, where core PPI is seen further easing, but headline PPI may have ticked higher to 0.7% on monthly basis, probably on higher energy, crop and food prices.     In the market  Yesterday's slightly softer-than-expected inflation numbers and the initial jobless claims which printed almost 250K new applications last week - the highest in a month - sent the probability of a September pause to above 90%, though the US 2-year yield advanced past the 4.85% level, and the longer-terms yields rose with a weak 30-year bond action, which saw the highest yield since 2011.   Major stock indices stagnated. The S&P500 was up by only 0.03% yesterday while Nasdaq 100 closed 0.18% higher, as Walt Disney rallied as much as 5% even though Disney+ missed subscription estimates and said that it will increase the price of the streaming service. Disney is considering a crackdown on password sharing, which, combined with higher prices could lead to a Netflix-like profit jump further down the road.     In the FX  The USD index consolidates above the 50 and 100-DMAs and just below a long-term ascending channel base. The EURUSD sees support at the 50-DMA, near the 1.0960 level, and could benefit from further weakness in the US dollar to attempt another rise above the 1.10 mark.   European nat gas futures fell 7% yesterday after a 28% spiked on Wednesday on concerns that strikes at major export facilities in Australia could lead to a 10% decline in global LNG exports. Yet, the European inventories are about 88% full on average and the industrial demand remains weak due to tightening financial conditions imposed by the European Central Bank (ECB) hikes. Therefore this week's massive move seems to be mostly overdone, and we shall see some more downside correction.     Chinese property market is boiling  The property crisis in China is being fueled by a potential default of Country Garden, which is one of the biggest property companies in China and which recently announced that it may have lost up to $7.6bn in the first half of the year as home sales slumped and the government stimulus measures didn't bring buyers back to the market. Equities in China slumped further today, as property crisis is not benign. In fact, China's local governments have plenty of debt, and their major source of income is... land and property sales. Consequently, the property crisis explodes local governments' debt to income ratios- And the debt burden prevents China from rolling out stimulus measures that they would've otherwise, because the government doesn't want to further blast the debt levels.   Shattered investor and consumer confidence, shrinking demographics, property crisis and deflation hints that the Chinese economy could be on path for a longer period of economic stagnation. We could therefore see rapid pullback in investor optimism regarding stimulus measures and their effectiveness. Hang Seng's tech index fell to the lowest levels in two weeks yesterday, as all members fell except for Alibaba which jumped after beating revenue estimates last quarter.   
CHF/JPY Hits Fresh All-Time High in Strong Bullish Uptrend

China's Surprise Rate Cut: A Band-Aid Solution for Deeper Economic Woes

Ipek Ozkardeskaya Ipek Ozkardeskaya 16.08.2023 11:58
China's surprise cut won't be enough.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   China surprised by cutting its one-year medium-term lending facility (MLF) rates by 15bp to 2.50% today to give a jolt to its economy that has not only completely missed the expectation of a great post-Covid recovery, but that deals with deepening property crisis, morose consumer, and investor sentiment – which is worsened by Country Garden crisis and missed payments from the finance giant Zhongzhi Enterprises. Data-wise, things looked as worrying as we expected them to look when China released its latest set of economic data today. Growth in industrial production unexpectedly dipped to 3.7%, retail sales unexpectedly fell to 2.5%, unemployment worsened, while growth in fixed investments dropped further. Foreign investment in China fell to the lowest levels since 1998, and the 13F filings showed that Big Short's Michael Burry already exited Alibaba and JD.com, just months after increasing his exposure to these Chinese tech giants. People's Bank of China's (PBoC) surprise rate cut will hardly reverse appetite for Chinese investments as meaningful fiscal stimulus becomes necessary to stop halting.       The Hang Seng remains under pressure, the Chinese yuan fell to the lowest levels against the US dollar since last November, before the post-Covid reopening, and crude oil stagnates around the $82.50pb, close to where it was yesterday morning at around the same time. Tight supply and warnings of increased risk to shipping near the Strait of Hormuz, which is a strategic waterway for oil transit for exporters like Saudi Arabia and Iraq, certainly helped tempering the China-related selloff. But the demand side is weakening and that could stall the oil rally at the actual levels, forcing a return of the barrel of US crude toward the $80pb level, as worries regarding the Chinese recovery are real, and China will have to deploy further stimulus measures to fix things and bring investors back on their side of the table. If that's the case however, oil prices could take a lift.      Elsewhere, Argentina devaluated its currency by 18% to 350 per dollar and hiked its interest rates by 21 percentage points to 118% after populist Javier Milei won the presidential primary, while the dollar ruble traded past the 100 mark for the first time since Russia invaded Ukraine and the Indian rupee traded near record, as well. So all that helped the US dollar index shortly trade above its 200-DMA yesterday, a day before the release of the FOMC minutes which could hint that most Federal Reserve officials were certainly happy with the progress on inflation, but not yet convinced that the war against inflation is won just yet. And given the rebound in global energy and food prices, the Fed officials' careful approach to inflation looks like it makes sense. That's certainly why the US 2-year yield continued its advance toward the 5% mark yesterday, even though the latest survey from New York Fed showed that inflation expectations recorded a sharp drop to 3.6% for the next twelve months and fell to 2.9% for the next three years. The same survey showed that the mean unemployment expectation fell by 1 percentage point, giving support to goldilocks or to the soft landing scenario. Goldman now expects the Fed to cut rates in the Q2 of next year. It also said it expects core PCE to have fallen below 3% by that time.       Today, investors will focus on the US Empire manufacturing index and the retail sales data, and earnings from Home Depot will also hit the wire. While expectation for Empire manufacturing points at a negative number, consensus for July retail sales is a slight acceleration on a monthly basis. Any improvement on the US data is poised to further back the pricing of soft landing and give a further boost to both the US dollar and the US stocks.  The S&P500 recovered yesterday, as Nasdaq 100 advanced more than 1% with technology stocks leading the rebound. Nvidia was one of the best performers with a 7% jump after a Morgan Stanley analyst reiterated his $500 per share price target yesterday. But Tesla didn't benefit from the tech rally of yesterday and closed the session below $240 per share after cutting its car prices in China, yet again.    
Hawkish Fed Minutes Spark US Market Decline to One-Month Lows on August 17, 2023

Hawkish Fed Minutes Spark US Market Decline to One-Month Lows on August 17, 2023

8 eightcap 8 eightcap 17.08.2023 09:11
05:40BST Thursday 17th August 2023 Hawkish Fed minutes sends US markets to one-month lows  By Michael Hewson (Chief Market Analyst at CMC Markets UK)     While European markets have struggled for direction this week with a slight downward bias, the FTSE100 is on course for its worst weekly decline in over a month.  US markets came under further pressure in the wake of the release of the latest Fed minutes sliding to one-month lows with the Nasdaq 100 leading the move lower, as both the S&P500 and Nasdaq fell further below their 50-day SMA's. The post minutes slide, and the prospect that rates could stay higher for longer looks set to translate into another weak open for Europe, with Asia markets also feeling the pressure over concerns about the prospects for the Chinese economy. The minutes came across as reasonably hawkish, not altogether surprising given recent commentary from various Fed officials, however there was some surprise that only two members appeared to support keeping rates unchanged.     There was a broader consensus or concern that most participants continued to see significant upside risks to inflation, despite headline inflation having fallen to 3%, and that further rate rises might be needed. Despite recent hawkish rhetoric from various Fed officials' markets had got comfortable with the idea that the July rate hike was probably going to the last one. Last night's minutes called that assumption into question even as various Fed officials mulled that the risks around monetary policy was becoming two-sided, with some unease about how much further the central bank can go when it comes to further rate rises.     With an expectation that more rate hikes might be coming, US 10-year yields pushed to their highest levels since last October, while the US dollar pushed up to its highest levels in 6 weeks. Last night's minutes also serve to shift the market focus on to Jackson Hole next week and whether Fed chair Jay Powell will give any sort of steer on which way the Fed might lean next month. It wasn't just US yields that pushed higher yesterday, UK yields also pushed back to their highs of the month, after core CPI for July came in unchanged at 6.9%. It's set to be a quiet day data wise with the latest set of weekly jobless claims set to see a modest fall to 240k from last week's big jump to 248k. Continuing claims, on the other hand fell back towards their lowest levels this year at 1,684k, and could see a move back above 1,700k.     EUR/USD – slipping towards the main support area at the 1.0830 area. Still feels range bound with resistance at the 1.1030 area.     GBP/USD – remains well supported above the recent lows at the 1.2600 area. A break below 1.2600 targets 1.2400. Until then the bias is for a move back above the 1.2800 area through 1.2830 to target 1.3000.         EUR/GBP – slipping further way from the 100-day SMA towards the 0.8530 area. Above the 100-day SMA targets the 0.8720 area.     USD/JPY – continues to edge higher, with support now at the 144.80 area. The move above the previous peaks at 145.10, opens the prospect of further gains towards 147.50.     FTSE100 is expected to open 37 points lower at 7,320     DAX is expected to open 95 points lower at 15,694     CAC40 is expected to open 40 points lower at 7,220
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China's Less-Than-Expected Key Loan Rate Cut Amplifies Market Concerns

Michael Hewson Michael Hewson 21.08.2023 09:56
06:10BST Monday 21st August 2023 China cuts key loan rate by less than expected  By Michael Hewson (Chief Market Analyst at CMC Markets UK)     The last 3 weeks haven't been good ones for markets in Europe, with the FTSE100 bearing the brunt of recent weakness posting its worst daily run of losses since October last year, as well as revisiting its March lows last week. The DAX has fared little better, revisiting the lows in July, as weakness in Asia markets, and China especially, pushed the Hang Seng down 5.89% and into bear market territory, as concerns over China's economy, the solvency of its real estate sector, and any risks of contagion into its financial system.   These concerns were amplified last week after Chinese asset manager Zhonghzi missed a coupon payment, as investors increasingly looked towards possible measures from Chinese authorities to support the economy and their financial system. Thus far we've seen little significant indication of support apart from some modest rate cuts or stimulus at a time when the economy is teetering in deflation, as well as a distinct lack of domestic demand.   This morning China did announce that they were cutting their one-year lending rate by 10bps to 3.45%, however they left their 5-year loan rate unchanged at 4.20%, having cut the medium-term loan rate last week. Unsurprisingly markets were less than impressed by this move, expecting authorities to be much more forceful. This lack of urgency has weighed on Asia markets and is unlikely to spark demand in an economy where loan demand appears to be low anyway. In the UK, the latest Rightmove House price survey saw asking prices cut by 1.9% in August the biggest decline this year as higher mortgage rates weighed on demand for houses. The prospect of another rate hike next month is also likely to be affecting confidence, although the fact we are in August, and in the middle of the school holidays probably also has a part to play.   US markets, which until recently had proved to be much more resilient have also succumbed to the recent weakness in equity markets, also sliding for the third week in succession, with both the S&P500 and Nasdaq 100 breaking below their respective 50-day SMA's in a sign that further losses could be on the way.   The weakness in US markets is altogether being driven by a different concern, namely that of higher interest rates for longer as the US economy, which continues to defy expectations of an economic slowdown, sees Fed policymakers push the prospect of more rate hikes in the coming months, pushing up long term yields to multiyear highs in the process, as the prospect of rate cuts gets pushed even further into the future. With that the main investors focus has become less on how high rates might go, and more on how long they will stay there.     This week is likely to see investor attention on the Jackson Hole Symposium where the topic up for discussion is "Structural Shifts in the Global Economy" This will be closely scrutinised for evidence that we might see a rate pause next month when the Federal Reserve next meets to decide on monetary policy.       When Powell spoke last year, he made it plain that there was more pain ahead for US households and that this wouldn't deter the central bank in acting to bring down inflation, even if it meant pushing unemployment up. His tone this week is unlikely to be anywhere near as hawkish, although he will also be reluctant to declare inflation victory either. It is clear that the Fed believes the fight against inflation is far from over, and in that context it's unlikely he will deliver any dovish surprises       EUR/USD – still looking soft with the main support area at the 1.0830 area. Still feels range bound with resistance at the 1.1030 area. Below 1.0830 targets the 200-day SMA.     GBP/USD – while above the twin support areas at 1.2610/20 bias remains for a move through the 1.2800 area, and on towards 1.3000. A break below 1.2600 targets 1.2400.        EUR/GBP – finding support for now at the 0.8520/30 area. A move below 0.8500 could see 0.8480. Above the 100-day SMA at 0.8580 targets the 0.8720 area.     USD/JPY – continues to edge higher, towards the 147.50 area. Below the 144.80 area, targets a move back to the 143.10 area.       FTSE100 is expected to open 10 points higher at 7,272     DAX is expected to open 15 points higher at 15,589     CAC40 is expected to open 10 points higher at 7,174  
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China Rate Cuts Fall Short of Expectations Amid Growing Economic Concerns: Focus on Jackson Hole and BRICS Summit

Ipek Ozkardeskaya Ipek Ozkardeskaya 21.08.2023 09:58
China rate cuts remain short of expectations, focus on Jackson Hole, BRICS  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The week starts with weak appetite as Chinese banks cut loan rates less than expected; the 1-year LPR was cut by 10bp to a record low versus 15bp cut expected by analysts, while the 5-year LPR was left unchanged despite pressure from Beijing. Chinese banks' decision to keep the 5-year rate steady is confusing for investors, in the middle of a property crisis. The Hang Seng index sank further into bear market, and the global risk sentiment is less than ideal as healthy economic data from the US, and darker clouds over China cast shadow on both stock and bond markets.   The US 10-year yield approached the highest levels since 2007, as the US 30-year yield hit the highest levels advanced towards levels last seen in 2011. The rising yields weigh on major stock indices. The S&P500 closed last week around 2% lower, and Nasdaq 100 lost 2.6% last week. Interestingly, the S&P500 has been down by around 3% since the beginning of this earnings season – while the earnings season was not that bad. Nearly 80% of the companies announced better-than-expected results and Refinitiv highlighted that the Q2 of 2023 had the highest rate of companies beating expectations since Q3 2021, and the earnings expectations rebounded to the highest levels since last October, when the major US indices bottomed out. This picture simply means that the fear of a further Fed tightening, prospects of higher interest rates, combined to the set of bad news from China simply didn't let investors enjoy the better-than-expected earnings.  
Stocks Rebound Amid Rising Volatility: Analysis and Outlook

Stocks Rebound Amid Rising Volatility: Analysis and Outlook

Ipek Ozkardeskaya Ipek Ozkardeskaya 22.08.2023 08:42
Stocks rebound, but volatility rises.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank       Stocks rebounded on Monday, in a move that looked more like a correction than a reaction to fresh news, as there was no fresh news that went against the slowing China rhetoric, nor against the fear that we will hear something sufficiently hawkish this Friday from Jerome Powell's Jackson Hole speech. At this point, the hawkish Federal Reserve (Fed) expectations are mostly priced in, leaving room for some up and down moves. So yesterday's session was not only marked by a rebound in the S&P500 from the October to July ascending baseline, but also by a visible rise in volatility. Nasdaq 100 jumped 1.65% as well, but the US 2-year yield returned well above 5%, and the 10-year yield pushed to a fresh high since 2007.     One interesting thing is, in 2007, when the US 10-year yield was at these levels, the positioning in the market was deeply negative – meaning that investors expected the yields to rebound, while today the positioning is deeply positive, meaning that investors expect the yields to bounce lower. And that's understandable: the US 10-year yield was on a steady falling path in 2007, so there was a reason for investors to expect a rebound – which did not happen. In a similar way, today, we are just coming out of a long period of near zero rates, so for our eyes, the actual levels seem very high. That explains why many asset managers expect the yields to fall. There is also a growing interest in US 10-year TIPS – which are protected against inflation, and which hit the 2% mark for the first time since the GFC as well. But there is not much reason other than our low comparison levels that gives reason to an imminent reversal in market direction. The US data is strong, the labour market is tight, and inflation is slowing but 'significant upside risks' prevail. A recent study warned that unless the monthly CPI stays below the 0.2%, inflation is headed higher in 2024. So there is a chance that we won't see a downside correction in the US 10-year yield, and if that's not the case, the selloff could extend until the 10-year yield settles somewhere between 5-5.50%.     Anyway, the market mood got significantly better yesterday. Tech stocks fueled the rally in the US, as Nvidia jumped 8.5% yesterday, a day before the release of its Q2 results. Nvidia'd better meet its $11bn sales forecast for last quarter, otherwise, there is a chance that we will see a sizeable downside correction.     In Europe, oil stocks shouldered yesterday's rally, as the barrel of US crude made an attempt above the $82pb, on lower OPEC+ exports and on the back of a golden cross formation on a daily chart where the 50-DMA crossed above the 200-DMA. But yesterday, that wasn't the case. Oil's positive attempt remained short-lived, on the contrary, and the barrel of crude is preparing to test the $80pb support to the downside again this morning. The market is driven by two major forces: the supply tightness and the Chinese demand expectations. These days, the Chinese demand expectations are very much in focus, which could help the oil bears take advantage for selling the recent rally in oil prices. But tighter OPEC rhetoric will remain a major support into the 200-DMA, near $76pb.  
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US Banks React to Fresh Rating Downgrades as Nvidia Earnings Take Center Stage

Ipek Ozkardeskaya Ipek Ozkardeskaya 23.08.2023 10:05
US banks fall on fresh rating downgrades, Nvidia earnings in focus  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank     The market mood turned sour again, and the S&P500 fell after a short relief. S&P's bank rating downgrades – which came a few days after Moody's downgraded some US small and mid-sized banks and Fitch downgraded the US' rating, came as a reminder that the rising rates won't be benign for banks as depositors move their funds into higher interest-bearing accounts, increasing banks' funding costs. The decline in bank deposits squeezes liquidity, while the value of securities that they hold in their portfolios decline. Plus, regional banks continue to face the risk of a sharp decline in commercial real estate loans. As a result, the S&P500 fell 0.28% on Tuesday, Invesco's KBW bank ETF dived more than 2.50%.       Elsewhere, the rising rates and declining purchasing power finally start showing in some retailers' quarterly announcements. Macy's for example sank 14% yesterday on rising credit card delinquencies and Dick's Sporting Goods slumped more than 24% on 'elevated inventory shrink – in particular theft. Both companies gave a morose outlook for consumer demand moving forward. Could that be a sign of potentially slower consumer spending in the next few months? We will see that. For now, the latest US data remains strong, the Fed expectations are hawkish, no one sees Jerome Powell back off with the Fed's tightening policy, and the US yields are rising. The US 2-year yield pushes higher above the 5% mark, while the 10-year yield struggles near 4.30%, where it sees decent resistance. In one hand, there is a strong demand for US 10-year papers at these levels as many asset managers consider that the levels are good entre points. On the other hand, the hawkish Fed expectations, prospects of – maybe – higher rates, which will be held for a prolonged period of time continue pressuring the yields higher along with the US Treasury's plan to issue more bonds in H2 – as they issued too many T-bills so far to fund their deficit.       And there is one more thing weighing on US treasuries and that's China. Yes, the sluggish Chinese growth is tempering energy and commodity prices and doesn't add to inflationary pressures. But Beijing adds on the US Treasury selloff as it fights against a softer yuan. The People's Bank of China (PBoC) set its daily yuan fixing surprisingly higher than expected this week in a move that Bloomberg described as the most forceful on record.       When the USD/CNY rallies due to higher US and lower Chinese yields, the Chinese sell their US denominated assets to defend yuan. And doing so, they contribute to the further strengthening of the US yields, and the US dollar is pressured higher on the back of stronger yields. Then, the cycle starts all over again. A stronger dollar, and weaker yuan forces the PBoC to sell USD assets. The UST selloff pushes US yields higher and strengthens the dollar and the yields.   
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Nvidia's Remarkable Q2 Earnings Spark Excitement

Ipek Ozkardeskaya Ipek Ozkardeskaya 24.08.2023 10:56
Amazing Nvidia.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Nvidia announced STUNNING results when it released its Q2 earnings yesterday after the bell. The company reported $13.5bn sales last quarter, well above its $11bn projection, and said that it expects $16bn sales for next quarter, up from $12.6bn forecast last quarter. And oh, earnings jumped to $2.70 per share, versus $2.09 expected by analysts, and the most-loved chipmaker of the year approved $25bn in share buybacks. There is nothing an investor could ask more. The market expectations were sky-high, the results went to the moon, the forecasts for this quarter are as stunning, and the company is expected to earn around $30bn in FY2024 because Nvidia is not and will not be concerned about the industry-wide slump in chips demand, thanks to a decent surge in demand for AI processors in data centers. Magic is happening for Nvidia. So, the stock price jumped 10% in the afterhours trading to flirt with $518 per share, and Nvidia news has a boosting effect on technology stocks, if nothing by confirming that all the talk around the AI-craze was not empty, after all. Nasdaq futures are up by around 1.23% this morning, the S&P500 futures are also in the positive, and further good news is that the yields are down from Europe to US, on meagre PMI numbers released yesterday. And that is the perfect combo for the tech stocks – which have, so far this year, been – unquestionably - the best place to be in the S&P500 this year.    
Boosting Stimulus: A Look at Recent Developments and Market Impact

Boosting Stimulus: A Look at Recent Developments and Market Impact

Ipek Ozkardeskaya Ipek Ozkardeskaya 28.08.2023 09:15
Here, get more stimulus!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) Chair Jerome Powell's Jackson Hole speech was boring, wasn't it? Powell repeated that inflation risks remain to the upside despite recent easing and pointed at resilient US growth and tight US jobs market, and reiterated the Fed's will to keep the interest rates at restrictive levels for longer. The US 2-year pushed above 5%, as Powell's comments kept the idea of another 25bp hike on the table before the year end, but the rate hike will probably be skipped in September meeting and could be announced in the November meeting instead, according to activity on Fed funds futures. The US 10-year yield is steady between the 4.20/4.30%. The S&P500 gained a meagre 0.8% last week, yet managed to close the week above the 4400 mark and above its ascending trend base building since last October, while Nasdaq 100 gained 2.3% over the week, although Nvidia's stunning results failed to keep the share price above the $500 mark, even though that level was hit after the results were announced last week. And the disappointing jump in Nvidia despite beating its $11bn sales forecast and despite boosting its sales forecast for this quarter to $16bn, was a sign that the AI rally is now close to exhaustion.   What's up this week?  This week will be busy with some important economic data from the US. We will watch JOLTS job openings tomorrow, Australian and German CPIs and US ADP and GDP reports on Wednesday, to see if the US economy continues to be strong, and the jobs market continues to be tight. On Thursday, Chinese PMI numbers, the Eurozone's CPI estimate and the US core PCE will hit the wire, and on Friday, we will watch the US jobs report and ISM numbers. Note that the US dollar index pushed to the highest levels since May after Powell's Jackson Hole speech. The EURUSD is now trading a touch below its 200-DMA, even though the European Central Bank (ECB) chief Lagarde repeated that the ECB will push the rates as high as needed. Yet, the worsening business climate, and expectations in Germany somehow prevent the euro bulls from getting back to the market lightheartedly, while the yen shorts are comforted by the Bank of Japan (BoJ) governor's relaxed view on price growth – which remains slower than the BoJ's goal, but the possibility of a direct FX intervention to limit the USDJPY's upside potential keeps the yen shorts reasonably on the sidelines, despite the temptation to sell the heck out of the yen with the BoJ's incredible policy divergence versus the rest of the developed nations.   Here, get more stimulus!  The week started upbeat in China and in Hong Kong, after the government announced measures to boost appetite for Chinese equities. Beijing halved the stamp duty on stock trades, while Hong Kong said it plans a task force to boost liquidity. The CSI 300 rallied more than 2% and HSI jumped more than 1.5%. But gains remain vulnerable as data released yesterday showed that Chinese company profits fell 6.7% last month from a year earlier. That's lower than 8.3% printed in June, but note that for the first seven months of 2023, profits declined 15.5%, and that is highly disquieting given the slowing economic growth and rising deflation risks, along with the default risks for some of the country's biggest companies. Evergrande, for example, posted a $4.5 billion loss in the H1.  Therefore, energy traders remain little impressed with China stimulus measures. The barrel of US crude trades around the $80pb level, yet the failure to break below a major Fibonacci support last week – major 38.2% Fibonacci retracement on the latest rally, keeps oil bulls timidly in charge of the market despite the weak China sentiment. Oil trading volumes show an unusual fall since July when compared to volumes traded in the past two years. That's partly due to weakening demand fears and falling gasoline inventories, but also due to tightening oil markets as a result of lower OPEC supply. We know that the demand will advance toward fresh records despite weak Chinese demand. We also know that OPEC will keep supply limited to push prices higher. Consequently, we are in a structurally positive price setting, although any excessive rally in oil prices would further fuel inflation expectations, rate hike expectations and keep the topside limited in the medium run.    
Assessing Global Markets: From Chinese Stimulus to US Jobs Data

Assessing Global Markets: From Chinese Stimulus to US Jobs Data

Ipek Ozkardeskaya Ipek Ozkardeskaya 29.08.2023 10:08
Calm before the storm?  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The week started in a relatively good mood. The S&P500 posted its first back-to-back gains this month, even though the US 2-year yield advanced to a fresh high since July with the 2 and 5-year treasury auctions hitting the highest yields since before the 2008 crisis. One would think that the Chinese stimulus measures have lifted up the sentiment across global equities, but the CSI 300 closed yesterday just around 1% higher. In this sense, yesterday was just another day the Chinese stimulus measures didn't get the attention Chinese officials were hoping for. And that's the new normal. Before 2020, any stimulus news from China would move oceans, but now, China can cut rates, inject liquidity, half stamp duty, prevent big names from becoming net sellers... nothing is enough to bring investors back apart from a massive fiscal stimulus. And the chances are that, China won't do that, because Xi doesn't want to explode the national debt levels – which are already alarmingly high – to kick start another unsustainable growth in China. That's not bad in the long run, but it sure costs China a lot of investment. MSCI's EM ex-China ETF has outperformed the MSCI China since the beginning of the year and the trend in Chinese equities, and the latest surveys hint at around 5% growth in 2023, in line with the government's growth target, but not enough to bring money on board.     Focus on US growth & jobs data  The softer US dollar gave some breathing room to other currencies yesterday. The EURUSD bulls won a battle near the 200-DMA, and the pair is slightly above that level this morning, while the USDJPY is steady around 146.50. Crude oil steadied above the $80pb with the news that the tropical storm Idalia could interrupt crude production in the Gulf Coast and put an additional short-term pressure on oil prices. Gold is better bid above the $1900 thanks to a retreat in the US 10-year yield.  Today, the US JOLTS data is expected to post a third month below 10mio job openings. A number lower than expectations would point to loosening jobs market and could soften the hawkish Federal Reserve (Fed) expectations, while a strong figure will keep the economists and the Fed officials in a state of confusion. It is now increasingly certain that the Covid disruption in jobs market has largely passed, which means that the fact that the jobs figures remain resilient to rate hikes is due to another reason! And that reason could be the ageing population. Looking at the CBO projections, the participation rate in the US is not at shocking levels compared to the long-term projections. On the contrary, the actual participation rate (62.6%) is even higher than the long-term projection (62.4%).   Strong jobs figures have potential to boost Fed hawks as tightness of the jobs market means people ask for more money for doing the same job than they would otherwise. 
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Dream JOLTS Data Sparks Optimism and Market Gains

Ipek Ozkardeskaya Ipek Ozkardeskaya 30.08.2023 09:43
Dream JOLTS data By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank     Yesterday was a typical 'bad news is good news' day. Risk sentiment in the US and across the globe was boosted by an unexpected dip in US job openings to below 9 mio jobs in July, the lowest levels since more than two years, and an unexpected fall in consumer confidence in August. The weak data pushed the Federal Reserve (Fed) hawks to the sidelines, and bolstered the expectation of a pause in September, and tilted the probabilities in favour of a no hike in November, as well. $    Note that the latest JOLTS data printed the ideal picture for the Fed: Job vacancies eased, but hiring was moderate and the layoffs remained near historically low levels. The data also suggested that the era of Great Resignation, where quit rates hit a record, could be over, as people quitting their jobs retreated to levels last seen before the pandemic. The US 2-year yield dived 15bp, the 10-year yield fell 8bp, while the S&P500 jumped nearly 1.50% to above its 50-DMA and closed the session at a spitting distance from the 4500 level. 90% of the S&P stocks gained yesterday; even the Big Pharma which had a first glance at which medicines will be subject to price negotiations with Medicare held their ground. But of course, tech stocks led the rally, with Nasdaq 100 closing the session with more than a 2% jump. Tesla was one of the biggest gainers of the session with a more than a 7.5% jump yesterday.    US and European futures suggest a bullish open amid the US optimism and news of upcoming deposit and mortgage rate cuts from Chinese banks.    On the data front, all eyes are on the US ADP report and the latest GDP update. The ADP report is expected to reveal below 200K new private job additions in August, while the US growth is expected to be revised from 2% to 2.4% for the Q2 with core PCE prices seen down from 4.90% to 3.80%. If the data is in line with expectations, we shall see yesterday's optimism continue throughout today. Again, what we want is to see – in the order of importance: 1. Slowing price pressure, 2. Looser, but still healthy jobs market, 3. Slowing but not contracting economy to ensure a soft landing. We will see if that's feasible.     In Europe, however, that slow landing seems harder to achieve. Today, investors will keep an eye on the latest inflation updates from euro-area countries, and business and sentiment surveys. We expect to see some further red flags regarding the health of the European economy due to tighter financial conditions in Europe and the energy crisis. German Chamber of Commerce and Industry warned yesterday that German businesses are cutting investments and move production abroad due to high energy prices at home. The EURUSD flirted with 1.09 yesterday, as investors trimmed their long dollar positions after the weak JOLTS data. The AUDUSD rebounded, even though the latest CPI print showed that inflation in Australia slowed below 5% in July, a 17-month low. In the UK, shop prices fell to a 10-month low. But it won't be enough for central bankers to cry victory just yet, because the positive pressure in energy prices remains a major concern for the months ahead. The barrel of American crude is pushing toward the $82pn level, with improved trend and momentum dynamics hinting that the bullish development could further extend.  
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Inflation Data Analysis: Will Key Numbers Prompt ECB's September Pause?

Michael Hewson Michael Hewson 31.08.2023 10:25
Key inflation numbers set to tee up ECB for September pause?     By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets underwent a bit of a pause yesterday with a mixed finish, although the FTSE100 did manage to eke out a gain, hitting a two-week high as well as matching its best run of daily gains since mid-July. US markets continued to track higher, with the Nasdaq 100 and S&P500 pushing further above their 50-day SMAs, with both closing at a two-week high, for their 4th day of gains.   As we look towards today's European session, the focus today returns to inflation, and more importantly whether there is enough evidence to justify a pause in September from both the ECB as well as the Federal Reserve, as we get key flash inflation numbers from France, Italy, and the EU, as well as the latest core PCE inflation numbers for July from the US.   Over the course of the last few weeks there has been increasing evidence that the eurozone economy has been slowing sharply, with the recent flash PMIs showing sharp contractions in both manufacturing and the services sector. Other business surveys have also pointed to weakening economic activity although prices have also been slowing, taking some of the pressure off the ECB to continue to hike aggressively.   At the last ECB meeting President Lagarde suggested a pause might be appropriate at the September meeting, acknowledging that policy was starting to become restrictive. We've also seen some ECB policymakers acknowledging the risks of overtightening into an economic slowdown, while on the flip side head of the Bundesbank Joachim Nagel has insisted further rate hikes are likely.   Yesterday's Germany and Spain flash CPI numbers for August highlight the ECB's problem, with Spain CPI edging up in August to 2.4% with core CPI slowing modestly to 6.1%. Headline inflation in Germany only slowed modestly to 6.4% from 6.5%.   Today's headline EU flash CPI numbers are therefore expected to be a key test for the ECB, when they meet on 14th September especially if they don't slow as much as markets are pricing. French CPI is expected to accelerate to 5.4% in August while Italy CPI is forecast to slow to 5.6%.   EU headline CPI is forecast to slow to 5.1% from 5.3%, with core prices expected to slow to 5.3% from 5.5%, although given the divergent nature of the various CPI readings of the big four eurozone economies there is a risk of an upside surprise.    The weaker than expected nature of this week's US economic data has been good news for stock markets, as well as bond markets, in so far it has helped to reinforce market expectations that next month's Fed meeting will see US policymakers vote to keep rates on hold.   A slowdown in job vacancies, a downgrade to US Q2 GDP and a weaker than expected ADP jobs report for August appears to show a US economy that is not too hot and not too cold.   Even before this week's economic numbers the odds had already been leaning towards a Fed pause when the central bank meets in September, even if there is a concern that we might still see another rate hike later in the year.   These concerns over another rate hike are mainly down to the stickiness of core inflation which only recently prompted a sharp move higher in longer term rates, causing the US yield curve to steepen off its June lows. The June Core PCE Deflator numbers did see a sharp fall from 4.6% in May to 4.1% in June, while the deflator fell to 3% from 3.8%.   Today's July inflation numbers could prompt further concern about sticky inflation if we get a sizeable tick higher in the monthly, as well as annual headline numbers, reversing some of the decline in bond yields seen so far this week.   When we got the July CPI numbers earlier this month, we saw evidence that prices might struggle to move much lower, after headline CPI edged higher to 3.2%. This could translate into a similar move today with a move higher to 3.3% in the deflator, and to 4.2% in the PCE core deflator.     Personal spending is also expected to rise by 0.7% in July, up from 0.5% in June. Weekly jobless claims are expected to remain steady, up slightly to 235k.       EUR/USD – the rebound off the 1.0780 trend line support from the March lows continues to gain traction, pushing up to the 1.0950 area. We need to push through resistance at the 1.1030 area, to signal a return to the highs this year.   GBP/USD – another day of strong gains has seen the pound push back above the 1.2700 area. We need to push back through the 1.2800 area to diminish downside risk and a move towards 1.2400.       EUR/GBP – the failure to push through resistance at the 0.8620/30 area yesterday has seen the euro slip back towards the 0.8570/80 area. While the 50-day SMA caps the bias is for a retest of the lows.   USD/JPY – the 147.50 area remains a key resistance. This remains the key barrier for a move towards 150.00. Support comes in at last week's lows at 144.50/60.   FTSE100 is expected to open 6 points higher at 7,479   DAX is expected to open 30 points higher at 15,922   CAC40 is expected to open 13 points higher at 7,377  
Fed Expectations Amid Mixed Data: Wishful Thinking or Practical Pause?

Fed Expectations Amid Mixed Data: Wishful Thinking or Practical Pause?

Ipek Ozkardeskaya Ipek Ozkardeskaya 31.08.2023 10:26
Wishful thinking?  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    America had another 'bad news is good news' moment yesterday; softer-than-expected ADP and growth data further fueled expectations that the Federal Reserve (Fed) is – maybe – good for a pause. The ADP report, released yesterday, showed that the US economy added 177K new private jobs in August, lower than expected and more than half the number printed a month earlier, while the US GDP was revised from 2% to 2.1% instead of 2.4%, due to lower business investment than initially reported and to downside revisions in inventory and nonresidential fixed investment. Household spending, however, continued leading the US economy higher; it was revised up to 1.7%. All in all, the data was certainly weaker than expected but the numbers remain strong, in absolute terms.     The S&P500 gained for the 4th consecutive session yesterday, the index is now above the 4500 level and has around 85 points to go before recovering to July highs. The US 2-year yield settles below the 5% level on expectation that the Fed has no reason to push hard to hike rates; it could just wait and see the impact of its latest (and aggressive) tightening campaign.  In the FX, the softening Fed expectations are weighing on the US dollar. The dollar index fell to its 200-DMA and could sink back to its March to August descending channel. But the seasonality is on the dollar's side in September. Empirical data shows that the US dollar performed better than its peers for six Septembers in a row since 2017, and it gained 1.2% on average, thanks to increased quarter-end dollar buying, and an increased safe haven flows before October – which is seasonally a bad month for stocks, according to Bloomberg.       But the dollar's relative performance is also much influenced by the growth and price dynamics elsewhere. Looking at the latest Euro-area CPI numbers, the picture in Europe is much less dovish despite morose business and consumer sentiment in Europe and weak PMI numbers printed recently. Despite the dark clouds on the European skies, the latest inflation numbers showed that inflation in both Spain and Germany ticked higher in August for the second month – a U-turn that could be explained by the re-surge in oil prices since the end of June. This morning, the aggregate CPI number may not confirm a fall to 5.1% in headline inflation. And a stronger-than-expected CPI print will likely boost the ECB hawks and get the euro bulls to test the 50-DMA, near 1.0970, to the upside.     Later today, investors will focus on the US core PCE data, which has a heavier weight on the international platform.  Therefore, the strength of the US core PCE will say the last word before tomorrow's jobs data. Analysts expect a steady 0.2% advance on a monthly basis, and a slight advance from 4.1% to 4.2% on a yearly basis. A bad surprise on the topside could eventually wash out the past days' optimism regarding the future of the Fed policy. So, fingers crossed, we really need the US inflation to fall, and to stay low.    But looking at energy prices, a sustainable fall in headline inflation could be wishful thinking for the upcoming months. US crude remains upbeat near the $82pb, as the latest EIA data showed that crude inventories fall more than 10mio barrel last week, as separate data showed that crude stored on ships at sea fell to the lowest levels in a year - a clear indication that OPEC's supply cuts are taking effect. Plus, Russia is discussing with OPEC to extend oil-export cuts and Saudi is expected to prolong its supply cuts.    
Key Economic Events and Corporate Earnings Reports for the Week Ahead – September 5-9, 2023

US Jobs Data Signals Potential Fed Pause as Savings Dwindle

ING Economics ING Economics 01.09.2023 10:18
Jobs day!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   August ended on a downbeat note for the S&P500 and on an upbeat note for the US dollar as, even though the Federal Reserve's (Fed) favourite gauge of inflation, PCE, came in line with expectations in July for both the core and headline figures – and even though the core PCE posted the smallest back-to-back rise since late 2020, the supercore services inflation – very closely watched by Mr. Powell and team, and that excludes not only energy but also housing, rose by the most on a monthly basis since the year began. Plus, personal spending remained strong – in line with the GDP data released earlier this week.   Digging deeper, the personal income fell slightly, meaning that Americans continue to tap into the reserves to continue spending. But the good news for the Fed is that the consumer spending at this speed could continue as long as the savings are available. And according to the latest data, personal savings in the US fell from 4.3% in June to 3.5% in May. Before the pandemic, the savings level was close to 9%. In conclusion, savings are melting, housing affordability is falling, mortgage rates are up, low-income Americans reportedly fall behind their important payments like rent, and the main street gives away signs of suffering. But the GDP remains above 2%, above the long-term trend which is thought by the Fed to be around 1.8%, and the scenario of soft landing is what the market is pricing convincedly.  Jobs day!  The US jobs data shows signs of loosening but the numbers are still at historically strong levels. Due to be released later today, the US unemployment rate is expected to remain at a multi-decade low of 3.5%, and the US economy is expected to have added around 170K new nonfarm jobs in August. In the last twelve months, the US economy added almost 280K jobs on average. If today's data comes in line with expectations, the last 12-month average will still remain close to 270K monthly job additions on average. Historically, we expect NFP to fall to around 50K per month a few months into recession. So, to tell you that: we are not there just yet.   Today, a softer than expected NFP figure, a slight deterioration in the unemployment rate, or softer-than-expected wages data could further cement the idea that the Fed will skip a pause at the September meeting, and maybe at the November as well. So far, the US Treasuries have had their best week since mid-July. The US 2-year yield retreated to 4.85%, while the 10-year yield flirted with the 4% mark for the first time in three weeks. But who says a rapid jump, also says a rising possibility of a correction. One thing is sure, we don't expect any major central banker to call victory on inflation just yet...  European inflation sticks around 5.3% due to rising energy  Latest CPI estimate showed that Eurozone inflation stagnated at 5.3% in August due to the sticky energy costs, versus a fall to 5.1% expected by analysts. Inflation in France for example accelerated at a much faster pace than expected in August, while the latest PMI numbers showed weakness in activity. German retail sales also fell faster than expected in July, whereas inflation in Germany also ticked higher last month. The combination of weak economic data and sticky inflation is a nightmare scenario for the European Central Bank (ECB). The ECB should raise the rates to continue fighting inflation, even though the underlying economies are under pressure. Today, the final PMI figures will likely confirm the ongoing slowdown. The EURUSD gave back most of its weekly advance after yesterday's inflation data, hinting that the market is worried that further ECB hikes will further damage economic activity. The bears are tempted to retest the 200-DMA support. If they are successful, the next natural bearish target stands at a distant 1.0615, the major 38.2% Fibonacci retracement on past year's rally, which should distinguish between the continuation of the actual positive trend and a bearish medium term reversal.   More stimulus from China  This week's PMI data showed that the Chinese manufacturing contracted at a slower pace, and today's Caixin PMI showed that it stepped into the expansion zone in August, whereas the Chinese services PMI fell short of expectations and the wave of further bad news, like Country Garden announcing an almost $7bn loss in H1, talk of the company's yuan denominated bond default, Moody's downgrading of the firm to Ca and Evergrande's wealth unit saying that it couldn't make payments on its investment products due to a cash crunch, combined to the existing and worsening property crisis get the People's Bank of China (PBoC) to announce lower payment requirements for first and second-time house buyers, and to encourage lower rates on existing mortgages. But it won't improve the situation overnight. The CSI 300 is closing a week PACKED with fresh stimuli on a meagre note.   Crude rallies  The barrel of American crude jumped more than 2% yesterday and is consolidating above the $84pb level. The next bullish targets stand at $85pb, the August peak, and $89pb, in the continuation of an ABCD pattern. But the rally can't extend above $90 without reviving global inflation expectations and recession worries, which would then start playing against the bulls. 
Soft US Jobs Data and Further China Stimulus Boost Risk Appetite

Soft US Jobs Data and Further China Stimulus Boost Risk Appetite

ING Economics ING Economics 04.09.2023 10:49
Soft US jobs data, further China stimulus fuel appetite  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank       Last week ended on a positive note, and this week started with a solid risk appetite, as the US jobs data hinted at a finally loosening jobs market, while Chinese stocks rallied on further measures deployed by the Chinese government to support the country's faltering property market. In fact, the latest news suggests that more than 1800 new homes were sold in Beijing on Saturday alone after the government eased mortgage rules last week (vs. around 3100 homes were sold in Beijing during the entire August). The Hang Seng index jumped more than 3% this Monday before paring gains.   In the US, Friday's jobs data was good, in terms of Federal Reserve (Fed) expectations. The US economy added 187K new nonfarm jobs last month, above expectations, but the unemployment rate ticked higher to 3.8% as the participation rate rose. The wages growth fell from 4.4% to 4.3% in August. The US 2-year yield, which is the most sensitive to changes in Fed expectations, tipped a toe below the 4.80% level, as investors took the opportunity to increase their bets that the Fed is certainly done with its rate hikes this cycle. Activity on Fed funds futures gives around 93% chance for another skip at the September meeting, and the probability of a pause in November has almost jumped to two thirds. The S&P500 recorded its best week since June, and rebounded to the highest level in a month, while Nasdaq 100 ended last week a few points below the 15500 level, and with trend and momentum indicators pointing at further strength.   Today, the US and Canada will be closed, but Europe is open for business and even though the week starts with a favourable risk appetite, there is nothing in the latest economic data to make the European investors cheer. Released last Friday, the euro area manufacturing PMI came in lower than expected, and posted the 14th consecutive month of contraction as the energy crisis continued taking a toll on activity in the old continent. Released earlier last week, the latest inflation estimate for the Eurozone showed that inflation in the euro-area stagnated, instead of easing further. In summary, activity is slowing but inflation is not - due to still too high energy prices, and that's bad for the European Central Bank (ECB). There are now rising voices that the ECB won't hike rates when it meets this month, although it's hard to imagine Christine Lagarde announce a pause while weakness in economic activity isn't yet reflected in price dynamics, and the European jobs market remains relatively strong.       US crude hits $86pb  The barrel of US crude traded past $86pb, as oil bulls continued buying the tight supply narrative from OPEC+. But looking at the crude's impressive rally since the 24th of August dip, and taking into account that the RSI index now warns that oil has stepped into the overbought market conditions, we shall see a minor correction in oil prices this week, before an eventual push toward the $89/90pb area.   Elsewhere, the European nat gas futures remain highly volatile due to strikes in Australia. Hundreds of Chevron workers will be going on a strike on September 7. Strikes cause decent positive pressure and a lot of volatility in TTF futures. But the European nat gas reserves are full by around 90% and there is no particular urge for the European to rush to nat gas at the current prices. Therefore, the price rallies on strike news remain interesting short-term trade opportunities for top sellers. 
UK Labor Market Shows Signs of Loosening as Unemployment Rises: ONS Report

Market Impact Beyond Apple: US Small Caps, Yen, and ECB Meeting

Ipek Ozkardeskaya Ipek Ozkardeskaya 08.09.2023 12:49
Beyond Apple...  When a tech giant like Apple, with a market cap of nearly $2.8 trillion sneezes, the whole market catches a cold. The S&P500 fell for the third day to 4451 yesterday, while Nasdaq 100 slipped below its 50-DMA. Apple selloff also affected suppliers and other mega cap stocks. Qualcomm for example fell more than 7%, while Foxconn remained little impacted by the news.   Zooming out, the US small caps were also under pressure yesterday, the Russell 2000 fell below its 100-DMA and came close to the 200-DMA, as the latest data showed that the US jobless claims fell to the lowest levels since February, defying the latest softness in jobs data. Other data also showed that the labor unit cost didn't fall as much as expected in Q2. But happily, the US treasuries were not much affected by the latest jobless claims data. The US 2-year yield fell below 5%, although the US dollar index extended its advance toward fresh highs since last March.   The selloff in the Japanese yen slowed against the US dollar. The USDJPY pushed below the 147 mark this morning despite a slower than expected GDP print in Japan in the Q2. Capital expenditure fell 1%, private consumption declined 0.6%, making the case for a softer Bank of Japan (BoJ) more plausible. But the Japanese officials dared traders to continue buying the USDJPY to 150, saying that they would intervene.   The EURUSD sees more hesitation into the 1.07 mark, and into next week's European Central Bank (ECB) meeting. The base case is a no rate hike, and yesterday's morose growth figures came to cement the no change expectation. But the economic weakness may have little impact on inflation. Any bad surprise in German inflation due this morning could convince some ECB doves that the European policymakers may announce another 25bp hike when they meet next week.  
Behind Closed Doors: The Multibillion-Dollar Deals Shaping Global Markets

A Week Ahead: Market Insights and Key Events with Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

Ipek Ozkardeskaya Ipek Ozkardeskaya 11.09.2023 10:54
A busy week ahead By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The S&P500 ended last week on a meagre positive note, as the selloff in Apple shares slowed. Apple will be unveiling the new iPhone15 after the Chinese storm. Last week's selloff was certainly exaggerated. Once the Chinese dust settles, Apple's performance will continue to depend on the overall sentiment regarding the tech stocks, which will in return, depend on the Federal Reserve (Fed) expectations, the rates, energy prices, Chinese property crisis, deflation risks, and how that mix affects the global price dynamics.   China announced this morning that consumer prices rose by 0.1% y-o-y in August, slower than 0.2% penciled in by analysts and after recording its first drop in over two years of 0.3% a month earlier. Core inflation, excluding food and energy prices, rose 0.8% y-o-y, at the same speed as in July, and remained at the fastest pace since January. The numbers remain alarmingly low, and the recent stimulus measures announced by the government did little to boost investors' appetite. The CSI 300 was thoroughly sold on the rallies following stimulus news. And the yuan continued trending lower against the US dollar.  The US dollar is under a decent selling pressure this morning, particularly against the yen, after comments from the Bank of Japan (BoJ) Governor Ueda were interpreted as being 'hawkish'. Ueda said that 'there may be sufficient information by the year-end to judge if wages will continue to rise', and that will help them decide whether they would end the super-loose monetary policy and step out of the negative rate territory. The remarks were disputably hawkish, to be honest, but given how negatively diverged the Japanese monetary policy is, any hint that the negative rates could end one day boosts hope. The 10-year JGB yield jumped 5bp to 70bp on the news, and the USDJPY fell to 146.30. The USDJPY has a limited upside potential as the Japanese officials have been crystal clear last week that a further selloff would be countered by direct intervention. But the pair has plenty of room to drop significantly, when the BoJ finally decides to jump and leave the negative rates behind.   This week, the US inflation numbers will give the dollar a fresh direction, and hopefully a softish one. The headline inflation is expected to tick higher from 3.2% to 3.6% in August, on the back of rising energy prices, while core inflation may have eased from 4.7% to 4.3%. 'We've gotten monetary policy in a very good place' said the NY Fed President Williams last week. Indeed, the Fed hiked the rates by more than 500bp and shed its balance sheet by $1 trillion, while keeping the GDP around 2%, as inflation eased significantly from the 9% peak last summer to around 3% this summer. But crude oil cheapened by more than 40% between last summer and this spring, and the prices are now up by nearly 30% since then. The Fed will likely hold fire when it meets this month, but nothing is less sure for the November meeting. This week's inflation data will be played in terms of November expectations.   For the European Central Bank (ECB), the base case scenario is a no rate hike at this week's monetary policy meeting, but the European policymakers could announce a 25bp hike despite the latest weakness in economic data. The EURUSD is slightly better bid this morning, expect consolidation and minor correction toward the 200-DMA, 1.0823, into the meeting. The ECB, unlike the Fed, is not worried about surprising the market, on one side or the other. A no rate hike – even if it's a hawkish pause - could push the EURUSD to below 1.0615, the major 38.2% Fibonacci retracement, into a medium term bearish trend whereas a 25bp hike should trigger a rally toward the 1.09 level.   On the corporate calendar, ARM will go public this week, in what is going to be this year's biggest IPO. The company is expected to price on the 13th of September with a price range of $47-51 per share, and will start trading on Nasdaq the following day. ARM is expected to be valued at around $52bn, roughly 20 times its last disclosed annual revenue on expectation that the chips needed to power the generative AI will make ARM a sunny to-go place. Hope it won't be stormy.  
A Bright Spot Amidst Economic Challenges

A Bright Spot Amidst Economic Challenges

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.09.2023 11:05
A bright spot If there is one bright spot in Britain with all this, it is the FTSE100. First, the rising energy prices are good for the energy-rich FTSE100. Second, softer sterling makes these companies more affordable for international investors, who should of course think of hedging their sterling exposure, and third, more than 80% of the FTSE100 companies' revenues come from oversees, which means that when they convert their shiny dollar revenues back to a morose sterling, well, they can't really complain with a stronger dollar. Consequently, if a more dovish BoE is bad for sterling, the combination of a hawkish Fed and a dovish BoE and a pitiless OPEC is certainly good for the FTSE100. The index has been left behind the S&P500 this year, as the tech rally is what propelled the American index to the skies, but that technology wind is now turning direction. The FTSE 100 broke its February to September downtrending trend to the upside and is fundamentally and technically poised to gain further positive traction, whereas, the S&P500 is heaving a rough month, with technology stocks set for their worse performance this year, under the pressure of rising US yields, which make their valuations look even more expensive.   Interestingly, the US 2-year yield peaked at 5.20% after the Fed's hawkish pause this week and is back headed toward the 5% mark, but the gap between the US 2-year yield and the top range of the Fed funds rate is around 40bp, which is a big gap, and even if the Fed decided not to hike rates, this gap should narrow, in theory. If it does not, it means that bond traders are betting against the Fed's hawkishness and think that the melting savings, the loosening jobs market, tightening bank lending conditions and strikes, and restart of student loan repayments and a potential government shutdown could prevent that last rate hike to happen before this year ends. And indeed, activity on Fed funds futures gives more than 70% chance for a third pause at the FOMC's November meeting, and Goldman Sachs now sees the US expansion slow to 1.3% from 3.1% printed in the Q3. KPMG also warned that a prolonged auto stoppage may precipitate contraction. And if no deal is inked by noon today, the strikes will get worse.   One's bad fortune is another's good fortune  The Japanese auto exports surged big this year, they were 50% higher in yen terms. The yen is certrainly not doing well, but yes, you can't have it all. That cheap yen is one of the reasons why the Japanese export so well outside their country. And in case you missed, the BoJ did nothing today to exit their hyper-ultra-loose monetary policy. They didn't even give a hint of normalization, meaning that the yen will hardly strengthen from the actual levels. In the meantime, Toyota, Mitsubishi and Honda shares are having a stellar year, and the US strikes will only help them do better. 
Asia Weakness Sets Tone for Lower European Open on 26th September 2023

Asia Weakness Sets Tone for Lower European Open on 26th September 2023

Ipek Ozkardeskaya Ipek Ozkardeskaya 26.09.2023 14:41
05:40BST Tuesday 26th September 2023 Asia weakness set to see lower European open By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets got off to a poor start to the week yesterday as concerns around sticky inflation, and low growth (stagflation), or recession served to push yields higher, pushing the DAX to its lowest levels since late March, pushing both it and the CAC 40 below the important technical level of the 200-day SMA. Recent economic data is already flashing warning signs over possible stagnation, especially in Europe while US data is proving to be more resilient.   Worries over the property sector in China didn't help sentiment yesterday after it emerged Chinese property group Evergrande said it was struggling to organise a process to restructure its debt, prompting weakness in basic resources. The increase in yields manifested itself in German and French 10-year yields, both of which rose to their highest levels in 12 years, with the DAX feeling the pressure along with the CAC 40, while the FTSE100 slipped to a one week low.   US markets initially opened lower in the face of a similar rise in yields with the S&P500 opening at a 3-month low, as US 10-year yields continued to push to fresh 16-year highs above 4.5%. These initial losses didn't last as US stocks closed higher for the first time in 5 days. The US dollar also made new highs for the year, rising to its best level since 30th November last year as traders bet that the Federal Reserve will keep rates higher for much longer than its counterparts due to the greater resilience of the US economy. The focus this week is on the latest inflation figures from Australia, as well as the core PCE Deflator from the US, as well as the latest flash CPI numbers for September from France, Germany, Spain as well as the wider EU flash number which is due on Friday. This could show the ECB erred a couple of weeks ago when it tightened the rate hike screw further to a record high.   On the data front today the focus will be on US consumer confidence for September, after the sharp fall from July's 117.00 to August's 106.10. Expectations are for a more modest slowdown to 105.50 on the back of the continued rise in gasoline prices which has taken place since the June lows. The late rebound in US markets doesn't look set to translate into today's European open with Asia markets also sliding back on the same combination of stagflation concerns and reports that Chinese property company Evergrande missed a debt payment.   Another warning from ratings agency Moody's about the impact of another government shutdown on the US economy, and its credit rating, didn't help the overall mood, while Minneapolis Fed President Neel Kashkari said he expects another Fed rate rise before the end of the year helping to further boost the US dollar as well as yields.     EUR/USD – slid below the 1.0600 level yesterday potentially opening the prospect of further losses towards the March lows at 1.0515. Currently have resistance at 1.0740, which we need to get above to stabilise and minimise the risk of further weakness.      GBP/USD – slipped to the 1.2190 area, and has since rebounded, however the bias remains for a retest of the 1.2000 area. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.       EUR/GBP – currently have resistance at the 200-day SMA at 0.8720, which is capping the upside. A break here targets the 0.8800 area, however while below the bias remains for a pullback. If we slip below the 0.8660 area, we could see a move back to the 0.8620 area.     USD/JPY – has continued to climb higher towards the 150.00 area with support currently at the lows last week at 147.20/30. Major support currently at the 146.00 area.     FTSE100 is expected to open at 7,624     DAX is expected to open at 15,405     CAC40 is expected to open at 7,124  
Rising US Yields and Dollar Strength Amidst Government Shutdown Drama

Rising US Yields and Dollar Strength Amidst Government Shutdown Drama

Ipek Ozkardeskaya Ipek Ozkardeskaya 26.09.2023 14:43
US yields rise, dollar gains on another US government gong show By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The US yields rose, and the dollar extended gains yesterday as the looming US government shutdown drama got the only remaining big rating agency company Moody's to sound cautious about the US' AAA rating. 'Debt service payments would not be impacted, and a short-lived shutdown would be unlikely to disrupt the economy', they said, but 'it would underscore the weakness of US constitutional and governance strength relative to other triple-A rated sovereigns.' Both S&P and Fitch have downgraded the US credit rating this summer, over a potential US default in the context of debt ceiling drama.   The US 10-year yield advanced past the 4.55% level and could advance even higher due to political tensions and an increased treasury issuance for long-dated papers. Rising US yields helped the US dollar gain more strength across the board. The US dollar index, which was already propelled into the bullish consolidation zone following the Federal Reserve's (Fed) pledge last week to maintain rates higher for longer, hit a fresh high since last November. Even if it sounds funny, the dollar could profit from safe-haven inflows if the government shutdown drama doesn't last long. During the last US government shutdown, in 2018 – which was, by the way the longest shutdown since 1970s - the US dollar gained against most major currencies. Of course, the longer a shutdown lasts, the bigger the impact would be on the economy, and potentially on the US' credit rating. And the bigger the impact on the US growth and its credit worthiness, the more likely we see the US dollar get – at least a small – hit from another political gong show. For now, though, don't pull all your eggs out of the US basket, because, the dollar could well strengthen despite the political shenanigans in the US, and the US stocks could see increased inflows, as well. The last time the US government was shut in 2018, the S&P500 rallied 13%.   Yesterday's renewed dollar rally pushed the EURUSD below a critical Fibonacci level yesterday. The EURUSD slipped below the major 38.2% Fibonacci retracement on last September to July rally, and was thrown into a medium term bearish consolidation zone. The expectation that inflation in the euro area may have eased significantly may have enhanced the euro selloff before investors had a glimpse of the latest update – due later this week. Cable tested the 1.22 support to the downside, in a move that could extend toward the 1.2080 level, which is the major 38.2% retracement on pound-dollar's last year rally. The dollar-franc rises exponentially above the 200-DMA, after last week's surprise Swiss National Bank (SNB) pause convinced traders that the end of a strong franc era could be coming to an end, as long as inflation in Switzerland remains under control. Gold fell, trend and momentum indicators turned negative, and the yellow metal is about to post a death cross formation where the 50-DMA is about to cross below the 200-DMA, which could further fuel some short-term selloff. And the USDJPY is flirting with the 149 level, with traders determined to defy the Japanese officials' threats of direct FX intervention into the 150. Released this morning, the Bank of Japan's (BoJ) core CPI came in steady at 3.3%, higher than 3.2% expected by analysts. Normally, a stronger-than-expected inflation data would revive the BoJ hawks, and rate hike expectations and lead to a stronger yen. But, the BoJ isn't much concerned about inflation when they decide on their rate policy, they are more concerned about how to keep an absurdly loose monetary policy without causing more bleeding in the yen.  In energy, the barrel of US crude stabilizes around the $90pb, the daily MACD index fell to the negative territory for the first time since the beginning of September, and the impact of US shutdown drama on growth outlook, and the deepening real estate crisis in China, with Evergrande's latest default on a 4 billion yuan onshore bond, could add another layer of uncertainty in global financial markets, and trigger a much-awaited correction in oil prices. The $86/87 range is a reasonable target for those looking for a minor downside correction in oil prices without having to bet on a dramatic trend change.    
Global Markets Shaken as Yields Soar: Dollar Surges, Stocks Slump, and Gold Holds Ground Amid Debt Concerns and Rate Hike Expectations

Global Markets Shaken as Yields Soar: Dollar Surges, Stocks Slump, and Gold Holds Ground Amid Debt Concerns and Rate Hike Expectations

Saxo Bank Saxo Bank 26.09.2023 15:25
Asian stocks fell with US futures as yields on 10-year Treasuries reach a 16-year high above 4.54% while China Evergrande Group missed a debt payment adding to fears about the sectors massive debt pile. Broad dollar strength continues with the greenback trading at its highest level since December as another Fed member said another rate hike this year will be needed. Crude oil trades softer amid macroeconomic concerns and a stretched speculative long while gold holds support despite multiple headwinds. The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events. Equities: S&P 500 futures are under pressure this morning with the US 10-year yield hitting 4.55% extending its relentless move higher. If the US 10-year yield moves to 4.75% we will most likely begin seeing widening cracks in equities as the prevailing narrative of falling inflation collapses. Yesterday’s session saw no meaningful rotation between defensive and cyclical sectors. Today’s key events are US consumer confidence figures and Costco earnings tonight after the market close. FX: Higher Treasury yields, particularly in the long end, pushed the dollar higher to extend its gains. USDCHF rose to near 4-month highs of 0.9136 with immediate target at 0.9162 which is 0.382 retracement level. EURUSD broke below 1.06 support despite better-than-expected German Ifo. USDJPY attempted a move towards 149 with verbal intervention remaining lacklustre. AUD slipped on China woes while NZD and CAD were relative gainers, and the outperformer was SEK with the Riksbank starting its FX hedging today. Commodities: Crude trades lower for a second day with macroeconomic concerns, a stronger dollar and a stretched speculative long and easing refinery margin weighing on prices. Gold prices continue to defy gravity, holding above $1900 support with demand for stagflation protection offsetting the current yield and dollar surge. LME copper is trading at the widest contango (oversupply) since at least 1994 as inventories expand and China demand concerns persist. Wheat continues to face downward pressure from huge Russian harvest despite weather related downgrades in Australia. Fixed Income. The Federal Reserve’s higher-for-longer message reverberates through higher long-term US Treasury yields. Unless there is a sign that the job market is weakening significantly or that the economy is slowing down quickly, long-term yields will continue to soar. With 10-year yields breaking above 4.5% and selling pressure continuing to mount through an increase in coupon supply, quantitative tightening, and waning foreign investors demand, it’s likely to see yields continue to rise until something breaks. This week, our attention turns to US PCE numbers and Europe CPI data while the US Treasury will sell 2-, 5- and 7-year notes. It will be interesting to see if investors buy the belly of the yield curve as a sign that they are preparing for a bull rather than a bear-steepening. Overall, we continue to favour short-term maturities and quality. Volatility: VIX Index still sits at around the 17 level, but the downward pressure in equity futures this morning could push the VIX much higher. This could be a cycle where the market tests the 20 level. Macro: Fed’s Goolsbee (voter) kept the door open for more rate hikes while emphasizing higher-for-longer. Moody’s warned of a protracted government shutdown saying that it could weigh on consumer confidence and markets. Meanwhile, after PMIs, Germany’s Ifo also showed a slight improvement in business outlook to 85.7 vs. 85.2 expected, while the previous was revised higher to 85.8. There were several ECB speakers once again. Lagarde largely repeated what was said at the ECB Press Conference, noting policy rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to target. Schnabel said there is not yet an all-clear for the inflation problem. In the news: Interest rates will stay high 'as long as necessary,' the European Central Bank's leader says (Quartz), Teetering China Property Giants Undercut Xi’s Revival Push (Bloomberg), Russia dodges G7 price cap sanctions on most of its oil exports (FT), Global trade falls at fastest pace since pandemic (FT), Dimon Warns World Not Ready for 7% Fed Rate: Times of India via Bloomberg Technical analysis: S&P500 downtrend support at 4,328 & 4,200. Nasdaq 100 support at 14,687 &14,254. DAX downtrend support at 14,933. EURUSD below strong support, resuming downtrend to 1.05. GBPUSD downtrend strong support at 1.2175. Gold rangebound 1,900-1,950. Crude oil correction: WTI expect to 87.58. Brent to 80.62. US 10-year T-yields 4.55, uptrend but expect minor correction Macro events: US New Home Sales (Aug) exp 699k vs 714k prior (1400 GMT), US Consumer Confidence (Sep) exp 105.5 vs 106.1 prior. Speeches from Fed’s Bowman (voter) as well as ECB’s Lane, Simkus and Muller. Earnings events: Costco reports FY23 Q4 earnings (aft-mkt) today with estimated revenue growth of 8% y/y and EPS growth of 14% y/y. H&M reports FY23 Q3 earnings (bef-mkt) with estimated revenue growth of 7% y/y and EPS growth of 47% y/y. Micron Technology reports FY23 Q4 earnings (aft-mkt) with estimated revenue growth of -41% y/y and EPS of $-1.18 vs $1.37 a year ago. Accenture reports FY23 Q4 earnings (bef-mkt) with estimated revenue growth of 4% y/y and EPS unchanged from a year ago. Nike reports FY24 Q1 earnings (aft-mkt) with estimated revenue growth of 3% y/y and EPS growth of –20% y/y.
Equity Markets Weighed Down by Firmer Yields and Stagflation Concerns

Equity Markets Weighed Down by Firmer Yields and Stagflation Concerns

ING Economics ING Economics 27.09.2023 13:03
Firmer yields continue to weigh on equity markets By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets underwent another negative session yesterday, with the DAX and CAC 40 slipping to their lowest levels in 6-months, as firmer yields and stagflation concerns kept markets on the back foot. We could also be seeing the result of technical effects after both the French and German benchmarks fell below their respective 200-day SMA's earlier this week.     US markets also slipped back with the S&P500 and Nasdaq 100 closing at their lowest levels since early June, after US consumer confidence slowed more than expected in September, and new home sales slipped to a 5-month low.     This weakness looks set to continue this morning with another soft start for European markets, with Asia markets also on the back foot.  Yields on US treasuries have continued to push higher, with a $48bn 2-year treasury auction achieving its highest yield since 2006, while the US dollar index closed at its highest level since November last year.   The rise in the US dollar, along with yields appears to speak to an expectation that sticky inflation will be sustained, keeping rates higher for longer, particularly since oil and gasoline prices appear to be showing little sign of drifting back from their recent highs.    The rise in the US dollar is also causing problems for the Bank of Japan after Japanese finance minister Suzuki said that he viewed recent currency moves on the currency with a high sense of urgency. Suzuki went on to say that appropriate action would be taken against rapid FX moves. Unfortunately for the Japanese government momentum is in the US dollars favour while the Bank of Japan continues to argue the case for further easing.   The very prospect of stickier US inflation will mean that Fed will err more towards higher US rates for longer which means the line of least resistance is for USD/JPY to move through 150 and on to last year's peak at 152.00, unless the BoJ suddenly reverses course.   The Fed isn't being helped by concerns that the trickledown effect of the ironically named inflation reduction act fiscal stimulus is making the Federal Reserve's job much more difficult in pulling inflation back to target in the coming months.         EUR/USD – remains under pressure with the March lows at 1.0515 the next support, along with the lows this year at 1.0480. Currently have resistance at 1.0740, which we need to get above to stabilise and minimise the risk of further weakness.    GBP/USD – slipped below the 1.2190 area, with the bias remaining for a retest of the 1.2000 area. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.       EUR/GBP – continues to find resistance at the 200-day SMA at 0.8720, which is capping the upside. A break here targets the 0.8800 area, however while below the bias remains for a pullback. If we slip below the 0.8660 area, we could see a move back to the 0.8620 area.   USD/JPY – continues to creep towards the 150.00 area with support currently at the lows last week at 147.20/30. Major support currently at the 146.00 area.   FTSE100 is expected to open 9 points lower at 7,616   DAX is expected to open 26 points lower at 15,230   CAC40 is expected to open 4 points lower at 7,070
Stocks Down, USD Up Amid Looming Government Shutdown Concerns

Stocks Down, USD Up Amid Looming Government Shutdown Concerns

Ipek Ozkardeskaya Ipek Ozkardeskaya 27.09.2023 13:04
Stocks down, USD up By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank     Investors continue to dump stocks and buy US dollars on looming uncertainty regarding whether the US government will be shut in three days. There is progress regarding a 6-week short-term funding deal, but getting an approval from the Senate will be a challenge. In the meantime, falling savings, rising theft and delinquencies hint at the growing cost-of-living crisis whereas the central banks' inflation fight is certainly not over just yet.  The looming government shutdown talks continue feeding into a stronger US dollar. US politicians have agreed to a 6-week short-term funding to keep the government running for another month and a half, but getting approval from the full Senate will be a challenge with far-right Republicans' determination to 'shoot it down if it reaches the floor'.   The S&P500 fell to the lowest levels since the beginning of June and the Stoxx 600 could slip below 445 due to slowing European activity, waning Chinese demand, the European Central Bank's (ECB) pledge to keep the monetary policy tight until inflation comes down significantly. The euro's depreciation makes inflation harder to ease along with rising energy prices.     After a few sessions of consolidation, and despite a more than 1.5-mio-barrel build in US crude inventories last week, US crude is upbeat this morning, again. The barrel of American crude is trading above the $92 level, as the European nat gas futures flirt with the 200-DMA. The EURUSD lost around 6.5% since the July peak. Oversold market conditions call for consolidation, or recovery, yet appetite in the US dollar remains too strong to let the other currencies breathe. And if this is not enough bad news, the EU is now investigating the degree to which China has subsidized EV manufacturers. Tesla is clearly in a hot seat, but not only. Some European carmakers including Renault and BMW also have joint ventures in China and will be probed. The cherry on top, VW announced to cut EV output at German sites due to lacking demand. All this to say, there is little place to go in the market other than the FTSE 100, which could at least take advantage of the energy rally.     The combination of higher energy and stronger dollar has well pushed inflation in Australia to 5.2% in August, up from 4.9% printed a month earlier -which was a 17-month low. We could see a similar upturn in global inflation metrics due to rising oil prices. The Eurozone data will soon be coming in. Unfortunately for the Aussie, the uptick in inflation won't prevent it from getting smashed against the US dollar. The pair will likely test and take out the September support of 0.6360
Uncertain Waters: Saudi's Oil Production Commitment and Global Economic Jitters

Uncertain Waters: Saudi's Oil Production Commitment and Global Economic Jitters

Ipek Ozkardeskaya Ipek Ozkardeskaya 05.10.2023 08:17
Saudi's commitment is not written into a law By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Markets are on an emotional rollercoaster ride this week. The slightest data is capable of moving oceans. Yesterday, the significantly softer-than-expected ADP report, and the announcement that 75'000 healthcare workers at Kaiser went on strike sparked a positive reaction from the market in a typical 'bad news is good news' day. The US economy added only 89K new private jobs in September, much less than 153K penciled in by analysts. It was also the slowest job additions since January 2021. The rest of the data was mixed. US factory orders were better than expected in August, but the services PMI came close to slipping into the contraction zone, and the ISM's non-manufacturing component also hinted at slowing activity. Mortgage activity in the US fell to the lowest levels since 1995, as the 30-year mortgage rates spiked higher toward 8%. Housing and services are among the biggest contributors to high inflation besides energy prices, therefore, seeing these sectors cool down has a meaningful impact on inflation expectations, hence on Federal Reserve (Fed) expectations. As such, yesterday's soft-looking data tempered the Fed hawks, after the stronger-than-expected JOLTs data triggered panic the day before. The US 2-year yield took a dive toward the 5% mark, the 10-year yield bounced lower after flirting with the 4.90% level, while the 30-year hit 5% for the very first time since 2007 before bouncing lower on relieving news of soft job additions. Hallelujah.  The US dollar index retreated across the board, and equities rebounded. The S&P500 jumped from the lowest levels since the beginning of June. The score is now one to one. One good news for the US jobs market, and one bad news. Everyone is now holding his or her breath into Friday's jobs data, which will determine whether we will end this week with a sweet or a sour taste in our mouth. Sweet would be loosening jobs data, sour would be a still-strong jobs data which would fuel the hawkish Fed expectations and further boost US yields while the US yields are at a critical moment.   For the first time since 2002, the US 10-year yield comes at a spitting distance from the S&P500 earnings. The index is just about 60 points above its critical 200-DMA. Looking at the seasonality chart, the S&P500 could dip at about now. In this context, there is a chance that soft jobs data from the US marks a dip in the S&P500 selloff. But one thing is sure: the yields and the US dollar must come down to keep the S&P500 on a rising path. Profits at the S&P500 companies are inversely correlated with the US dollar as their international profits account for about a third of the total. If the yields and the US dollar continue to rise, the S&P500 will face severe headwinds into the year end.    Oil fell nearly 6%!  Rising suspicions that the global economy is headed straight into a wall didn't spare oil bulls yesterday. The barrel of American crude dived almost 6%, slipped below the 50-DMA ($85pb), and below the positive trend base building since the end of June. The 6.5-mio-barrel build in gasoline stockpiles last week helped bring the bears back to the market even though the data also showed a more than 2-mio-barrel draw in crude inventories over the same week.   Yesterday's move shows that what matters the most for intraday moves is the rhetoric. This summer, the market focus was on the tightening global oil supply and how the US will 'soft land' despite the aggressive Fed tightening. Now we start talking about slowing economies and recession worries.   OPEC decided to maintain its oil production strategy unchanged at yesterday's decision. Saudi and Russia repeated that they will keep their production restricted to maintain the positive pressure on oil. But if global demand cools down and volumes fall, both Saudi and Russia will be tempted to increase profits by selling more oil at a cheaper price. Saudi Arabia shouldering all the production cuts for OPEC is not written into a law, it could become uncertain if market conditions turn sour.
EUR: Persistent Pressure from Back-End Yield Premium

Market Insights: Weekly Jobless Claims Set the Stage for Tomorrow's US Payrolls Report

8 eightcap 8 eightcap 05.10.2023 08:20
Weekly jobless claims set to tee up tomorrow's US payrolls report By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets stabilised somewhat yesterday, although the FTSE100 slid for the third day in succession due to a sharp slide in commodity prices, which weighed on the big caps of basic resources and energy. There was a respite in the big surge we've seen in bond yields, which retreated from intraday and multiyear highs after the September ADP jobs report saw its weakest monthly job gain since January 2021, of 89k. This stabilisation in yields helped temper the downside for US markets, with the S&P500 rebounding from its 200-day SMA, which has acted as a key support area in the past couple of trading days. The retreat in yields also helped US markets rebound and close higher on the day, breaking a 3-day losing streak, with the biggest decline coming with a 10-point fall in the 2-year yield.     This rebound in US markets has translated into a rebound in Asia markets and looks set to translate into a positive start for European markets this morning as we look ahead to the latest German trade import and export data for August, as well as French industrial and manufacturing production data, all of which are forecast to show weak economic performance for both. German exports are forecast to decline by -0.6%, with imports expected to rise by 0.5%, while in France manufacturing output is expected to decline by 0.4%.     The US dollar fell victim to some modest profit taking, slipping back from 10-month highs as yields declined across the board. The US labour market is set to remain in the spotlight today, as well as tomorrow when we get the September non-farm payrolls report, which after yesterday's slowdown in the ADP numbers, could set the seal on another rate hike in November, or keep markets guessing ahead of next week's CPI report.     Before that, later today we get the latest weekly jobless claims numbers which are expected to show that claims increased slightly from 204k to 210k. Continuing claims are forecast to remain steady at 1.67m.       EUR/USD – the next support remains at the 1.0400 level which is 50% pullback of the 0.9535/1.1275 up move, followed by 1.0200. To stabilise we need to move through 1.0620 for a retest of the 1.0740 area.       GBP/USD – strong rebound yesterday from the 1.2030/40 area with support below that at the 1.1835 area which equates to a 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145. We need to overcome the 1.2300 area to signal a move back the 1.2430 area and 200-day SMA.        EUR/GBP – still range bound with resistance at the 0.8700 area and resistance at the 200-day SMA at 0.8720, which is capping the upside. A break of 0.8720 targets the 0.8800 area, however while below the bias remains for a move back to the 0.8620 area.     USD/JPY – made a 12-month high of 150.16 earlier this week before plunging to 147.35 on the back of possible intervention from the Bank of Japan. With no confirmation that intervention took place, any further moves higher could be choppy. Below 147.30 signals the top is in.     FTSE100 is expected to open 32 points higher at 7,444     DAX is expected to open 62 points higher at 15,162     CAC40 is expected to open 30 points higher at 7,026  
Markets under Pressure: Rising Yields, Strong Dollar, and Political Headwinds Weigh on Stocks"

Markets under Pressure: Rising Yields, Strong Dollar, and Political Headwinds Weigh on Stocks"

ING Economics ING Economics 05.10.2023 08:52
Services PMIs in focus as stock markets struggle By Michael Hewson (Chief Market Analyst at CMC Markets UK)   Yesterday saw another day where rising US yields and a strong US dollar continued to exert downward pressure on stock markets with the DAX sinking to a fresh 6-month low, while the FTSE250 fell below its July lows to its lowest levels this year.   US markets also fell back with the S&P500 closing just above its 200-day SMA, as well as at a 4-month low. The Nasdaq 100 also had a poor day after the latest numbers for job openings jumped sharply in August by 600k, while the Dow slipped into negative territory for the year. The sharp rise in long term rates relative to short term rates suggests investors think that US interest rates are likely to remain higher for longer due to the continued resilience of the US economy. Consequently, this bear steepening is slowly unwinding the inversion of the 2/10s from the -105bps we saw at the end of June and where we are now at -35bps. If this trend of rising long-term rates continues, then stock markets could well be in for even more volatility in the days and weeks ahead. Let's not forget 2-year yields are still above 10-year yields, a situation which is far from normal. Under normal circumstances long term rates would be above short-term rates, which means this yield adjustment still has some way to go. How it plays out will be key to how stock markets perform over the next few weeks.     Also weighing on US markets was the voting out of US House speaker Kevin McCarthy, by fellow dissident Republicans on disappointment over the weekend agreement of a deal to avert a US government shutdown until November 17th. With the House now without a majority leader, a new leader will need to be appointed, a time-consuming process if the McCarthy experience is any guide, which could complicate the prospect that we might get a new deal when the current deal expires next month. If you thought UK politics was dysfunctional, then the US runs it a close second.       The weak finish in the US looks set to translate into a weak European open, with Asia markets falling sharply this morning with the focus today on the services sector and the latest US ADP jobs report.     The recent flash PMIs for France, Germany and the UK suggest further economic weakness in the services sector in September. France especially has seen a sharp slowdown despite hosting the Rugby World Cup with the flash services number falling to 43.9 from 46. Germany, on the other hand, saw a modest pickup from 47.3 to 49.8. In the UK we also saw a modest slowdown from 49.5 to 47.2, as concerns about a Q3 contraction across Europe continued to gain strength.       The weak flash readings from France and Germany make it even more puzzling as to why the ECB felt it necessary to raise rates at its last meeting, although one suspects it may well have been its last. In the US the services sector is proving to be more resilient at 50.2, while the ISM services survey has tended to be more resilient and is expected to come in at a fairly solid 53.5. Yesterday the latest JOLTS numbers for August showed a big jump in vacancies to 9.6m in a sign that the US labour market remains surprisingly resilient driving long term US yields to new multiyear highs. Today's ISM as well as ADP payrolls report could add further fuel to that yield fire with another set of strong numbers, ahead of Friday's September payrolls report. ADP payrolls saw 177k jobs added in August, falling slightly short of forecasts of 195k. Slightly offsetting that was sizeable upward revision to July from 324k to 371k, but overall, the main gains have been in services. Expectations are for 150k jobs to be added.        EUR/USD – has slipped below the 1.0480 lows of last week, opening up the potential for a return towards parity, with the next support at 1.0400 which is 50% pullback of the 0.9535/1.1275 up move, followed by 1.0200. The main resistance remains back at the 1.0740 area, which we need to get above to stabilise and minimise the risk of further weakness.       GBP/USD – looks set for a test of the 1.2050 area with a break targeting the 1.1835 area which equates to a 50% retracement of the move from the record lows at 1.0330 to the recent peaks at 1.3145. Only a move back above the 1.2430 area and 200-day SMA stabilises and argues for a return to the 1.2600 area.         EUR/GBP – appears range bound with resistance at the 0.8700 area and resistance at the 200-day SMA at 0.8720, which is capping the upside. A break of 0.8720 targets the 0.8800 area, however while below the bias remains for a move back to the 0.8620 area.     USD/JPY – made a 12-month high of 150.16 yesterday before plunging to 147.35 on the back of possible intervention from the Bank of Japan. With no confirmation at the time of writing that intervention took place, any further moves higher could be choppy. Below 147.30 signals the top is in.     FTSE100 is expected to open 6 points lower at 7,464     DAX is expected to open 33 points lower at 15,052     CAC40 is expected to open 12 points lower at 6,985  
Rates Spark: Escalating into a Rout as Bond Bear Steepening Accelerates

Market Jitters: Strong US Jobs Data Sparks Fear of Tightening Labor Market and Rising Yields

Michael Hewson Michael Hewson 05.10.2023 08:54
The fear of strong jobs By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Even a hint of an improving US jobs market sends shivers down investors' spines.  This is why the stronger than expected job openings data from the US spurred panic across the global financial markets yesterday. Although hirings and firings remained stable, the financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the US jobs market could be going back toward tightening, and not toward loosening. And that means that Americans will keep their jobs, find new ones, asked better pays, and keep spending. That spending will keep US growth above average and continue pushing inflation higher, and the Federal Reserve (Fed) will not only keep interest rates higher for longer but eventually be obliged to hike them more. Alas, a catastrophic scenario for the global financial markets where the rising US yields threaten to destroy value everywhere. PS. JOLTS data is volatile, and one data point is insufficient to point at changing trend. We still believe that the US jobs market will continue to loosen.  But the market reaction to yesterday's JOLTS data was sharp and clear. The US 2-year yield spiked above 5.15% after the stronger than expected JOLTS data, the 10-year yield went through the roof and hit the 4.85% mark. News that the US House Speaker McCarthy lost his position after last week's deal to keep the US government open certainly didn't help attract investors into the US sovereign space. The US blue-chip bond yields on the other hand have advanced to the highest levels since 2009, and the spike in real yields hardly justify buying stocks if earnings expectations remain weak. The S&P500 is now headed towards its 200-DMA, which stands near the 4200 level. The more rate sensitive Nasdaq still has ways to go before reaching its own 200-DMA and critical Fibonacci levels, but the selloff could become harder in technology stocks if things got uglier.  In the FX, the US dollar extended gains across the board. The Reserve Bank of New Zealand (RBNZ) kept the interest rate steady at 5.5% as expected. Due today, the ADP report is expected to show a significant slowdown in US private job additions last month; the expectation is a meagre 153'000 new private job additions in September. Any weakness would be extremely welcome for the rest of the world, while a strong looking data, an - God forbid – a figure above 200K could boost the Federal Reserve (Fed) hawks and bring the discussion of a potential rate hike in November seriously on the table.   The EURUSD consolidates below the 1.05 level, the USDJPY spiked shortly above the 150 mark, and suddenly fell 2% in a matter of minutes, in a move that was thought to be an unconfirmed FX intervention. Gold extended losses to $1815 per ounce as the rising US yields increase the opportunity cost of holding the non-interest-bearing gold.  The barrel of American crude remains under pressure below the $90pb level. US shale producers say that they will keep drilling under wraps even if oil prices surge to $100pb, pointing at Joe Biden's war against fossil fuel. A tighter oil supply is the main market driver for now, but recession fears will likely keep the upside limited, and September high could be a peak. 
The Fear of Strong Jobs: How US Labor Market Resilience Sparks Global Financial Panic

The Fear of Strong Jobs: How US Labor Market Resilience Sparks Global Financial Panic

Ipek Ozkardeskaya Ipek Ozkardeskaya 05.10.2023 08:55
The fear of strong jobs By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Even a hint of an improving US jobs market sends shivers down investors' spines.  This is why the stronger than expected job openings data from the US spurred panic across the global financial markets yesterday. Although hirings and firings remained stable, the financial world was unhappy to see so many job opportunities offered to Americans as the data hinted that the US jobs market could be going back toward tightening, and not toward loosening. And that means that Americans will keep their jobs, find new ones, asked better pays, and keep spending. That spending will keep US growth above average and continue pushing inflation higher, and the Federal Reserve (Fed) will not only keep interest rates higher for longer but eventually be obliged to hike them more. Alas, a catastrophic scenario for the global financial markets where the rising US yields threaten to destroy value everywhere. PS. JOLTS data is volatile, and one data point is insufficient to point at changing trend. We still believe that the US jobs market will continue to loosen.  But the market reaction to yesterday's JOLTS data was sharp and clear. The US 2-year yield spiked above 5.15% after the stronger than expected JOLTS data, the 10-year yield went through the roof and hit the 4.85% mark. News that the US House Speaker McCarthy lost his position after last week's deal to keep the US government open certainly didn't help attract investors into the US sovereign space. The US blue-chip bond yields on the other hand have advanced to the highest levels since 2009, and the spike in real yields hardly justify buying stocks if earnings expectations remain weak. The S&P500 is now headed towards its 200-DMA, which stands near the 4200 level. The more rate sensitive Nasdaq still has ways to go before reaching its own 200-DMA and critical Fibonacci levels, but the selloff could become harder in technology stocks if things got uglier.  In the FX, the US dollar extended gains across the board. The Reserve Bank of New Zealand (RBNZ) kept the interest rate steady at 5.5% as expected. Due today, the ADP report is expected to show a significant slowdown in US private job additions last month; the expectation is a meagre 153'000 new private job additions in September. Any weakness would be extremely welcome for the rest of the world, while a strong looking data, an - God forbid – a figure above 200K could boost the Federal Reserve (Fed) hawks and bring the discussion of a potential rate hike in November seriously on the table.   The EURUSD consolidates below the 1.05 level, the USDJPY spiked shortly above the 150 mark, and suddenly fell 2% in a matter of minutes, in a move that was thought to be an unconfirmed FX intervention. Gold extended losses to $1815 per ounce as the rising US yields increase the opportunity cost of holding the non-interest-bearing gold.  The barrel of American crude remains under pressure below the $90pb level. US shale producers say that they will keep drilling under wraps even if oil prices surge to $100pb, pointing at Joe Biden's war against fossil fuel. A tighter oil supply is the main market driver for now, but recession fears will likely keep the upside limited, and September high could be a peak.   
Tesla's Disappointing Q4 Results Lead to Share Price Decline: Challenges in EV Market and Revenue Miss

Inflationary Crossroads: Analyzing US PCE Trends and the Fed's Next Move

ING Economics ING Economics 27.10.2023 14:55
US PCE inflation set to slow further, ahead of the Fed next week By Michael Hewson (Chief Market Analyst at CMC Markets UK) This week a raft of disappointing earnings numbers, and caution over guidance from the likes of Alphabet and Meta Platforms has helped overshadow concerns about an escalation of the conflict in the Middle East between Israel and Hamas. The combination of these two factors has also helped to undermine the previously resilient Nasdaq 100, sending it to its lowest levels since May, although it did find support at its 200-day SMA.     With US markets starting to look slightly more vulnerable to a broader correction and an increasingly uncertain geopolitical backdrop there has been little reason for investors to get overly enthusiastic about looking to get back into the market, instead moving into safer haven type plays like gold, the Swiss franc, and US treasuries. While the Nasdaq 100 fell through its previous lows from September, the S&P500 has looked even more vulnerable, sliding below its 200-day SMA, as well also sliding to 5-month lows.   It's also been another disappointing week for European markets with the DAX on course for its 6th successive weekly decline falling back to levels last seen in March, while the FTSE100 has also struggled for gains these past few days. Against such a backdrop it's therefore somewhat surprising that the US economy continues to look so strong, with last night's impressive Q3 results from Amazon serving to underscore that fact, with the shares rising in after-hours trade.   Q3 revenues comfortably beat expectations at $143.1bn, as did profits which came in at $0.94c a share, or $9.88bn. This included a gain of $1.2bn from its stake in Rivian. There was a strong performance from online stores with net sales of $57.27bn, while AWS saw revenues of $23.06bn which was slightly below expectations of $23.2bn. Operating margin was also better than expected at 7.8%.   For Q4 Amazon expects net sales of $160-167bn, while the company said it is going to hire 250k full and part-time employees to cover the holiday periods of Thanksgiving and Christmas. Amazon also said it expects to see operating income rise to between $7bn and $11bn.   Yesterday's US Q3 GDP numbers were an impressive set of numbers, the best quarterly performance for the US economy since Q4 of 2021, with growth of 4.9%, with a good proportion of that driven by personal consumption of 4%. The strength of these numbers showed the resilience of the US economy, while on the other side of the ledger with respect to core PCE inflation this slowed to 2.4% from 3.7% over the quarter.     Against such a strong economic backdrop the Federal Reserve will be very reluctant to signal that they are done as far as further rate hikes are concerned when they meet next week. Against such a strong set of numbers it was somewhat surprising to see US treasury yields fall back as sharply as they did, however part of the reason for yesterday's slide is perhaps the sense that if the Fed were to hike again, they will wait until December just to ensure another hike is needed, once more data becomes available. Today's core PCE inflation numbers could help inform that thought process further on whether to hike rates again by another 25bps.     With the latest economic projections citing a Fed funds rate of 5.6% by year end and another spike in oil prices exerting further upward pressure on prices, as well as wages, the Fed will want to keep markets thinking that another rate rise is on the table between now and the end of the year.     With a resilient US jobs market and wage growth looking sticky we do appear to be starting to see a split opening up on the FOMC, despite recent data showing that on the Fed's core measure, inflation is easing. The core PCE deflator inflation numbers showed a further easing of inflationary pressure in August, slipping to 3.9% from 4.3%. This is welcome news for those who worry that inflation in the US is proving sticky, with personal spending also slowing to 0.4% from 0.9%.     Today's September numbers are expected to show a further slowdown to 3.7% for PCE core deflator while personal spending is forecast to remain steady at 0.4%.       EUR/USD – slipping back towards the 1.0520 area with the next support at the recent lows at 1.0450. Resistance at the 1.0700 area and 50-day SMA.    GBP/USD – slipped below the 1.2100 area, before rebounding modestly from the 1.2070 area. Major support remains at the October lows just above 1.2030. Below 1.2000 targets the 1.1800 area. Resistance at 1.2300.   EUR/GBP – failed at the 0.8740 area again yesterday. A move below 0.8680 and the 200-day SMA targets the 0.8620 area.   USD/JPY – has pushed above the previous highs at 150.16, making a new high for the year, potentially opening up a move towards 152.20. Support at the lows last week at 148.75.   FTSE100 is expected to open 12 points higher at 7,366   DAX is expected to open 15 points higher at 14,746   CAC40 is expected to open 16 points higher at 6,905
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Fed Continues Rate Hikes Amid Strong Growth, Inflation Concerns

ING Economics ING Economics 02.11.2023 12:26
Don't expect the Fed to stop amid strong growth, higher inflation.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    The US dollar was bid on Tuesday thanks to a rapid selloff in the Japanese yen, after the Bank of Japan (BoJ) announced mini policy loosening steps that didn't find buyers. Loosening the upper limit on the 10-year JGB yield in the context of a YCC policy is not enough when considering that the BoJ should drop it altogether and for good.   But on the contrary, not only that the BoJ is not giving up on its YCC policy, but is on track to match its record annual bond purchases. Almost all the Japanese 10-year bonds are held by the BoJ – which in my opinion will become illegal one day - and the BoJ hasn't yet moved an inch towards normalization of its rate policy whereas the major central bank rate hikes start plateauing after more than a 1.5 year of aggressive rate hikes. So, no wonder the yen got smashed yesterday. The USDJPY spiked past 151, even though the uptick in the US - Japan 10-year yield spread – which also ticked up because of a jump in the Japanese 10-year yield, didn't attract the yen longs. The only thing that holds traders back from more aggressive selling is the fear of a direct FX intervention. If that happens, there is a good reason to buy a dip.   Zooming out of Japan, the US dollar index consolidated a touch below last month peak. The US consumer confidence index dropped to a 5-month low, but the latest wages data continued to give signs of strength. Yes strength – I am sorry. The employment cost index, a top-notch gauge of what employers spend on compensation, rose 1.1% in Q3 – slightly higher than a quarter earlier. Wages and salaries rose 4.6% - above the US headline CPI, and well above 3% as before the pandemic. And that was before the UAW reached a jaw-dropping deal with Detroit's 3 carmakers where they nailed a 25% increase in wages and around 150% increase in compensations for the low-paid tier of temporary workers. The ADP data is expected reveal around 150K new private job additions in October, and JOLTS data is expected to show a drop in job openings. On Friday, we will have a look at the official figures. The latter won't impact the Federal Reserve (Fed) expectations for this week's policy decision. But any further strength in US jobs data will reinforce a potentially hawkish stance from the Fed policymakers this week.   The Fed.  We know that the Fed is not done hiking the interest rates. We know that Jerome Powell won't call the end of the policy tightening after seeing a blowout growth data – which showed that the US GDP grew almost 5% in Q3 (that's more than China!), and inflation ticked higher because Americans kept spending. Duh! And if people kept spending their savings it was because they didn't necessarily feel threatened to lose their jobs, or remain jobless for long. So yes, the jobs market strength is playing tricks on the Fed, and it's clearly not loose enough. The chances are that we won't hear anything soothingly dovish. 'The higher yields help us do the job' is the best it will get.   You know where growth is not strong?  China is not doing brilliant and this week's economic data in China showed that the Chinese factory sector slipped back into contraction and the Eurozone economies announced gloomy GDP updates, as well. The German economy contracted in Q3, the French and Italian economies stagnated, the overall Eurozone growth fell 0.1% on a quarterly basis.   But at least, inflation slowed. As a result of soft growth and inflation data, the EURUSD couldn't extend gains above the 50-DMA and sank below the 1.06 level yesterday. The positive trend is losing momentum, the divergence between the strength of the US economy versus its European counterparts, and the divergence between the Fed and the European Central Bank (ECB) outlooks play in favour of a deeper depreciation in the euro against the greenback.  Crude approaching $80pb crossroads  US crude slipped below its 100-DMA yesterday as buyers became rare on news that Israel's ground offensive is not as violent as expected. A 1.3mio barrel build in US crude inventories may have helped the bears to push the selloff below the $82pb level. Yet, oil bears will certainly hit a decent support near the $80p level because at this level, they know that Saudi has their back. And the risks of geopolitical nature remain clearly tilted to the upside. For those who bet that we will see a dip near the $80pb level, it is soon time to roll up the sleeves.   Worst since the pandemic, and yet...  The S&P500 rose on the last day of October but recorded its longest monthly slide since the pandemic. Still, the index kicks off the new month a touch above the major 38.2% retracement which should distinguish between the continuation of last year's rally, and a slide into the medium-term bearish consolidation zone. The next direction will depend on whether the US yields will consolidate and eventually come lower, or they will continue their journey higher. In the second scenario, we will likely see major US stock indices sink into a bearish trend. 
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BoE Faces Dilemma Amid Hawkish Fed and Economic Challenges: Analyst Insights

ING Economics ING Economics 02.11.2023 12:56
BoE between a rock and a hard place.  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   As widely expected, the Federal Reserve (Fed) maintained its interest rates unchanged at this week's meeting and President Jerome Powell cited that the recent surge – especially in the long end of the US yield curve – helped tightening the financial conditions in the US. Powell repeated that the Fed is proceeding carefully but that they are 'not confident that inflation is on path toward 2%' target'. US policymakers redefined the US economic outlook as being 'strong', from being just 'solid'.  In summary, the latest Fed decision was not dovish, unsurprisingly hawkish, and did not impact appetite in US bonds which got a boost from the Treasury's announcement of a slightly lower-than-expected quarterly refunding auction size for the 3, 10 and 30-year maturity bonds next week. Cherry on top, the US Treasury said that they now expect one more step up in quarterly issuances for the long-term debt, whereas the expectation was multiple more step ups.   The US 10-year yield sank to 4.70% after the Fed decision and Treasury's much-awaited issuance calendar reveal, the 30-year yield fell to 4.90%. The fact that the US will borrow slightly less than previously thought and slightly less on the long-end of the curve doesn't mean that the fiscal outlook improved. Though lower-than-expected, the $776bn that the US Treasury is planning to borrow this quarter is a record for the last 3 months of a year. And the net interest payments on the US federal debt are rising at an eye-watering speed. In numbers, the federal debt rose more than a third since the end of 2019, and the interest expenses on that debt rose by almost 40%. That's a detail for Janet Yellen who thinks that the surge in US yields is explained by the positive economic outlook, but the market won't allow the Treasury to borrow like its pockets have no bottom if the Fed is not part of it.   Bad news, good news the sharp decline in October ISM manufacturing PMI and the softer-than-expected ADP read helped boosting sentiment in US Treasuries, as they somehow softened the otherwise strong US economic outlook. The JOLTS data unexpectedly rose but no one was out looking for reasons to sell Treasuries yesterday, so that basically went unheard. The official US jobs data is due Friday and any strength in NFP, or wages could reverse the optimism that the US economic growth will... slow. And as bad news is sometimes good news for the market, the S&P500 rebounded more than 1% and closed the session at a spitting distance from the all important 200-DMA, while the rate-sensitive Nasdaq jumped almost 1.80%.   AMD, Qualcomm gain, Apple to report On the individual level, AMD jumped almost 10% yesterday. Even though the company gave a soft guidance for Q4, they said that they expect to sell more than $2bn worth of AI chips next year. That's a lot, that's more than a third of the actual revenue they make. Qualcomm jumped nearly 4% in afterhours trading, as the world's largest seller of smartphone chips gave a better-than-expected prediction for this quarter, saying that the inventory glut in mobile-phone industry may be receding.   Today, Apple will post its Q3 earnings, after the bell. We have reservations regarding the results as the iPhone15 sales are not as brilliant as investors hoped they would be, and Huawei is apparently eating Apple's market share in China. Apple's overall revenue is seen down by around 3%. Ouch. The good news is that the morose expectations could be easier to beat. Otherwise, we could see Apple tank below the $170 per share, into the bearish consolidation zone, and become vulnerable to deeper losses.  BoE not to raise rates, but its inflation tolerance The Bank of England (BoE) is the next major central bank to announce its rate decision today, and the Brits are not expected to raise the interest rates at today's MPC meeting, but they are expected to increase their tolerance faced with above 2% inflation, instead. That's not good for central bank credibility, even less so when the BoE's credibility is not at its best since the start of this tightening cycle. If investors sense that the BoE will let inflation run hot, by lack of choice, sterling could take a significant hit.   Gold and oil  Appetite in gold eases as Israelian attacks are perceived as being less aggressive than what they could be. De-pricing of Mid-East risks could send the price of an ounce to, or below the 200-DMA, near the $1933 level. Upside risks prevail, but fresh news should gradually lose their shocker impact and the $2000 per ounce level will likely attract top sellers more than anything else.   US crude rebounded near the $80pb yesterday, as the decline toward the psychological $80pb level brought in dip buyers. We could reasonably expect the US crude to correct toward $85pb as geopolitical tensions loom, and supply remains at jeopardy.    
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Turbulent Markets: Apple's Disappointment and the Jobs Day Impact

Ipek Ozkardeskaya Ipek Ozkardeskaya 03.11.2023 14:11
Jobs day!  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The S&P500 jumped almost 2% to above its 200-DMA, and Nasdaq 100 gained 1.74% and tested its 50-DMA to the upside as the rally in the US sovereign bonds extended to another day.   Apple disappoints Apple will likely slow the rally in major US indices. Apple shares dived up to 4% in the afterhours trading after announcing that the sluggish Chinese demand for iPhones dented revenue. The Mac computers sales also fell short of a billion USD. Apple sales fell for the fourth straight quarter, the longest such decline in 22 years. As a result, Apple stock could sink to $170 a share, the critical 38.2% Fibonacci retracement level, if taken out, would let Apple sink into the medium-term bearish consolidation zone. The only thing that could save Apple from falling into dark waters is... a further rally in US bonds, and a further fall in yields.  Falling yields are no good for Fed The US bond rally popped this week because the US Treasury said that it would borrow slightly less than previously thought and slightly less 3-, 10- and 30-year papers. The Federal Reserve (Fed) hinted that the rate hikes could be coming to an end because the recent surge in US long term yields helped them tighten the financial conditions without the need for another rate hike.   But if the yields fall at this speed, the Fed expectations will become hawkish very quickly, and depending on how far the market will go, the Fed could be obliged to hike rates again in December, or in January to keep financial conditions tight enough.   Jobs day!  US growth is strong, and the jobs market remains healthy. The Fed thinks that solid labour-force participation and immigration explain the resilience of the jobs market. According to the consensus of analyst estimates on Bloomberg, the US economy is expected to have added 180K new nonfarm jobs, the unemployment rate is seen steady at around 3.8% and the wages growth may have slowed from 4.2% to 4% on an annual basis. Any strength in job additions or wages growth data could bring bond trades back to earth and remind them that if the US jobs market - and the economy - remains this strong, the Fed could turn hawkish again. But strong jobs data in a context of higher supply is not necessarily inflationary.  Gloomy UK outlook  The Bank of England (BoE) kept its interest rate unchanged for the second straight month yesterday. Some MPC members still voted for a 25bp hike to make sure that the pause is not premature, but they all said the same thing: it's too early to talk about rate cuts.   Good news is that inflation may fall below 5% in October and somewhere near 4.5% by the year end. But at 4.5-5%, inflation is still more than twice the BoE's policy target. Therefore, the BOE can't promise that it's done hiking. It could only hope that the cumulative impact of higher rates on the economy would do the rest of the heavy lifting.   In the best-case scenario, the UK's gloomy economic outlook - which seems to become gloomier as months go by - weighs on demand and brings inflation lower. In the worst-case scenario, inflation remains sticky while the economy sinks into a recession. In both cases, the BoE wouldn't hike. The expectation of another hike is down to 1 in 3 and markets now fully price in 3 quarter-point cuts by the end of 2024. The softer economic outlook and softening BoE expectations are threatening for sterling bulls both against the US dollar and the euro.  
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AUD Weakens Post RBA Hike, Oil Takes a Hit: Market Analysis by Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

Ipek Ozkardeskaya Ipek Ozkardeskaya 07.11.2023 15:47
AUD weakens after RBA hike, oil downbeat By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The US bond yields rebounded, and the equity rally slowed on Monday. The US 10-year rebound from last Friday low, and the S&P500 consolidate gains near three-week highs. There are divergent opinions regarding whether last week's risk rally is on sufficiently solid ground to extend into a Santa rally, or it would simply fade away. And it all depends on what matters the most for investors. The softening Federal Reserve (Fed) and other central bank expectations and falling sovereign yields are positive for stock valuations, but the chatter of potentially higher-for-longer rates, growing signs of slowing global economy and the rising recession odds don't offer a bright outlook for equities into the year end. Seasonally speaking, November and December are known to be good months for the S&P500 stocks. In the past, the S&P500 stocks gained, on average, 1.8% in November and 0.9% in December. But this year, the picture is overshadowed by a lot of weak guidance and revenue warnings.   The chatter of weak demand and profit warnings are not great for equities but the worst news would be sticky inflation despite slowing growth and a persistently long period of high interest rates. For now, the Fed is perceived as being 'done' with interest rate hikes. But Powell is due to speak this week and he will probably leave the door open for a rate hike... otherwise he knows that all the past 1.5-year's efforts will be instantaneously thrown out of the window with everyone rushing to US treasuries – which would pull the yields lower and loosen the financial conditions and eventually boost growth and inflation. This is something the Fed doesn't want.   And despite a series of no rate hike news that we received over the past few weeks from major central banks including the Fed, the ECB and the BoE, the Reserve Bank of Australia (RBA) raised its rates by 25bp, as broadly expected, today. The RBA hike came as a sour reminder that there is no rule that says that a bank can't hike rates after pausing for four meetings. Interestingly, the AUDUSD fell after the decision, along with the Australian stock markets. Today's rate hike revived fears of economic slowdown more than appetite for higher Aussie yields – while a broad-based recovery in the US dollar and weak Chinese trade data certainly didn't help.  Speaking of weakness  The Chinese exports which are a good gauge of global economic health, are down for the 6th consecutive month and Iranian oil exports fell for the 2nd straight month to 1.43mbpd as demand in Asia weakened. That's certainly why we haven't seen oil prices react to the news of escalation tensions in the Middle East and the news that Saudi and Russia will keep their oil production curbs in place during the weekend. The barrel of crude is trading a touch above the $80pb psychological mark this morning. We revise our medium-term outlook for crude oil from neutral to negative. Last week's persistent selloff despite a broad-based risk rally, oil bulls' unresponsiveness to normally price-positive geopolitical developments and the fact that the market focus is shifting from supply to demand side hint that a fall below the $80pb is increasingly possible, and a verbal intervention from Saudi or OPEC won't prevent a deeper decline in the short run. Iran's implication in the Gaza war could be a game changer but the American crude is now in the medium-term bearish consolidation zone, and will remain downbeat below $81.50, the major 38.2% Fibonacci retracement on this summer's rally
Taming Inflation: March Rate Cut Unlikely Despite Rough 5-Year Auction

US Yields Surge, Equities Drop, and Oil Rebounds: A Market Recap

Ipek Ozkardeskaya Ipek Ozkardeskaya 10.11.2023 09:58
US yields spike, equities fall, oil rebounds By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Bad. Yesterday's 30-year treasury auction in the US was bad. And this time, the bad auction got the anticipated reaction. The US Treasuries saw a sharp selloff - especially in the 20 and 30-year papers. The US 30-year yield jumped 22bp, the 20-year yield jumped more than 20bp, while the 10-year yield jumped 18bp to above 4.60%.   Then, the Federal Reserve (Fed) Chair Jerome Powell's speech at an IMF event was hawkish. Powell repeated that the FOMC will move 'carefully' and that the Fed won't hesitate to raise the interest rates again, if needed. The US 2-year yield is back above the 5% level.   Of course, the sudden jump in US yields hit appetite in US stocks yesterday. The S&P500 fell 0.80%, and Nasdaq fell 0.82%. The US bond auction brought along a lot of volatility, questions, and uncertainty.  At 5%, the US 2-year yield is still 50bp below the upper limit of the Fed funds target range. Therefore, if the Fed could convince investors that the rates will stay high for long, this part of the curve has potential to shift higher. On the longer end, we could reasonably expect the US 10-year yield to remain below the 5% mark – and even ease gently if economic growth slows and the job market loosens. A wider inversion between the US 2-10-year yield should boost the odds a higher of US recession. But hey, we are used to the inverted yield curve, and we believe that it won't necessarily bring along recession. Goldman sees only a 15% chance of US recession next year. 
Taming Inflation: March Rate Cut Unlikely Despite Rough 5-Year Auction

"Inflation, Yields, and Political Uncertainty: A Look at the Upcoming US Financial Landscape

Ipek Ozkardeskaya Ipek Ozkardeskaya 13.11.2023 14:44
All eyes on US inflation and the government's funding deadline  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   What everyone – most investors, every household and every politician want to see and to sense right now is the end of the global monetary policy tightening cycle, and the beginning of the end starts mostly with the Federal Reserve (Fed).   Until the beginning of this month, we have seen a pricing that reflected the market's belief that the Fed is going to keep the rates high for long because the world is now braced for an extended period of high inflation. And the rapid rise in the US long term yields because of this very belief that the Fed will keep rates high for long helped the Fed keep its rates steady, at least at the latest meetings. The US 10-year yields spiked above the 5% mark in the second half of October, stagnated close to this peak for a week.   Then, a sufficiently soft set of jobs data from the US at the start of the month, combined with a record but lower-than-expected Treasury borrowing plans slowed down the sharp selloff in US Treasuries and reversed market sentiment. Investors, since the beginning of this month, began flocking back into the US long-term papers. The US 10-year yield tipped a toe below the 4.50% level, this time. We are talking about a plunge of more than 50bp for the 10-year paper in about two weeks.   And finally, last week, two bad 10- and 30-year bond auctions in the US, and Fed Chair Powell's warning that the Fed could opt for more rate hikes if needed, brought bond investors back to earth. And the 10-year yield rebounded from a dip. This is where we are right now – a period of heavy treasury selloff, followed by significant inflows, and uncertainty.   The uncertainty regarding when the Fed will be done hiking the rates is killing everyone, but even the Fed itself doesn't know when tightening will/should end. It will depend on crucial economic data, like inflation, jobs, and growth figures. The US jobs data is giving signs that the US labour market has started loosening. The US growth numbers are off the chart, but spending isn't necessarily sitting on solid ground, as the US credit card loans go from peak to peak and the credit card delinquencies have taken a lift. The delinquency rate is above the pre-pandemic levels, and just around the post-GFC levels – this means that the Americans spend on debt that they can't pay back anymore. And the US government debt is – as you know - growing exponentially, and Americans pay significantly higher interest on their debt because the rates went from near zero to above 5% in less than two years.  But uncertainty regarding the US debt does not mean that the US Treasuries will fall off grace, because there is nothing comparable to the US Treasuries that could replace US treasuries in a portfolio for low-risk allocations.   Volatility in this space is however unavoidable. This week, we will plunge back into the US political saga, as the government short-term funding deadline is due 17th of November and not much progress has been made to seal a fresh deal. And remember this, the last time the US politicians agreed on a short-term relief package, Joe Biden was forced to leave the funding for Ukraine outside of it. Since then, a new war in Gaza popped up, and the US is now expected to bring financial contribution there, as well.   We could see the US long-term yields recover from the past weeks' decline. Depending on the new funding resolution – or the lack thereof – we could see the US 10-year yield return above 4.80%.   Happily, slower inflows into US treasuries will be a relief for the Fed, which needs the yields to remain high enough to restrict the financial conditions without the need for more action. But the US political shenanigans are only one part of the equation. The other part is...economic data.   The all-important inflation data due Tuesday is going to impact the inflow/outflow dynamics in US Treasuries before the worries grow into the Friday funding deadline. A sufficiently soft inflation read should keep bond traders in appetite for further purchases and mask a part of the political worries, while disappointment could keep buyers on the sidelines and amplify a potential political-led selloff. The good news is that the US headline inflation is expected to have eased to 3.3% in October, from 3.7% printed a month earlier. Core inflation is seen steady around the 4.1% level. The bad news is, the expectation is soft and could be hard to beat.   The US dollar sees resistance at around the 50-DMA, the US stocks continue to cheer the latest pullback in the US yields. The S&P500 closed last week with a beautiful rally, that led the index to above its 100-DMA for the weekly close. The big tech remains the driver of the S&P500 gains as Microsoft hit a fresh high on Friday and Nvidia remained bid a few points below its ATH on news that Chinese AI startup bought enough Nvidia chips before the US exports curbs kicked in. This week, US big retailers will announce their Q3 results and will give a hint on the US consumer trends, health and expectations. Earnings could be mixed but the overall outlook will likely be morose.   
All Eyes on US Inflation: Impact on Rate Expectations and Market Sentiment

Inflation Fever Breaks: Fed Doves Energized as US CPI Falls, Markets React

Ipek Ozkardeskaya Ipek Ozkardeskaya 16.11.2023 11:14
Inflation fever breaks By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) doves got a big energy boost yesterday by a slightly lower-than-expected inflation report. The headline inflation fell to 3.2% in October from 3.7% printed a month earlier, and core inflation eased to 4% from 4.1% printed a month earlier. Services excluding housing and energy costs – the so-called super core figure closely watched by the Fed - rose only 0.2% and shelter costs rose only 0.3%, down from a 0.6% advance printed a month earlier. The soft set of inflation print cemented the expectation that the Fed is done hiking the interest rates. The US 2-year yield – which best captures the rate bets – tanked 24bp to 4.81%. The 10-year slipped below 4.50% and activity on Fed funds futures gives around 95% chance for a no rate hike in December. That probability stood at around 85% before yesterday's US CPI data.   In equities, the S&P500 jumped past its 100-DMA, spiked above the 4500 mark, and closed the session a few points below this level. Nasdaq 100 extended its gain to 15850. In the FX, the US dollar took a severe hit. The index fell 1.50% on Tuesday, pulled out a major Fibonacci support and sank into the medium-term bearish consolidation zone. The EURUSD jumped to almost the 1.09 level. Yes, there is no mistake – to nearly 1.09 level, and Cable flirted with the 1.25 resistance. What a day!   A small parenthesis on UK inflation   Good news came from Britain this morning, as well. Inflation in the UK fell 6.7% to 4.6% in October, lower than the 4.7% penciled in by analysts. Core inflation also eased more than expected to 5.7%. There is growing evidence that the major central banks' efforts are bearing fruit. Cable is sold after the CPI data, but the pullback will likely remain short-lived if the USD appetite continues to wane globally.   
Inflation Slows, Prompting Speculation of Rate Cuts: Impact on Markets and Government Goals

Inflation Slows, Prompting Speculation of Rate Cuts: Impact on Markets and Government Goals

Michael Hewson Michael Hewson 16.11.2023 11:49
Having seen the cap come down in April, headline inflation slowed to 8.7% from 10.1% in March, and knowing that further reductions were coming in June and October it wasn't unrealistic to assume similar sharp slowdowns in these months as well, which is precisely what has happened with October CPI slowing to 4.6% and core CPI slowing to 5.7%.   Of course, we've heard a lot today from the UK Treasury, as well as the government that they have succeeded in their goal to get CPI below 5% by the end of the year, which is hilarious given that what we've seen today has happened despite them, and not because of them. Let's not forget this is the government which raised tax rates and made people worse off.   The reality is this was a goal that was always easier to achieve than not, given what we have been seeing in headline PPI numbers these past few months, and the fact we knew the energy price cap was keeping inflation higher than it should have been.   The actual reality is were it not for the design of the energy price cap, headline inflation would have fallen much quicker than it has, merely confirming the idea that there is no political intervention that can't make a big problem even worse, and which in turn helped to create the very stickiness we are seeing in wages growth which is making services inflation stickier than it might have been.   This has meant that UK services inflation has taken longer to come down than it should have, although we have seen a modest slowdown to 6.6% from 6.9% in September. The effect of the energy price cap is evident in where we've seen the biggest slowdown in October inflation, with household and services inflation declining -1.9% month on month, compared to an 8.7% increase in October 2022. Gas costs fell 31% in the year to October 2023, while electricity costs fell 15.6%, which is the lowest annual rate since January 1989.   That said gas and electricity prices are still well above the levels they were 2 years ago, with gas prices still higher by 60%, but nonetheless what the last 24 hours have told us is that its increasingly likely that central banks are done when it comes to further rate hikes, and that pricing is now shifting to who is likely to cut rates first.   On that count the jury remains out, however given the recent gains in the US dollar over the last few months, the repricing of rate risks suggests that the US dollar might still have the biggest downside risk even if the Fed is the last to start cutting.   On that score it looks to be between the ECB and the Bank of England when it comes to which will cut rates first with markets pricing 78bps from the Bank of England by June next year. At this point this seems a little excessive in the same way markets were pricing a 6.25% base rate back in June.   That said the thinking has shifted, and rather than higher for longer further weakness in the economic data will only reinforce the idea that rates have peaked and that cuts are coming, with the debate now on extent and timing. This is no better reflected than in the UK 2-year gilt yield which is now 100bps below its June peaks having fallen as low as 4.54% earlier today.    On the score of who is likely to be first out of the traps in rate cuts it's more than likely to be the ECB, perhaps as soon as the end of Q1 next year, with the Bank of England soon after, which will be good news for households, as well as governments when it comes to debt costs.   Despite today's undershoot on UK inflation the pound has managed to hold onto most of its gains against the US dollar of the last 24 hours having hit 2-month highs earlier today, above 1.2500 and closing above its 200-day SMA for the first time since 13th September yesterday.   The euro has also rallied strongly, similarly closing above its 200-day SMA, in a move that could signal further gains, while equity markets also rallied strongly. The strongest moves came in the Nasdaq 100 and S&P500 which posted their biggest one-day gains since April, with the Nasdaq 100 coming to within touching distance of its July peaks at 15,900. We need to see a concerted push through here to signal a return to the 2021 peaks.   The S&P500 similarly broke out of its downtrend from its July peaks, retesting its September peaks, with a break of 4,520 potentially opening the prospect of a return to those July highs at 4,590.   While US markets have rallied strongly, the reaction in Europe has been much more tepid which suggests an element of caution when it comes to valuations for European stocks. The DAX has managed to recover above its 200-day SMA and above its October highs, while the FTSE100 reaction has been slightly more measured compared to the FTSE250 which has seen strong gains this past two days, pushing up to 2-month highs in early trade today.    In summary today's inflation numbers are good news for consumers across the board, especially given that headline CPI has fallen below the base rate for the first time since 2016, however the Bank of England will still be concerned about services inflation, as well as wage inflation, which is still above 7%.   While markets are cheering the end of inflation it is clear that central bankers will be reluctant to do so less it return in 2024.
Navigating Uncertainty: Insights into U.S. Yields, Equities, and the Nvidia Conundrum

Navigating Uncertainty: Insights into U.S. Yields, Equities, and the Nvidia Conundrum

Ipek Ozkardeskaya Ipek Ozkardeskaya 16.11.2023 12:01
Therefore, the US 2-year yield may have bottom at 4.80% level and should be headed back toward 5%. The US 10-year yield should hold ground above 4.50%. As per equities, the direction is unclear to everyone, but the recent dovish shift in Fed expectations and the dropping yields gave a great energy boost to the US stocks. The S&P500 jumped more than 10% since end of October, the rate-sensitive Nasdaq 100 is now flirting with the highest levels since summer while the Russell 2000 index is having a blast since its October dip. The index rallied almost 12% in 3 weeks, pulled out the 50-DMA, the major 38.2% Fibonacci retracement and consolidated gains in the medium-term bullish consolidation zone yesterday.   As equities move higher and inflation slows, the anxiety regarding short positions mount – hence short covering is adding to the positive pressure.   The Big Short's Micheal Burry reportedly exited his short position against SPDR's P&P500 and Invesco's QQQ and began betting against semiconductor stocks, including Nvidia.   Nvidia, on the other hand, is flirting with its ATM levels near the $500 per share level. A quick glance at Nvidia's long-term price chart clearly suggests that the chances are that we are in the middle of an AI-led bubble and that the exponential move cannot extend infinitely. Yes, AI is boosting Nvidia's revenue and profits, but the revenues that will flow into the pockets of Nvidia thanks to AI are already embedded in the share price, and we will likely see the price bubble burst. But there are two things to keep in mind when you bet against a bubble. 1. A bubble is a bubble only when it bursts – it's like 'you are innocent until proven guilty'. And 2. You can wait a while before the market comes back to its senses. For now, we are in the middle of making eye-popping predictions and beating them. The company is due to release earnings on November 21st.  One big risk for Nvidia is the tense relations between the US and China, and the extension of chip export curbs to a bigger range of Nvidia chips. This week's meeting between Biden and Xi carried hope that the high-level communication could help melting ice. There has apparently been some 'real progress' in restoring military communication and foreign policy... Then, Joe Biden said that Xi is a dictator.
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When Fantastic Falls Short: Fed Minutes and Nvidia Earnings Analysis

Ipek Ozkardeskaya Ipek Ozkardeskaya 22.11.2023 14:50
When fantastic falls short...  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The minutes from the Federal Reserve's (Fed) latest monetary policy meeting showed that the Fed members agreed to 'proceed carefully' with their future rate decisions. Carefully doesn't mean that the Fed is done tightening, it means that it will 'proceed carefully' in the light of the economic data and the market conditions to decide whether it should hike, pause, or cut the interest rates. Note that 'most' members 'continued to see upside risks to inflation'.   Alas, the cautious tone in Fed minutes went completely unheard as the latest CPI data acted as a shield against the Fed hawks. As such, the market reaction to the Fed minutes was muted. The US 2-year yield remained little changed near the 4.90% level, the 10-year yield rebounded past 4.40%, and is still around 60bp lower than the October levels. The S&P500, which is now trading in the overbought market, retreated 0.20% and Nasdaq 100 fell 0.60% from an almost 2-year high, as investors didn't want to do much before seeing the Nvidia's results.   When fantastic falls short...  Nvidia's Q3 results were strong. The company exceeded the $16bn revenue forecast by $2bn. They earned more than $18bn, made more than $4 profit per share and said that they will be earning around $20bn this quarter. But the latter forecast couldn't meet the top forecast ($21bn) and the share price fell in the afterhours trading, though by less than 2%; investors couldn't decide whether they should buy the fact that the company exceeded the sky-high expectations, or they should sell the reality that the chip sales to China will slow this quarter and that would weigh on revenue – although Nvidia stated that the 'decline will be more than offset by strong growth in other regions' and that they are working to comply with regulations to sell to China, anyway.   Taking a step back: Nvidia is growing, it is growing fast, it has potential to grow further, but the valuation of the company is also sky-high, its price got multiplied by almost five since October 2022. Its PE ratio stands around 120 versus a PE ratio of around 25 in average for S&P500 companies. And its market capitalization is more than $1 trillion more than Intel's, which used to be the world's biggest chipmaker. In summary, the company is growing but that strong growth is already priced in and out. Therefore, we will probably not see a big profit taking post-earnings, we will likely see correction and consolidation instead below the $500 psychological hurdle.   And with that – the Nvidia earnings – out of the way, the S&P500 and Nasdaq futures are slightly in the negative at the time of writing. The market will likely digest the Fed minutes and the Nvidia results in a calm mood before the Thanksgiving holiday.   
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USD Slips Below 200-DMA Despite Rebound in Yields: A Weekly Market Analysis

Ipek Ozkardeskaya Ipek Ozkardeskaya 27.11.2023 15:10
USD slips below 200-DMA despite rebound in yields  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Last week ended on a positive note where the US equities advanced to fresh highs since summer on a holiday shortened trading week. The S&P500 gained for the 4th consecutive week and closed the week near 4560, the rate-sensitive and technology heavy Nasdaq 100 extended gains beyond the summer peak, and hit an almost 2-year high, while the VIX index, which is known as Wall Street's fear gauge, or the volatility index, slumped to the lowest levels since January 2020. The belief that the Federal Reserve (Fed) is done hiking the interest rates, and the rapidly falling US long-term yields are at the source of this optimism – especially after the latest CPI update in the US printed a softer-than-expected number, suggesting that inflation in the US fell to 3.2% last month. This week, investors will find out if the Fed's favourite inflation gauge, the PCE index, tells the same story. The PCE index is expected to have fallen from 3.4% to 3.1% in October, and core PCE may have eased from 3.7% to 3.5% during the same month. Anything less than soothing could lead to some more correction in the US long-term yields. The 10-year yield jumped to 4.50% early Monday, though the positive pressure slowed above 4.50%.   News that the Black Friday spending jumped 7.5% this year to hit a record high of $9.8 billion certainly reminds investors that consumer spending in the US remains strong. The latter gives a strong support to the US economy, which in return gives a solid confidence to the Fed that keeping the rates high for long is not necessarily a bad idea. Today, the sales continue with Cyber Monday deals.   Yet the holiday shoppers' enthusiasm is less visible on the financial markets this Monday. The US futures are down, along with their Asian peers on the back of a rebound in US yields, the nearly 8% slump in Chinese industrial profits in October and news that children in China are suffering from respiratory infections – which spurs speculation that it could be a new strain of Covid. Chinese authorities say that it's simply a mix of known respiratory diseases. But you know, once bitten, twice shy.   
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Market Musings: Powell's Mixed Signals, Oil's OPEC Struggles, and FX Crossroads

Ipek Ozkardeskaya Ipek Ozkardeskaya 04.12.2023 13:49
Mixed feelings By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) President Jerome Powell pushed back against the rate cut bets at his speech given in Atlanta last Friday. He is of course playing the card of 'high for long' rates to tame inflation, yet he hinted that the Fed will probably not hike rates when it meets this month. He said that the US monetary policy is 'well into restrictive territory' and that the fell of effect of higher rates to combat inflation is working its way through economy. 'We are getting what we wanted to get,' said Powell. And indeed, inflation is cooling, people start to spend less, and the job market loosens. But in parallel, the financial conditions are loosening fast, as well. Hence the market optimism and stocks/bond gains become increasingly vulnerable to hawkish Fed comments, and/or strong economic data. The US jobs data will take the center stage this week. Investors expect further fall in US jobs openings, less than 200'000 job additions last month with slightly higher pay on month-on-month basis. The softer the data, the better the chances of keeping the Fed hawks away from the market.   Unsurprisingly, the part of Powell's speech where he pushed back against rate cut expectations went fully unheard by investors on Friday. On the contrary, the Fed rate cut expectations went through the roof when it became clear that the Fed will stay pat again this month. The US 2-year fell to nearly 4.50% on Friday, the 10-year yield tipped a toe below the 4.20% mark. The S&P500 flirted with the summer peak, flirted with the 4600 level and closed the week a touch below this level, while the rate sensitive Nasdaq closed a few points below the 16000 and iShares core US REIT ETF jumped nearly 2.70% last Friday.   The SPDR's energy ETF, on the other hand, barely closed above its 200-DMA, as last week's OPEC decision to cut the production supply by another 1mbpd and to extend the Saudi cuts into next year barely impressed oil bulls – even less so given the apparent frictions at the heart of the group regarding this supply cut strategy when prices keep falling. The decline in oil prices continues this Monday. The barrel of US crude remained aggressively sold near the 200-DMA last week, and we are about to step into the $70/73pb region which should give some support to the market. With the clear deterioration of the positive trend, and the lack of any apparent boost to the oil market following last week's OPEC meeting, there is a chance that we will see oil finish the year below the $70pb mark. An increasingly shaky OPEC unity, record US production, a slowing global economy, deteriorating global demand outlook and efforts to shift toward cleaner energy sources weigh heavier than the supply worries. As such, the $100pb level becomes an increasingly difficult target to reach. And even though the COP28 president Mr. Al Jaber said last weekend that there is 'no science' behind demands for phase-out of fossil fuels – yes 70'000 people flew to Dubai to hear that there is no evidence that fossil fuel is destroying climate – efforts to phase-out fossil fuel continues at full speed with solar panel installation surpassing the most optimistic estimates according to Climate Analytics.  In the FX, the US dollar's positive attempt above the 200-DMA was halted by Powell's speech on Friday – or more precisely by investors' careful extraction of all the dovish elements in that Powell speech. Both the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) will likely keep their rates unchanged this week, but the RBA will certainly sound hawkish faced with worries of 'home-grown' inflation. The AUDUSD stepped into the bullish consolidation zone following a 6+% jump since the October dip and could gather further strength this week. The EURUSD, on the other hand, remains under growing selling pressure despite FX traders' hesitancy regarding what to do with the US dollar. The pair sank to 1.0830 on Friday and is preparing to test the 200-DMA, which stands near 1.0820, to the downside. The easing Eurozone inflation, along with slowing European economies, boost the dovish ECB expectations. The final PMI data will confirm further contraction in the Eurozone last month, as the Eurozone GDP read will likely confirm a 0.1% contraction last quarter. Coming back to the EURUSD, the pair will likely see a solid support near 1.0800/1.0820, which includes the 200-DMA and the major 38.2% Fibonacci retracement on October – November rebound. And clearing this support should pave the way for an extended selloff toward 1.0730.    
All Eyes on US Inflation: Impact on Rate Expectations and Market Sentiment

DAX Eyes New Record High as US ADP Report Takes Center Stage

Michael Hewson Michael Hewson 12.12.2023 12:39
DAX set to open at a new record high, US ADP report in focus By Michael Hewson (Chief Market Analyst at CMC Markets UK)     European markets saw another positive session yesterday with a new record high for the German DAX, while the FTSE100 fulfilled its role as the perennial party pooper with another disappointing session and closing lower for the second day in succession. This was mainly due to weakness in metals and energy prices with Brent crude prices closing at a 5-month low. US markets also struggled for gains with the Nasdaq 100 closing higher due to a strong performance from the Magnificent 7 led by Apple, and Nvidia, while the Russell 2000 finished the day over 1% lower, with the S&P500 and Dow closing little changed.     The indifferent finish seen in the US has been shrugged off by Asia markets with a strong session there after the Bank of Japan's latest Tankan survey showed a big improvement in manufacturers sentiment with the auto sector with the second successive month of gains as chip shortages eased.   This rebound in Asia markets looks set to filter through into this morning's European open with the DAX set to open at a new record high.   Yesterday's economic data from Europe pointed to a modest improvement in services sector economic activity, while the latest US ISM service sector numbers were a mixed bag, with the headline number coming in ahead of forecasts at 52.7. Prices paid did slow but by less than expected, coming in at 58.3 pointing to stickier than expected inflation, while the employment index edged higher to 50.7.   Today we get a look at the latest ADP payrolls report for November as an appetiser for Friday's non-farm payrolls report. We are starting see increasing evidence that the US jobs market is starting to slow, with vacancies falling to their lowest level since March 2021 and with the last two ADP reports adding a combined 202k new jobs as private sector hiring slows.   October saw 113k jobs added an improvement on September and November is expected to see an improvement on that to 130k, given that a lot of additional hiring takes place in the weeks leading up to Thanksgiving and the Christmas period so we're unlikely to see any evidence of cracking in the US labour market this side of 2024.   We also have the latest rate decision from the Bank of Canada where we aren't expecting any changes to monetary policy here with the central bank forecast to keep rates unchanged at 5%.   The last 3-months have seen no growth in the economy at all while the October jobs report saw a rise of 17.5k jobs, all of these were part time positions. On full time employment we saw the first decline in jobs growth since May with a decline of -3.3k, while unemployment rose from 5.5% to 5.7% and the highest level since January 2021. We're also starting to see inflationary pressure continue to subside with core CPI on the median slipping from 3.9% to 3.6% in October.    EUR/USD – has fallen below the 200-day SMA at 1.0825, with a fall below the 1.0800 level raising the prospect of a move towards the 50-day SMA just below the 1.0700 area. Resistance now at the 1.0940 area, and behind that at last week's highs at 1.1015/20.   GBP/USD – the failure to move above the 1.2720/30 has seen the pound slip back towards support at 1.2580/90 area. A break below 1.2570 signals a deeper pullback towards the 1.2460 area and 200-day SMA. A move through the 1.2740 area signals a move towards 1.2820.    EUR/GBP – has found support at the 0.8555 area and is currently looking to recover through the 0.8600 area. While below the 0.8615/20 area, the risk remains for a move towards the September lows at 0.8520, and potentially further towards the August lows at 0.8490.   USD/JPY – currently trying to rally off the recent lows at the 146.20 area, with resistance now at the 148.10 area. Looks vulnerable to further losses while below this cloud resistance with the next support at the 144.50 area.   FTSE100 is expected to open 25 points higher at 7,514   DAX is expected to open 56 points higher at 16,589   CAC40 is expected to open 20 points higher at 7,407
EUR/USD Analysis: Assessing Potential for Prolonged Decline Amidst Volatility

Dovish Outlook: Global Central Banks Soften Stance Amid Falling Energy Prices

ING Economics ING Economics 12.12.2023 13:11
Too dovish Falling energy prices help softening global inflation expectations and keep the central bank doves in charge of the market, along with sufficiently soft economic data that points at the end of the global monetary policy campaign. This week, the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) kept rates unchanged – although the RBA said that they could hike again if home-grown inflation doesn't slow. But overall, the Federal Reserve (Fed) is expected to cut as soon as in May next year, and the European Central Bank (ECB) is expected to announce six 25 basis point cuts next year. If that's the case, the ECB should start cutting before the Fed, sometime in Q1. It sounds overstretched to me.   Data released earlier this week showed that French industrial production fell unexpectedly for the 3rd straight month in October, Spanish output declined, and German factory orders fell 3.7% in October versus a 0.2% increase penciled in by analysts. The slowing European economies and falling inflation help building a case in favour of an ECB rate cut, but I don't see the ECB cutting rates anytime in the H1. Remember, economic slowdown is the natural response that the ECB was looking for to slow inflation. Now that it happens, the bank won't leave the battlefield before making sure that inflation shows no sign of life. But the EURUSD is understandable extending its losses within the bearish consolidation zone, as the German 10-year yield sinks below the 2.20% level. The EURUSD is now testing the 100-DMA to the downside. Trend and momentum indicators are comfortably bearish and the RSI hints that we are not yet dealing with oversold market conditions. Therefore, the selloff could deepen toward the 1.07/1.730 region.  The direction of the EURUSD is of course also dependent on what the USD leg of the pair will do. We see the dollar index recover this week despite the falling yields driven lower by a soft set of US jobs data released so far this week. The JOLTS data showed a significant fall in job openings in October, while yesterday's ADP print revealed around 100K new private job additions last month, much less than 130K penciled in by analysts. There is no apparent correlation between this data and Friday's official NFP read, but the fact that independent data point at further loosening in the US jobs market comforts the Fed doves in the idea that, yes, the US jobs market is finally giving in. On the yields front, the US 2-year yield remains steady near 4.60%/4.65% region, while the 10-year yield fell to 4.10% yesterday, from above 5% by end of October. This is a big, big decline, and it means that investors are now ramping up the US slowdown bets. That's also why we don't see the US stocks react to the further fall in yields. The S&P500 and Nasdaq both fell yesterday, while their European peers extended gains regardless of the overbought conditions. The Stoxx 600 closed yesterday's session above the 470 level. The softening ECB expectations are certainly the major driver of the European stocks toward the ytd highs; German stocks hit an ATH yesterday despite the undoubtedly morose economic outlook. Actual levels scream correction.      
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Decision Week: Analyzing the Impacts of Strong US Jobs Report on Markets and the Fed's Goldilocks Scenario

ING Economics ING Economics 12.12.2023 14:29
Decision week By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Friday's jobless report from the US was strong. It could've gone both ways, but it went well. The US economy added nearly 200'000 new nonfarm jobs in November, average earnings were higher than expected on a monthly basis, but stable around the 4% level on a yearly basis. That's twice the Federal Reserve's (Fed) inflation target and sticky, but it didn't bother much, and the jobless rate fell from 3.9% to 3.7%, as the participation rate slightly improved.   The stronger-than-expected jobs data sent the US 2-year yield to near 4.75%, and the 10-year yield recovered to 4.28%, but the stock traders gave a cheerful reaction to the news that the US jobs market is softening, not collapsing. The latest data suggests that the Fed is one step closer to realizing its Goldilocks scenario: it could win the inflation battle without pushing the economy into recession. Is it too good to be true? This week's inflation update and the Fed decision will tell.  The S&P500 traded at a ytd high on Friday, and Nasdaq closed a touch below its ytd high. The US dollar index recovered from the selloff of the day before which was mostly driven by a notable jump in the yen following the Bank of Japan (BoJ) Governor Ueda's confession last week that the BoJ's negative rates would get tougher to maintain from the end of the year. The USDJPY – which fell from above 147 to 142 in a single move – is now consolidating gains around 145 level as traders are out guessing whether the BoJ will exit the negative rates before the year ends. Elsewhere, gold slipped below $2000 per ounce, the EURUSD consolidates near its 100-DMA, near the 1.0760 mark, Cable is losing field on the back of a broad-based USD rebound and tests the 1.25 to the downside, while the AUDUSD hovers around its 200-DMA. The pair is still in the positive trend according to the Fibonacci retracement on the latest rebound, but on the verge of sinking into the bearish consolidation zone, as is the case for the other major peers.      
Federal Reserve's Stance: Holding Rates Steady Amidst Market Expectations, with a Cautionary Tone on Overly Aggressive Rate Cut Pricings

Tectonic Shift: Unexpectedly Dovish Fed Sparks Market Dynamics

ING Economics ING Economics 14.12.2023 13:57
Surprise dovish twist By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The Federal Reserve (Fed) wraps up the year with a resounding finale. The Fed is not bothered to see the US yields fall in preparation for a rate cut. On the contrary, they endorsed the idea of a policy pivot thanks to an encouraging fall in inflation and sounded way more dovish than everybody expected at their announcement yesterday – which clearly exposed that the policy pivot is coming. This is the major take of the final FOMC meeting of the year, and it was totally unexpected. Jerome Powell still said – just for the sake of saying – that 'it is far too early to declare victory' over inflation, but the committee lowered their inflation forecasts for this year and the next, and the so-called dot plot – which plots where the Fed officials see the interest rates going – plotted a 75bp cut in Fed funds rate next year. The median expectation now suggests that the Fed rate will be lowered to 4.6% by the end of next year. And that's quite a big change compared to last time the Fed President spoke to say that the rates would stay high for long. It now appears that the rates won't stay high for so long. The first Fed rate cut is now expected to happen in March, with more than 85% probability.  As a result, the US 2-year yield – which captures the Fed rate bets – sank to 4.33% yesterday, and with the dovish message that the Fed sent to the market, the 4.50% level that I saw as a support at the start of this week should now act like a resistance. The US 10-year yield sank below 4%, reflecting the idea that the policy pivot suggests some meaningful slowdown in the US economy. The falling yields sent the S&P500 above the 4700 mark, to the highest levels in almost two years and the Dow Jones Industrial Index hit a record high. There is no reason to stop believing that the S&P500 will soon renew record as well, unless there is a meaningful decline in earnings expectations.   The dovish Fed echoed loudly across the FX markets as well. The US dollar was sharply sold, the EURUSD rebounded back above the 1.09 level, Cable extended gains to 1.2650 and the USDJPY fell almost 1.80% yesterday and slipped below the 141 level this morning. Trend and momentum indicators are comfortably negative, the fundamentals – meaning the narrowing divergence between the more dovish Fed and the more hawkish Bank of Japan (BoJ) – are comfortably positive for the yen, hence price rallies in the USDJPY are now seen as opportunities to strengthen the short USDJPY positions.  Now today, it's the European Central Bank (ECB) and the Bank of England's (BoE) turn to give their final policy verdict for this year. And both Mme Lagarde and Mr. Bailey are certainly annoyed to see the Fed go so soft yesterday, as Christine Lagarde had said herself that no reduction in rates should be expected in the next few quarters. It will be interesting to see if ECB and BoE officials feel comfortable about giving up their tough stance. I still believe that Lagarde will repeat that it's too early to talk about rate cuts, in which case we could see the EURUSD jump above the 1.10 level and finish the year above this level.   Across the Channel, the situation is less obvious. The UK economic outlook is not bright, and wages show signs of slowing. One big argument is that inflation has more than halved in the UK since the start of this year. Yes. But inflation in the UK – though halved – stands at 4.6% which is more than twice the BoE's 2% target. The latter makes the BoE less inclined to initiate rate cuts compared to the other two major central banks.   
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Rates Puzzle: Powell's Silence and Central Banks' Divergence

ING Economics ING Economics 14.12.2023 14:00
Rates Spark: Does the Fed know something we dont? The surprise from the FOMC was partly the extra 25bp implied cut added to 2024, but it was more the lack of pushback from Chair Powell on the 2024 rate cut narrative. He almost endorsed it, which leads us to question whether he knows something of significance that we don't. Today's focus is on the ECB and BoE policy meetings.   Chair Powell validates the move from 5% to 4% on the 10yr yield Such was Federal Reserve Chair Jerome Powell's phraseology at the press conference that one must suspect that he knows more than we know. And its not about the macro data. We can see that. It's more about what the Fed might be seeing under the hood. Perhaps in commercial real estate, or single family residential rentals or private credit, or another other area of the system that might find itself overexposed to rate hikes delivered, under water and vulnerable to breaking. We don't know of course, but a Fed chair that stands up asserts that he understands the dangers they run by keeping rates too high for too long is one that looks like he's ringing alarm bells. Along with the Fed, the market too has added an additional 25bp rate cut for 2024, now at 150bp cumulative. The entire curve has shifter lower, led by real rates. The 2/10yr curve has gapped steeper too. This is a meaningful outcome. The question now is whether the 2yr can really break free and head lower as a driver of the yield curve, steepening it out from the front end. That traditionally happens on a three month run in ahead of an actual rate cut. We’re on the cusp if this, but not quite there just yet. It’s been a remarkable ongoing market move, especially as it has been interlaced with some tailed auctions, indicative of resistance to the falling market rates narrative (in the long end). But there’s been little from Chair Powell and the FOMC to stand in the way of this. Recent data has not really validated the dramatic fall in yields. But today the Fed has helped to do so. A far more hawkish Fed had been anticipated. The question ahead is where is fair value for the 10yr. We think it’s 4%. It’s premised off the view that the funds rate gets to 3% and we are adding a 100bp curve to that. We are about to sail below 4% though as a theme for 2024, with 3.5% the target. But the move below 4% towards 3.5% will be an overshoot process. If something breaks, we fast track all of that and jump to a new environment. That has not happened as of yet, but we think the stakes have risen.   ECB to push back against early cut expectations With a first rate cut more than fully discounted by April and on overall anticipated easing of 135bp over 2024, the market’s expectations of European Central Bank policy stand in stark contrast to the official line of rates having to remain high for longer. But since the last meeting in particular the inflation data has surprised to the downside, which even influential ECB officials like Isabel Schnabel had to acknowledge. The prospect of further hikes is clearly off the table, but she warned that central banks will have to be more cautious. That also meant that the ECB should be more careful with regards to making statements about what will happen in the next six months. The ECB’s new growth and inflation forecasts will have to be lowered, the crucial question is just by how much. Also taking it from Schnabel, the ECB is unlikely to give any longer rate guidance, which would only mean a truer meeting-by-meeting and data dependent approach. Still, the ECB is unlikely to endorse the aggressive market pricing, especially that of cuts already early in the year. So far the communication has been that one is particularly concerned about the development of upcoming wage negotiations which makes pricing for March rate cuts look premature. But how can the ECB still convey a hawkish tilt? One possibility is using communication about plans to shrink the balance sheet. We do not think there will be concrete decisions yet, but the ECB could state that it has begun discussing to potentially end PEPP reinvestments earlier than planned.   BoE likely reiterate rates will stay restrictive for an extended period Expectations of policy easing have further deepened ahead of today’s Bank of England monetary policy committee meeting. A first rate cut is now fully discounted by June with an overall expected easing of close to 100bp over 2024. One reason for growing expectations was a downside surprise in wage growth which saw private sector regular pay growth fall to 7.3% year-on-year from 7.8% YoY. Another trigger was yesterday’s disappointing GDP growth for October which means we are potentially on track for a fractionally negative overall fourth quarter figure. The BoE is likely to reiterate the guidance from November, where it said it expected rates to stay restrictive for “an extended period.  A hold is also widely anticipated by the market, but the recent data could convince some of the three MPC’s hawks who had still voted for a hike in November to back down from that position toward a ‘no change’.    Today's events and market view The central bank meetings are clearly the focus today given how far market expectations of policy easing have come. There may well be some disappointment in store for pricing of rate cuts as early as March. But further out we must acknowledge that the shift lower in rates is also driven by a drop in inflation expectations. The 10Y EUR inflation swap for instance has come down all the way from levels closer to 2.6% in October to currently 2.15%. Even central banks themselves have become more positive about the disinflationary tendencies taking hold. On the heels of the FOMC meeting rates markets in the US will look out for the initial jobless claims as well as retail sales data today. we will also get import and export prices.
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Market Analysis: Fed's Dovish Pivot, European Economic Challenges, and Expectations for the Week Ahead

Michael Hewson Michael Hewson 18.12.2023 13:44
Weak start for Europe ahead of German IFO - By Michael Hewson (Chief Market Analyst at CMC Markets UK)  After an unexpectedly dovish pivot from Fed chairman Jay Powell on Wednesday, European and US markets ended another positive week very much on a mixed note after New York Fed President John Williams pushed back on market expectations of a rate cut as early as March, saying it was premature to be even considering anything of that sort.   Williams was followed in his comments by Atlanta Fed President Raphael Bostic who delivered a similar line of thought, saying he expected rate cuts to begin in Q3 of 2024 if inflation falls as expected. With the Fed dots indicating that US policymakers saw rates back at 4.6% this appears to be more in line with the message the Fed had hoped to deliver on Wednesday, however markets decided to take Powell's press conference comments and run with them, getting out in front of their skis in doing so.   Given where the US economy is now it's surprising that the Fed are said to be to start to be thinking in terms of cutting rates simply because with the economy currently where it is, there is currently no need. With GDP at 5.2% in Q3, unemployment at 3.9%, and weekly jobless claims at just over 200k the risk of inflation reigniting is clearly still a concern for some policymakers.   That certainly doesn't appear to be the case in Europe where economic activity is stagnating at best and even now the ECB comes across as being reluctant to counter a rate cut, even though a reduction in borrowing costs is clearly needed, given that headline inflation is back within touching distance of its 2% target.   The same could be argued for the UK except wage growth is still trending well above 7%, while headline CPI is at 4.6%, though this could come down further in numbers due to be released on Wednesday.   As we look towards the final week before the Christmas break, trading activity is likely to be somewhat thin and choppy, and while we have seen record highs for the Dow, DAX and CAC 40 in the last week or so, we still remain some distance away from the 2021 record peaks of the Nasdaq 100 and S&P500.   As for the FTSE100 we're looking at yet another year of underperformance, after the record highs of mid-February, with the UK benchmark up by just over 1% year to date, with the FTSE250 not faring that much better.   Due to the relatively subdued nature of Friday's US finish, today's European market open looks set to be a slightly weaker one with the only data of note the latest German IFO Business survey for December. Given the weak nature of last week's PMI numbers it would be surprising to see a significant improvement on the November numbers when the current assessment improved slightly to 89.4.   The US dollar was one of the big losers last week driven lower by expectations that US rates have peaked and are on their way back down, with the Japanese yen one of the biggest gainers.   This shift in sentiment will no doubt be welcomed by the Bank of Japan and to some extent helps them out with respect to the weakness of the yen ahead of tomorrow's rate decision. There is now less incentive for them to think about altering their current policy settings, although they might hint at starting to execute some form of shift early next year.      EUR/USD – the rebound to 1.1010 last week didn't last long, unable to push through the November peaks at 1.1015/20. We still have support now back at the 200-day SMA at 1.0830. A break above 1.1030 has the potential to target the July peaks at 1.1275.   GBP/USD – broke briefly above the 1.2730 area, and the 61.8% retracement of the 1.3140/1.2035 down move, pushing up to 1.2795 before reversing. The bias remains for further gains while above the 200-day SMA at 1.2520. We also have support at the 1.2590 area.   EUR/GBP – slipped back from the 100-day SMA at 0.8640 last week, with support at the 0.8570/80 area. A move below 0.8580 targets 0.8520.   USD/JPY – slipped below the 200-day SMA at 142.50 last week, opening the prospect of a move towards 140.00. We now have resistance at 146.00 and while below that we could push towards 139.20.     FTSE100 is expected to open 7 points lower at 7,569   DAX is expected to open 15 points lower at 16,736   CAC40 is expected to open 3 points lower at 7,594
FX Daily: Lower US Inflation Could Spark Real Rate Debate

Soft Inflation Dynamics: A Key Factor in the Santa Rally

Ipek Ozkardeskaya Ipek Ozkardeskaya 27.12.2023 14:55
Soft inflation at the Top of Santa's Wishlist By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Appetite in European stocks waned yesterday, yet the US counterparts recovered Wednesday losses and closed the session more than 1% higher as the latest growth data was revised slightly lower to 4.9%, real consumer spending was revised down from 3.6% to 3.1%, corporate profits from above 4 to 3.7%. Else, jobless claims came in lower than expected and the Philly Fed index printed a sharper contraction in December. All in all, the data pointed at a certain slowdown – except for the jobless claims – but the numbers looked strong in absolute terms: that's about everything that the soft-lander camp love to hear : a slowing economy that will allow the Federal Reserve (Fed) to loosen its grip on the monetary policy, but an economy that will avoid entering recession if inflation falls and remains low near the Fed's 2% target. As such the S&P500 closed a few points below 4500 and Nasdaq 100 a few points below an ATH.   Today's inflation print is the Fed puzzle's last crucial piece. If today's PCE print comes in as soft as expected, or ideally softer-than-expected, we shall see the rally in bonds – and perhaps in stocks – extend the Santa rally. In numbers, core PCE is expected to show no change on a monthly basis. If that's the case, the core PCE – the Fed's favourite gauge of inflation – will fall to the Fed's 2% target over the past 6 months, on an annualized basis. Given the strong positive trend and the market's optimism, a sufficiently soft inflation figure should be enough to justify a fresh record for the S&P500 after the Dow Jones and Nasdaq renewed record after record over the past week. When the market is high on dovish Fed expectations, the sky is the limit.  Presently, swaps point at six 25bp cut in the US by this time next year. That's a 150bp cut in total. It means that the US rates are expected to fall to 375/400bp range in a year time. And that leaves the 2-year bond – which currently yields near 4.35% with plenty of room to extend rally. This being said – and I can't repeat it enough – if the US economy is set for a 150bp cut, it would also be due to something ugly that would've triggered that Fed reaction. A 5% growth, combined with robust consumer spending, strong profit expectations and a historically low unemployment rate don't call for a 150bp cut.   Elsewhere  Today's inflation data from Japan confirmed an expected fall in inflation to 2.5% from 2.9% printed a month earlier. As such, there is no rush for the Japanese policymakers to move; low rates are sweet for growth if they don't generate inflation. Plus, the yen appreciation should keep inflation contained in Japan and leave the Bank of Japan (BoJ) in a position to ... wait until at least April to exit the negative rates... et encore. Therefore, there is a weakening case for the USDJPY to dip below the 140 level, and there is no issue with buying the Japanese stocks at 33-year high levels when the BoJ remains so supportive.   In Europe, the EURUSD bulls are waiting for the US inflation data in ambush. A sufficiently soft inflation read is expected to boost the Fed doves, back a further USD depreciation and drive the EURUSD above the 1.10 mark to the end of the year. In this configuration, gold will also remain on track for further gains above the $2000 level.   Good Bye!  American crude is testing the top of the downtrending channel that has been building since the end of September. The $74/75 offers continue to push back the bullish attempts, while trend and momentum indicators are strong and tell that a positive breakout is still possible and could lead the price of a barrel to near 200-DMA – near $78pb.   The latest news from OPEC is not necessarily enchanting. Angola decided to leave OPEC as the country rejected the restricted production quotas that the cartel imposed on them. But note that, Angola won't be pumping significantly more outside OPEC: once Africa's biggest producer, the country's production collapsed by 40% in 8 years due to an unfavourable tax environment and the absence of fresh investments, and the country pumped just above 1.1mbpd, anyway. Therefore, in absolute terms, Angola's exit won't change the dynamics for OPEC, but Angola's walkout is just another reminder that the tensions are mounting at the heart of OPEC, and the cartel – which now has the lowest market share of its history – will hardly maintain an impactful position to influence the oil price if they can't show unity.    
All Eyes on US Inflation: Impact on Rate Expectations and Market Sentiment

Year-End Reflections: Markets Cheer Softening Inflation, Diverging Central Bank Policies, and the Oil Conundrum

ING Economics ING Economics 27.12.2023 15:18
Notes from a slow year-end morning By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  The last PCE print for the US was perfect. Core PCE, the Federal Reserve's (Fed) favourite gauge of inflation, printed 0.1% advance on a monthly basis – it was softer than expected, core PCE fell to 3.2% on a yearly basis – it was also softer than expected, and core PCE fell to 1.9% on a 6-month basis, and that's below the Fed's 2% inflation target.   Normally, you wouldn't necessarily cheer a slowdown in 6-month inflation but because investors are increasingly impatient to see the Fed cut its interest rates, all metrics are good to justify the end of the Fed's policy tightening campaign. So here we are, cheering the fact that the 6-month core PCE fell below the Fed's 2% target in November. The US 2-year yield is preparing to test the 4.30% to the downside, the 10-year yield makes itself comfy below the 4% mark – and even the 3.90% this morning, and the stocks joyfully extend their rally. The S&P500 closed last week a few points below a ytd high, Nasdaq100 and Dow Jones consolidated near ATH levels and the US dollar looks miserable. The dollar index is at the lowest level since summer and about to step into the February to August bearish trend.   There is not much data left to go before this year ends. We have a light economic calendar for the week, and the trading volumes will be thin due to the end-end holiday.   Morning notes from a slow morning  Major central banks reined in on inflation in 2023 – the inflation numbers are surprisingly, and significantly lower than the expectations. Remember, we though – at the start of the year - that the end of China's zero-Covid measures was the biggest risk to inflation. Well, we simply have been served the exact opposite: China's inability to rebound, and inability to generate inflation simply helped getting the rest of us out of inflation. China did not contribute to inflation but to disinflation instead.  The Fed sounds significantly more dovish than its European peers – even though inflation in Europe and Britain have come significantly down, and their sputtering economies would justify softer monetary policies, whereas the US economy remains uncomfortably strong. Released last Friday, the US durables goods orders jumped 5.4% in November! The diverging speed between the US and the European economies makes the policy divergence between the dovish Fed and the hawkish European central banks look suspicious. Yes, the EURUSD will certainly end this year above that 1.10 mark, nonetheless, the upside potential will likely remain limited.   Elsewhere, everyone I talk to is short USDJPY, or short EURJPY, or GBPJPY. But the bullish sentiment in the yen makes the yen stronger and a stronger yen will help inflation ease in Japan, and slow inflation will allow the Bank of Japan (BoJ) to remain relaxed about normalizing policy. And indeed, released this morning, the BoJ core inflation fell more than expected to 2.7%. Bingo! Therefore, it looks like the USDJPY's downside potential may be coming to a point of exhaustion near the 140 – in the absence of fresh news.   In energy, oil is having such a hard time this year. The barrel of American crude couldn't break the $74pb resistance and there is now a death cross formation on a daily chart. Yet the oil bulls have all the reasons on earth to push this rally further: the tensions in Suez Canal are mounting, the war in the Middle East gets uglier, Iran looks increasingly involved in the conflict, OPEC restricts production, and central banks are preparing to cut rates. But interestingly, none has been enough to strengthen the back of the bulls. Failure to clear the $74/75 resistance will eventually weaken the trend and send the price of a barrel below $70pb. If that's the case, there will be even more reason to be confident about a series of rate cuts next year.  
UK Inflation Dynamics Shape Expectations for Central Bank Actions

The Finish Line: Reflections on 2023 and a Glimpse into 2024

Ipek Ozkardeskaya Ipek Ozkardeskaya 02.01.2024 12:48
The Finish Line By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Here we are, on the last trading day of the year. This year was completely different than what was expected. We were expecting the US to enter recession, but the US printed around 5% growth in the Q3. We were expecting the Chinese post-Covid reopening to boost the Chinese growth and fuel global inflation, but a year after the end of China's zero-Covid measures, China is suffocating due to an unexpected deflation and worsening property crisis. We were expecting last year's negative correlation between stocks and bonds to reverse – as recession would boost bond appetite but batter stocks. None happened.  The biggest takeaway of this year is the birth of ChatGPT which propelled AI right into the middle of our lives. Nasdaq 100 stocks close the year at an ATH, Nvidia – which was the biggest winner of this year's AI rally dwarfed everything that compared to it. Nvidia shares gained more than 350% this year. That's more than twice the performance of Bitcoin – which also had a good year mind you.   Besides Nvidia, ChatGPT's sugar daddy Microsoft, Apple, Amazon, Meta, Google and Tesla – the so-called Magnificent 7 generated almost all of the S&P500 and Nasdaq100's returns this year. And thanks to this few handfuls of stocks, Nasdaq100 is set for its best year since 1999 following a $7 trillion surge.   The million-dollar question is what will happen next year. Of course, we don't know, nobody knows, and our crystal balls completely missed the AI rally that marked 2023, yet the general expectation is a cool down in the technology rally, and a rebalancing between the big tech stocks and the S&P493 on narrowing profit lead for the Magnificent 7 compared to the rest of the index in 2024. T  The other thing is, the S&P500's direction next year is unclear as the Federal Reserve (Fed) is expected to start chopping the interest rates, with the first rate cut expected to happen as early as much with more than 85% probability. So what will the Fed cuts mean for the S&P500? Looking at what happened in the past, the S&P500 typically rises after the first rate cut, but the sustainability of the gains will depend on the underlying economic fundamentals. Lower rates are good for the S&P500 valuations EXCEPT when the economy enters recession within the next 12-months. So that backs the idea that I have been trying to convey here since weeks: lower US yields will be supportive of the S&P500 valuations as long as the economy remains strong, and earnings expectations hold up.    For now, they do. The S&P500 earnings will certainly end a bit better than flat this year, and the EPS is expected to rise by more than 10% next year. The Magnificent 7 are expected to post around 22% EPS growth next year. But note that, these expectations are mostly priced in, so yes, there will still be a hangover and a correction period after a relentless two-month rally triggered a broad-based risk euphoria among investors. The S&P500 is about to print its 9th consecutive week of gains – which would be its longest winning streak in 20 years.  In the FX, the US dollar index rebounded yesterday as treasury yields rose following a weak sale of 7-year notes. But the US dollar is still set for its worse year since 2020. Gold prepares to close the year near ATH, the EURUSD will likely reach the finish line above 1.10 and the USDJPY having tested but haven't been able to clear the 140 support. In the coming weeks, I would expect the EURUSD to ease on rising expectations from the ECB doves, and/or on the back of a retreat from the Fed doves. We could see a minor rebound in the USDJPY if the Japanese manage to calm down the BoJ hawks' ambitions. Overall, I wouldn't be surprised to see the US dollar recover against most majors in the first weeks of next year.  In the energy, crude oil remains downbeat. The barrel of American crude couldn't extend rally after breaking the $75pb earlier this week, and that failure to add on to the gains is now bringing the oil bears back to the market. The barrel of US crude sank below the $72pb as the US oil inventories slumped by more than 7mio barrels last week, much more than a 2-mio-barrel decline expected. The latter brought forward the demand concerns and washed out the supply worries due to the Red Sea tensions. Note that crude oil is set for its biggest yearly decline since 2020; OPEC's efforts to curb production and the rising geopolitical tensions in the Middle East remained surprisingly inefficient to boost appetite in oil this year. 
European Markets Rebound Amid Global Uncertainty, US PPI Miss, and Rate Cut Speculation

European Markets Rebound Amid Global Uncertainty, US PPI Miss, and Rate Cut Speculation

ING Economics ING Economics 16.01.2024 12:12
European markets finished a choppy week with a modest rebound, with the FTSE100 breaking a 3-day losing streak, although it still fell for the second week in succession having sunk to a 3-week low midweek. US markets also had a more positive week with the S&P500 briefly pushing above the 4,800 level for the first time in 2 years.    The catalyst for Friday's push higher was a downside miss in US PPI for December which pulled forward speculation yet again about central bank rate cuts, which helped pull the US 2-year yield to its lowest level since May last year.   We also saw similar sharp declines in UK and German 2-year yields as well, although the market enthusiasm and pricing for rate cuts isn't anywhere near as aggressive as it is for the prospect of a cut in US rates. This comes across as a little bizarre given that of all the major economies now the US appears to be in much better shape, and therefore in less need of the stimulus of a rate cut. Last week's PPI numbers served to overshadow a hotter than expected CPI figure which saw headline inflation in the US push up from 3.1% to 3.4%, the second time we've seen US inflation rebound from the 3% level since June last year.     This uncertainty suggests that markets could be jumping the gun when it comes to the likelihood of March rate cuts, and it is the 2-year yield where this is being priced most aggressively. With earnings season now under way in the US with the first set of Q4 bank results garnering a rather mixed market reaction, although there was nothing significant in the numbers to suggest that the US consumer was feeling the pressure from current interest rate levels. Today the US is off for Martin Luther King Day which means markets in Europe could well be more subdued than normal, and so far this year there hasn't been that much to get particularly excited about anyway. The markets already know that the Federal Reserve is done when it comes to further rate increases, and currently have six 25bps rate cuts priced in for this year. That seems rather a lot and is more than the three the Fed have in their dot plot projections.     Nonetheless while markets in Europe and the US have got off to an uncertain start, one index that hasn't is the Nikkei 225 which has raced out of the blocks, pushing up to its highest levels in 34 years and up over 5% year to date already, and in so doing has got people speculating whether we can see a return to those 1989 peaks of 38,957. This week the focus is set to be very much on the UK economy in the wake of Friday's better than expected November GDP numbers, which raised the prospect that the economy may have avoided a technical recession at the end of last year, as a rebound in services activity saw the economy expand by 0.3%. This week we get data for wages and unemployment for November, as well as December CPI and retail sales, all of which have the potential to shift the dial on the timing of a first rate cut from the Bank of England. With inflation still almost double the Bank of England's 2% target and wage growth still upwards of 7% the idea that the central bank would look at cutting rates much before the summer seems unlikely. That said many are suggesting that inflation could be back at 2% by April, however even if that were the case we won't find out until the middle of May when the numbers are released. Against this sort of backdrop, it would be unlikely if he Bank of England were to act on rates until it sees the whites of the eyes of a lower inflation rate, especially since at the last meeting we still had 3 members of the MPC voting for a hike. It's unlikely they will vote the same way in February but nonetheless they are unlikely to go from hiking to cutting with only one meeting in between unless the wheels come off in spectacular fashion.     EUR/USD – currently looking to move higher but needs to move above the 1.1000 area to signal further gains. Short term support still at 1.0875 and the 200-day SMA at 1.0830. A break above 1.1030 has the potential to target the December peaks at 1.1140. GBP/USD – currently finding resistance at the 1.2800 area last week, slipping back to 1.2690 but remains in the wider uptrend with support just above the 1.2600 area. We need to get above 1.2800 to target the 1.3000 area. EUR/GBP – ran out of steam at the 0.8620 area last week, although we also have resistance at the 0.8670 area. Still have support just above the 0.8570/80 area, with the main support at the December lows at 0.8545. USD/JPY – ran into resistance at the 50-day SMA at 146.40 last week. Support currently at the 200-day SMA now at 143.80. We need to push above last week's high above 146.40 to keep 148.00 in sight or risk a return to 140.00. FTSE100 is expected to open 11 points higher at 7,636 DAX is expected to open 65 points higher at 16,769 CAC40 is expected to open 19 points higher at 7,484
Eurozone PMIs: Tentative Signs of Stabilization Amid Ongoing Economic Challenge

Surprise Surge in UK Inflation Triggers Market Response

Ipek Ozkardeskaya Ipek Ozkardeskaya 17.01.2024 15:55
UK inflation unexpectedly rises By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Yesterday was just another day where another policymaker pushed back on the exaggerated rate cut expectations. Federal Reserve's (Fed) Christopher Waller said that the Fed should go 'methodically and carefully' to hit the 2% inflation target, which according to him is 'within striking distance', but 'with economic activity and labour markets in good shape' he sees 'no reason to move as quicky or cut as rapidly as in the past', and as is suggested by the market pricing. So that was it. Another enlightening moment went down the market's throat in the form of a selloff in both equities and bonds. The US 2-year yield – which captures the rate expectations rebounded 12bp, the 10-year yield jumped past the 4%, the US dollar index recovered to a month high and is testing the 200-DMA resistance to the upside this morning, while the S&P500 retreated 0.37%.   Waller spoke from the US yesterday, but many counterparts are wining, dining and speaking in the World Economic Forum in Davos this week, which doesn't only offer snowy and a beautiful scenery this January, but it also serves as a platform to many policymakers to bring the market back to reason. Expect more comments of this hawkish kind during this week. It turns out that one of the most popular topics of this year's WEF is rising inflationary risks due to the heating tensions in the Red Sea which disrupt the global trade roads and explode the shipping costs.  
Bank of Japan Holds Steady, UK Public Finances in Focus: Market Analysis

Bank of Japan Holds Steady, UK Public Finances in Focus: Market Analysis

Michael Hewson Michael Hewson 25.01.2024 12:31
Bank of Japan stays on hold, UK public finances in focus By Michael Hewson (Chief Market Analyst at CMC Markets UK)   European markets saw a cautious but broadly positive start to the week, despite weakness in basic resources which served to weigh on the FTSE100. US markets picked up where they left off on Friday with new record highs for the Dow, S&P500 and Nasdaq 100 although we did see a loss of momentum heading into the close, as US yields rebounded off their lows of the day.   The tentative nature of yesterday's gains appears to be being driven by a degree of caution ahead of some key risk events over the next couple of weeks, starting today with the latest Bank of Japan policy decision. This is set to be followed by the European Central Bank on Thursday, and then the Fed and Bank of England next week.   For most of this month central banks have been keen to reset the policy narrative when it comes to the timing of rate cuts which had markets pricing in the prospect of an early move. While US markets have managed to shrug off the prospect of a delay to possible rate cuts, markets in Europe have struggled with the concept probably due to the weakness of the underlying economy relative to how the US economy has been performing. There is a sense that the ECB is over prioritising the battle against inflation which is coming down rapidly and not seeing the damage that is being done to the wider economy by keeping rates higher than they need to be.   Today's Bank of Japan decision didn't offer up any surprises with the central bank keeping monetary policy unchanged against a backdrop that has seen market expectations of rate cuts from other central banks increase markedly since the last Fed meeting. This shift in expectations has helped to ease some of the pressure on the BoJ to look at tightening policy itself to slow the decline of its own currency. The bank also cut its inflation forecast for this year from 2.8% to 2.4%, while nudging its 2025 forecast slightly higher to 1.8%.   Asia markets have seen a more upbeat session on reports that Chinese authorities are looking at a package of stimulus measures to help stabilise the stock market, which could come as soon as next week. Despite this more positive tone European markets look set to open only modestly firmer, with the only economic data of note due today being the latest public finance data from the UK for December.  As far as UK government borrowing is concerned rising interest costs at the beginning of Q4 served to exert upward pressure on the headline numbers, pushing borrowing up to £16bn in October, the second highest October number since 1993. Since those October peaks, gilt yields have declined sharply, along with headline inflation, helping to ease borrowing costs in the mortgage market. This weakness has also come as a welcome relief to the Chancellor of the Exchequer, after UK 10-year yields fell to a low of 3.44%, down from a peak of 4.73% in October. These lower interest costs are likely to see December borrowing slow to £14.1bn, while January could see a surplus as end of year tax payments boost the numbers.     EUR/USD – currently has support at the 200-day SMA at 1.0840. A break below here and the 1.0800 level targets the 1.0720 area. Currently capped at the 50-day SMA with main resistance up at 1.1000.  GBP/USD – remains resilient with support just above the 50-day SMA and 1.2590 area. We need to get above 1.2800 to maintain upside momentum. Also have support at the 200-day SMA at 1.2550. EUR/GBP – continues to find support at the 0.8540/50 level which has held over the last 2-months. A fall through here could see further falls towards the 0.8520 area. We still have resistance at the 0.8620/25 area and the highs last week. USD/JPY – has retreated modestly from the 148.50 area but remains on course for the 150.00 level. Pullbacks likely to find support at the 146.25 level cloud support as well as the 50-day SMA. FTSE100 is expected to open 15 points higher at 7,502 DAX is expected to open unchanged at 16,683 CAC40 is expected to open 7 points higher at 7,420
Poland on the Global Investment Map:  Analyzing EBRD’s Record €1.3 Billion  Investment

Netflix Surges: A Boost to Market Confidence Amid Global Economic Uncertainty

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.01.2024 15:01
Netflix beats By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   Netflix jumped 8% in the afterhours trading as its revenue and new subscriptions topped estimates. More than 13 mio people decided that Netflix was worth paying for, and the number of total paid subscribers rose past 260 mio. The password sharing ban has been a boon for the company. The only thing they regret is not having thought about it before.   Strong Netflix results will likely give a positive spin to the major US indices which were slow to move yesterday after the Richmond manufacturing index came in much lower than expected.  In the sovereign space, a mixed 2-year bond auction in the US hinted at declining optimism from the Federal Reserve's (Fed) dovish camp, but a jump from foreign buyers pulled the US 2-year yield lower. The 10-year yield remains steady above the 4.10% and will hopefully cross back above the 2-year yield after having stayed inverted for more than a year-and-a-half as the US soft-landing scenario is given more weight despite the slow manufacturing numbers as US consumer spending remains strong and helps keeping the US economy afloat. The US will release its latest GDP update tomorrow and is expected to print a decent 2% growth for the last quarter.   Robust US economic growth, strong earnings and prospects of lower Fed rates remain supportive of equity valuations, although the ATH levels and near-overbought market conditions in the S&P500 call for – at least – a minor correction in the short run. Today, Tesla will be reporting its latest Q4 results after the bell, and the results will unlikely be as enchanting as Netflix'. But overall, investors don't want to miss the US stocks' rally to fresh highs. And if the trend is your friend, well, the trend is clearly positive.  In China, though, sentiment is the exact opposite. Chinese stocks saw a little bump yesterday on the announcement of a $278bn rescue package to lift the Chinese stocks up. But skepticism reigned as 1. the rescue package was found to be a bit meagre compared with around $6 trillion of market value wiped off the value of Chinese and Hong Kong stocks in past 3 years. 2. The rescue package doesn't solve the underlying fundamental problems, namely slowing economic growth, a serious property crisis and slowing population. And 3. No one can guarantee a consistent action plan from the Xi government in the medium to long run. The ruthless government crackdown and extreme Covid measures are responsible for a severe confidence loss. And the market reaction to Chinese measures prove that you can't buy confidence.   In the FX, the US dollar index is testing the 200-DMA to the upside. Parallelly, the EURUSD is testing its 200-DMA support to the downside. Today's PMI data and tomorrow's European Central Bank (ECB) decision will likely help provide fresh direction to the pair. Fading inflation, sputtering European economies and ECB Chief Lagarde's latest words in Davos hint that the ECB is preparing for a summer rate cut. More clarity on the ECB's rate cut plans could provide a green light for a sustainable move below the 200-DMA. Elsewhere, the Bank of Canada (BoC) meets today and is expected to maintain rates unchanged. The Loonie remains under the pressure of limited appetite for oil.  Speaking of oil, US crude's inability to clear the $75pb offers is intriguing despite news that would normally be positive for oil prices – like the geopolitical tensions in regions where oil is pumped and transported, and the US API data showing a 6.7-mio barrel slump in weekly oil inventories. The next decisive move in oil prices should be a positive breakout. 
Shift in Central Bank Sentiment: Czech National Bank Hints at a 50bp Rate Cut, Impact on CZK Expected

When do you start to worry about Chinese stimulus? - Market Analysis by Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank

Ipek Ozkardeskaya Ipek Ozkardeskaya 25.01.2024 16:00
  When do you start to worry about Chinese stimulus?  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank  The stock rally continued on both sides of the Atlantic on Wednesday; the technology and chip stocks remained in the driver seat. Sentiment in Europe was bolstered by an almost 9% rally in ASML on news that their orders more than tripled last quarter. Now, there is a catch. A third of the $10 billion dollar worth of orders came from China as Chinese companies rushed to buy these machines by the end of last year before the US and Dutch chip ban came into effect. But even if the Chinese demand will fade away, ASML says that it expects its sales to remain steady thanks to AI demand..  As such, the ASML news also boosted the stock prices of our favourite AI plays. Nvidia hit another record yesterday, TSM extended gains, Microsoft was worth $3 trillion for some time. The S&P500 and Nasdaq 100 hit a fresh record, and Netflix – which has nothing to do with AI, but which was just cheering its 13-mio new subscribers for the latest quarter - jumped 10%.   In summary, all goes well for those who are in the technology boat sailing north. For the rest, skepticism best describes how they feel about an unsustainable rise in valuations.   Tesla misses, Intel next.  Tesla missed estimates in its latest quarterly earnings report and warned that its EV sales growth will be 'notably lower' and that the numbers will suffer until the company comes up with a cheaper model. The series of price cuts weren't enough to bolster demand in a way to keep the company smiling and profits rising – sufficiently. As such, Tesla refused to offer a specific growth target and its share price took a 6% hit in the afterhours trading. Intel is due to report its earnings today.   Connecting the dots  The Chinese are serious about bolstering their economy and they look like they are getting to a place where they are ready to do whatever it takes to reverse the slowing trend.  In addition to a series of market stimulus news, the People' Bank of China (PBoC) announced yesterday that it will cut the reserve ratio for the banks by 50bp from February to release more liquidity to bolster stock valuations The latter will free up to an additional trillion yuan, which equals $139bn US dollars.  Will it help? Well, we will see. The good news is, if it doesn't, the Chinese will continue until it does.   The CSI 300 finally sees some positive reaction, stocks in Hong Kong are up 10% since Monday, American crude is drilling above the $75pb per barrel and copper futures – which are a gauge of global growth – also seem gently convinced that the Chinese will put all their weight – all they need to – to make things better.   But note that China's supportive policies may not echo well across the developed markets' central banks, because the Chinese stimulus – if successful – should boost global inflation and interfere with DM central banks' plans to loosen policies.   BoC calls the end of tightening, ECB next to speak.  But until we see concrete results from Chinese measures, softer policies remain the base-case scenario for the Federal Reserve (Fed) and the other major central banks (except Japan). In this context, the Bank of Canada (BoC) kept its rates unchanged at yesterday's meeting and called the end of rate hikes. The European Central Bank (ECB) will meet today and will certainly vehicle the same message - that policy tightening is over. But that's not enough.  When it comes to the ECB, what investors want to know is WHEN the ECB will start cutting the inteerest rates. If we had this conversation two weeks ago, I would say that the ECB would push back on expectations of premature rate cuts. But after having heard Christine Lagarde say that the first rate cut could come in summer, I am more balanced going into the meeting. Inflation has come lower – but we saw an uptick in the latest figures. The rising shipping costs and the positive pressure in oil prices mean that upside risks prevail. Yet the slowdown in European economies calls for lower rates. Released yesterday, the Eurozone PMI figures showed that aggregate activity remained in the contraction zone for the 8th straight month and slow down accelerated in January – except for manufacturing.   A hedge fund called Qube apparently built a $1 bn short position against German stocks, and Goldman Sachs says that a Trump presidency would increase risks for European businesses, and economically sensitive pockets of the market, like the German industries, would be the most exposed.  

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