US economic data

The test of 1.2645, coinciding with the significant rise of the MACD line from zero, limited the further growth of the pair. Another test occurred short after, and this time it prompted a sell signal, but it did not lead to a strong price decrease.   US labor market data lies ahead, particularly the number of initial jobless claims. GDP data for the first quarter follows, and any decrease in the indicators will likely lead to more pressure on dollar, which will offset buying pressure after Fed Chairman Jerome Powell's speech. Meanwhile, the report on the volume of pending home sales will not be of great interest, unlike the statements of FOMC member Raphael Bostic.   For long positions: Buy when pound hits 1.2665 (green line on the chart) and take profit at the price of 1.2696 (thicker green line on the chart). Growth may continue in the event of poor US statistics. However, when buying, traders should make sure that the MACD line lies above zero or rises from it. Pound can also be bought after two consecutive price tests of 1.2643, but the MACD line should be in the oversold area as only by that will the market reverse to 1.2665 and 1.2696.       For short positions: Sell when pound reaches 1.2643 (red line on the chart) and take profit at the price of 1.2609. Pressure will increase in the case of strong statistics from the US. However, when selling, traders should make sure that the MACD line lies below zero or drops down from it. Pound can also be sold after two consecutive price tests of 1.2665, but the MACD line should be in the overbought area as only by that will the market reverse to 1.2643 and 1.2609.   What's on the chart: Thin green line - entry price at which you can buy GBP/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell GBP/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely.   MACD line- it is important to be guided by overbought and oversold areas when entering the market Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate.   If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.  

The test of 1.0912, coinciding with the significant rise of the MACD line from zero, limited the upward potential of the pair.   Pressure may return in the pair, following strong labor market data from the US. A decrease in the number of jobless claims will likely fuel dollar demand, along with revised data on 1st quarter GDP. A speech from FOMC member Raphael Bostic also lies ahead, and this will advocate aggressive rate hikes in the near future. After all, many Fed members believe that the US economy copes well with the current high cost of borrowing.   For long positions: Buy when euro hits 1.0942 (green line on the chart) and take profit at the price of 1.0976. Growth will only be possible after weak labor market data from the US. However, before buying, traders should make sure that the MACD line lies above zero or rises from it. Euro can also be bought after two consecutive price tests of 1.0920, but the MACD line should be in the oversold area as only by that will the market reverse to 1.0942 and 1.0976.   For short positions: Sell when euro reaches 1.0920 (red line on the chart) and take profit at the price of 1.0887. Pressure will return in the case of hawkish comments from Fed representatives and strong labor market statistics. However, before selling, traders should make sure that the MACD line lies below zero or drops down from it. Euro can also be sold after two consecutive price tests of 1.0942, but the MACD line should be in the overbought area as only by that will the market reverse to 1.0920 and 1.0887.   What's on the chart: Thin green line - entry price at which you can buy EUR/USD Thick green line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further growth above this level is unlikely. Thin red line - entry price at which you can sell EUR/USD Thick red line - estimated price where you can set Take-Profit (TP) or manually fix profits, as further decline below this level is unlikely. MACD line- it is important to be guided by overbought and oversold areas when entering the market   Important: Novice traders need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp fluctuations in the rate. If you decide to trade during the release of news, then always place stop orders to minimize losses. Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. And remember that for successful trading, you need to have a clear trading plan. Spontaneous trading decision based on the current market situation is an inherently losing strategy for an intraday trader.

Economic data released in the US yesterday further fueled the hawkish Federal Reserve (Fed) bets. The US Q1 GDP was revised up from 1.3% to 2%, while analysts had penciled in an improvement to 1.4%. The surprise jump came from a quickened growth in exports and consumer spending, which jumped 4.2% in the Q1. 4.2%! Corporate profits fell, but they fell less than expected, as initial jobless claims fell by the most since 2021.   The only good news for the Fed, and its inflation battle, was a slightly softer than expected core PCE figure, which extended to 4.9%, a bit less than 5% expected by analysts. But the rest of the data pointed in the same direction than in the past days and weeks: the US economy seems to be doing FINE! Combined with the Fed's bank stress test results comforting that the big US lenders are in a position to shoulder further shocks, like recession and chaos in real estate, the US 2-year yield jumped more than 3% to 4.90% for the first time since the mini banking crisis. The probability of a 25bp hike from the Fed in the July meeting jumped to 87%, while the pricing in the market suggests that the Fed's two rate hikes are now likelier than not.   And perhaps because the aggressive Fed tightening doesn't impact economic strength as badly ass expected, stock investors saw no urgence in selling their stocks on rising hawkish Fed expectations. The S&P500 advanced 0.45%, Nasdaq was slightly lower, as the small caps of Russell 2000 outperformed with a 1.23% rise yesterday. The US dollar index rallied past its 100-DMA and broke above a one-month descending channel top. Trend and momentum indicators turned positive hinting that a further advance in the US dollar is likely against major currencies in the run up to next week's all important jobs report, especially if today's PCE data, the Fed's gauge of inflation, shows further advance in inflation from 4.4% to 4.6%.   Yet, a further rise in US yields could weigh on stock appetite before the weekly closing bell.   In the Eurozone, investor mood was a bit tricky because inflation data released this week in the Eurozone revealed that inflation in Italy eased more than expected, inflation in Spain eased below the European Central Bank's (ECB) 2% policy target, but inflation in Germany ticked higher this month, to 6.8%, because of an unfavourable base effect from last year, when Germany offered its citizens ultra-cheap rail tickets. French, and the eurozone's aggregate preliminary inflation data for June is due today.   The EZ inflation is expected to have eased to 5.6%, and the divergence between Germany and the others may not be a long-term concern, but the ECB will certainly remain well alert, and well hawkish into this summer.   More importantly, the end of ECB's cheap loans should increase the yield spread between the Eurozone's core and periphery and weigh on the EURUSD. The pair is now testing the 50-DMA to the downside, and if the Fed hawks continue gaining field, which seems to be the most likely scenario before next week's US jobs data, we could see the pair correct deeper toward the 1.08/1.0820 region.   In China, the latest economic data didn't enchant investors. Chinese manufacturing PMI remained below 50, in the contraction zone, for the third consecutive month, despite recurrent policy easing from the People's Bank of China (PBoC). Nothing seems to be boosting the Chinese recovery because consumer and investor confidence have been severely damaged as a result of government crackdowns and Covid.   The initial forecast for this year - US recession and Chinese rebound - is not happening. On the contrary, the US is growing, and China is slowing. At this point, the Chinese government has no choice but to regain people's and investors' confidence if it doesn't want to become too old before becoming rich enough.  

The Commodities Feed: Middle distillates firm up US economic data proved supportive for crude prices yesterday by signalling that the Federal Reserve could now be nearing the end of its rate hiking cycle. Today's calendar is fairly quiet, with just the usual EIA inventory numbers to note.   Energy – $80/bbl remains in play for Brent Bad news still appears to be good news when it comes to US economic data. US retail sales for June came in below market expectations, whilst industrial production came in much weaker than anticipated. While this will do little to change expectations for a Federal Reserve rate hike next week, it does suggest that it could be the last of the hiking we see from the central bank, particularly following the softer than expected CPI release last week. Oil has reacted positively to the expectation that we are approaching the end of the hiking cycle. ICE Brent settled more than 1.4% higher yesterday, leaving the market in striking distance of the US$80/bbl level. Given the tightening that we expect in the oil market as we move through the second half of this year, we believe it is only a matter of time before Brent moves above US$80/bbl. How convincing this move will be will really depend on whether we see a big shift in speculative sentiment. Whilst we have seen an increase in speculative buying in recent weeks, historically it is still fairly modest, particularly when you consider the tightening that is expected in the physical market US inventory numbers released overnight from the API show that there were draws across the board over the last week. Crude oil inventories fell by 797Mbbls, which was less than the roughly 2.5MMbbls decline the market was expecting. Crude stocks at Cushing fell by 3MMbbls, while gasoline and distillate inventories declined by 2.8MMbbls and 100Mbbls respectively. Overall, the numbers were fairly neutral. The more widely followed Energy Information Administration (EIA) report will be released later today. The middle distillate market remains well supported with the prompt ICE gasoil time spread trading at more than a US$4/t backwardation, whilst the prompt ICE gasoil crack has strengthened to more than US$22/bbl. There has been revived speculative interest in middle distillates recently, with speculators buying almost 23k lots of ICE gasoil over the last reporting week to leave them with a net long just shy of 33k lots. This buying has been driven by a combination of fresh longs as well as short covering. Since early May, speculators have bought more than 65k lots in ICE gasoil. Clearly, sentiment in the market has shifted quite drastically, and this is not too surprising when looking at the drawdown in ARA gasoil inventories in recent weeks. Insights Global data shows that gasoil inventories in ARA have fallen by 577kt since mid-May, leaving stocks at 1.93mt- 16% below the 5-year average. The second batch of Chinese trade data for June was released yesterday, which showed strong exports for gasoline and jet fuel with refiners having increased run rates (up 11% year-on-year). Gasoline exports in June increased 30.7% YoY to 950kt, which takes year-to-date exports to 6.17mt, up 10.9% YoY. Meanwhile, jet fuel exports grew by more than 109% YoY to 1.08mt in June, leaving year-to-date exports at 6.74mt, an increase of 57.3% YoY. Diesel exports over the month were weaker, falling 12.4% YoY to 290kt. However, year-to-date diesel exports are still very strong, up more than 263% YoY to a total of 7.49mt. The latest China trade data also shows that LNG imports in June totalled 5.96mt, up 24% YoY – and this is after imports in May grew 30% YoY. Stronger imports in recent months have made up for the weaker flows seen earlier in the year. As a result, cumulative LNG imports over the first six months of the year totalled 33.62mt, up a little more than 7% YoY. This still leaves us below the roughly 10% import demand growth we were expecting for the year as a whole. China is still very quiet in the spot market, and it appears that term contract volumes are adequate to meet domestic demand. We would likely need to see a recovery in Chinese industrial production before we see stronger LNG demand, as industrial demand makes up the bulk of Chinese natural gas demand.

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.  

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  

Metals – Fresh stimulus from China for the property sector Base metals prices extended this week’s gains this morning as healthy economic data and fresh stimulus measures in China buoyed sentiment. Caixin manufacturing PMI in China increased to 51 in August compared to 49.2 in July; the market was expecting the PMI to remain around 49. This is the strongest manufacturing PMI number since February. Meanwhile, Beijing has announced fresh stimulus measures aimed at supporting the property sector. The People’s Bank of China has lowered the minimum downpayment for mortgages for both first-time buyers (from 30% to 20%) and second-time buyers (from 40% to 30%) while the minimum interest premium charged over the Loan Prime Rate has also been reduced. China is also allowing customers and banks to renegotiate interest rates on existing housing loans which could reduce interest expenses for borrowers. LME continues to witness an inflow of copper into exchange warehouses. LME copper stocks increased by another 3,675 tonnes yesterday, taking the total inventory to a year-to-date high of 102.9kt. Meanwhile, cancelled warrants for copper remain near zero levels, hinting that there may not be any inventory withdrawals from LME in the short term and total stocks could continue to climb over the coming weeks. Europe witnessed an inflow of 2,700 tonnes yesterday whilst 950 tonnes were added in the Americas and 25 tonnes in Asia. Gold prices have held steady at around US$1,940/oz as the latest economic data from the US eased some pressure on the Federal Reserve to continue with rate hikes. The core PCE (Personal Consumption Expenditure) deflator in the US increased at a flat 0.2% month-on-month in July, the second consecutive month at 0.2% which should help the Fed in getting inflation back on track to around 2%. On the other hand, data from Europe was not that supportive with core CPI falling gradually from 5.5% to 5.3% and CPI estimates remaining flat at 5.3%. The focus is now turning to today’s US non-farm jobs report which is expected to show a smaller rise in payrolls in August.

Gold gains after data fuels hopes of a Fed pause Gold prices are moving higher following the latest batch of softer-than-expected US economic data, which has caused investors to trim bets on a Federal Reserve hike next month.   US economic data in focus Ten-year Treasury yields have continued to decline after recently hitting levels last seen in 2007, after US data releases this week signalled that the US economy is cooling, easing pressure on the Federal Reserve to continue raising rates. US inflation in July was in line with expectations, second-quarter economic growth was revised lower, and private payrolls increased less than expected in August. This followed data released earlier this week that showed job openings have fallen to their lowest level since early 2021. Focus will now turn to the headline US labour market report which is due later today. The latest data releases have lowered expectations that the Fed will raise interest rates this year. The central bank hiked rates by 25 basis points at its July meeting as economic data was strong. Both higher rates and yields are typically negative for non-interest-bearing gold.   Gold holds above $1,900/oz Gold has been unable to break the $2,000 level since mid-May     Federal Reserve Chair Jerome Powell said at the Jackson Hole conference last week that the Fed plans to keep policy restrictive until it is confident that inflation is steadily moving down toward its target. We will need to keep a close eye on US data releases in the coming weeks, which could shed more light on what the Fed may do. We believe gold will remain volatile in the near term given the implications of the uncertainty of persistent inflation on the US economy, and its trajectory will be influenced by US economic data in the coming weeks. We believe the threat of further action from the Fed will continue to keep the lid on gold prices for now.   ETFs continue to see outflows The rebound in gold prices has failed to draw buying interest from investors in exchange-traded funds or the Comex futures market. Gold ETF positioning, typically a strong driver of price direction, has been falling with holdings tumbling for a third month in August.   Hedge funds turn more bearish on gold   Hedge funds and other large speculators have also reduced their net long positions in gold, according to the latest CFTC data for the week ending 22 August. Net long positions in gold fell by 44.75% to 79.9 tonnes, equivalent to 25,695 contracts. Open interest decreased to 581,386 contracts from 598,932 contracts. Outright long positions declined by 7.33% or 28.5 tonnes, to 360.1 tonnes or 115,766 contracts. Short positions rose by 14.89% to 280.2 tonnes or 90,071 contracts          

The US non-farm payroll report for August, published on Friday, turned out to be perfect for the Federal Reserve. It's not so much about the figures, which were quite moderate, but about how they perfectly supported the Fed's strategy. The chances of a rate hike at the Fed's September meeting have dropped to 7%, which means it's safe to say that the rate hike cycle is over. Unless, of course, something unbelievable happens, but such assumptions should hardly be expected.   The first rate cut is expected in May 2024, and this forecast has not changed.   What was positive in the report? First and foremost, it was the fact that average hourly earnings increased 0.2% for the month, against the expectations of 0.3%. This is the smallest increase in the last 12 months. Slower wage growth is an important basis for reducing overall inflationary pressure. Nonfarm payrolls grew by 187,000 for the month, defying expectations, which could have been seen as a high level of activity had it not been for a revision to the previous two months' figures of 110,000, which more than offset the excess. The unemployment rate rose from 3.5% to 3.8%, the highest since February 2022. Overall, we can say that the Fed is consistently achieving its goal of cooling the economy to reduce inflationary pressure. Another significant release on Friday was the US ISM manufacturing index, which showed that the slowdown in the US manufacturing sector continues, albeit at a slower pace than expected (47.6 versus a consensus 47). Market activity was reduced on Monday due to the holiday in the United States. EUR/USD The Eurozone Harmonised Index of Consumer Prices jumped 0.6% in August, exceeding expectations of 0.4%. The annual eurozone HICP remained at 5.3% against a forecast of 5.1%. However, the data did not cause any surprise as the core index decreased in line with expectations from 5.5% to 5.3% y/y. After the report, European Central Bank Vice President Guindos stated that the new ECB forecasts would show that inflation prospects had not changed significantly over the summer, although economic prospects had deteriorated. The data indicates a decrease in economic activity in the third and possibly fourth quarters, and the rate decision in September is still open for debate. Earlier on the same day, ECB representative Schnabel (a hawk) stated that underlying inflationary pressure remains high, but economic activity has noticeably decreased. In her opinion, monetary policy remains a topic of discussion at every meeting, so she could not offer a view on what should happen this month. Thus, there is no clear position from the ECB. On Monday, ECB President Christine Lagarde was scheduled to speak, as well as Lane and Panetta, and on Tuesday, Lagarde will speak again with Schnabel and Guindos. Investors are eyeing the speeches for clues on the ECB's plans. If something different from the market consensus on this issue is voiced, increased volatility is inevitable. The net long position on the EUR decreased by 0.4 billion to 21.1 billion over the reporting week, with positioning remaining bullish. However, the trend toward selling the euro is becoming increasingly noticeable. The price remains below the long-term average and is falling again.     A week ago, we anticipated that EUR/USD would attempt a shallow correction after a pronounced two-month decline. This attempt took place, but then the bears attacked, and the euro fell to the recent low of 1.0764, failing to break it on the first attempt. We assume that after a brief consolidation, the downward movement will resume, the lower band of the channel will not hold, and the euro will move towards the nearest target of 1.0634. The dynamics will depend primarily on the stability of the US economic recovery and the Federal Reserve's future course of actions. GBP/USD Bank of England Chief Economist Huw Pill noted that services price inflation has become less favorable recently and that the UK is facing the effects of "second-round" effects (i.e., wage-driven) and that the Committee needs to see through the job aimed at suppressing inflation. Pill referred to two scenarios, the first of which involves a succeeding increase in rates followed by a rapid decrease, and the second involves maintaining high interest rates for an extended period. In his opinion, the profile of the inflation trajectory in both cases will be almost identical, but personally, he leans towards the second approach due to risks to financial stability. In any case, markets are anticipating a rate hike in September to 5.5%, which is already priced in, but a higher rate level appears increasingly unlikely. The net long position on GBP decreased by 0.6 billion to 4.1 billion over the reporting week, and the price dropped sharply.     Within the framework of a short-term correction, the pound rose above the resistance area of 1.2680/90, which we identified in the previous review as a likely level for a sell-off, but after the correction, it went down as expected. We assume that the sell-offs will intensify, the support at 1.2545 will not hold, and the long-term target of 1.2290/2310 remains relevant.  

Markets leaning towards possibly one last BOE rate hike (implied rate peak of 5.527% at Feb 1st 2024 meeting) UK house prices tumble to lowest levels since 2009 Doji pattern possibly invalidated as bearish momentum remains   The British pound is declining as expectations grow that for the BOE to deliver one last hike as the consumer is quickly weakening.  Stagflation risks are here as housing market concerns worsen and are now accompanied with a cautious consumer who is battling rising inflation expectations. Any lessons learned from the ECB could be that the BOE will have a much worse growth outlook. The latest update from retailer, John Lewis and Waitrose signaled a tough environment as the consumer struggles with inflation and becomes cautious with big-ticket goods.  John Lewis was expected to deliver a major overhaul, but a 4% drop with online sales means they won’t be turning profitable anytime soon.  If they have to wait till 2028 to turn a profit, investors might become more skeptical about the UK consumer spending trends. Housing Woes A key UK house price index fell to a 14-year low reinforced the belief that the property slump will not be improving anytime soon given how high mortgage rates have risen and over a deteriorating outlook. Both Halifax and Nationwide are highlighting falling house prices and that trend will likely continue.   GBP/USD Daily Chart   The GBP/USD (daily chart) as of Thursday (September 14th 2023) has made a significant breakdown below multiple support levels, indicating a potential acceleration for the pair.  Price action has fallen below the 200-day SMA and could target the June low at around the 1.2310 level.  Given the recent string of upbeat US economic data points, king dollar might have one major rally before exhaustion settles in. To the upside, the downward sloping trendline that started in the middle of July provides major resistance. If price is able to close above the 1.2550, further upside could be targeted if Wall Street is convinced that the Fed has a peak in place for rates.    

Equities closed higher with VIX at the 12 handle after ECB’s dovish rate hike and US economic data still being resilient. ARM IPO had a positive start although Adobe slid in post-market after reporting earnings. EURUSD broke below key support at 1.0635 but closed just above, while CAD and AUD outperformed. China’s RRR cut boosted oil further and could set a positive tone for today, but activity data and MLF announcement on watch ahead of Quad Witching option expiries in the US session.     US Equities In a broad-based rally, both the S&P500 and the Nasdaq 100 added 0.8% while small-cap stocks outperformed with a 1.4% gain in the Russell 2000 Index. Chip designer ARM soared 13.4% to USD63.59 on the first day of trading after the IPO. Moderna gained 3.9% after releasing a statement guiding higher revenue through 2028 on new drugs. Cruise liners and energy stocks were some of the top performers for the session. Adobe slid nearly 2% in extended-hour trading on a softer-than-anticipated AI boost to revenue outlook.   Fixed income Treasuries had a volatile session. The market was initially supported by the decline in yields across the pond in Europe following a 25bp ECB hike but signaling a pause in the statement. The hotter-than-expected US retail sales and PPI brought sellers back to the market. The Treasury announced USD13 billion 20-year bond and USD15 billion 10-year TIP auctions for next week. The 2-year yield climbed back above 5% to settle at 5.01%, up 4bps. The 10-year yield rose 4bps to 4.29%.   China/HK Equities The Hang Seng Index managed to close 0.2% higher, thanks to gains in coal miners and oil producers, while the CSI300 was flat in a choppy but subdued session. A surprise reduction in the Reserve Requirement Ratio (RRR) by the People's Bank of China (PBoC) after the market closed in the evening led to higher futures trading overnight and may set a more positive tone for today's trading.   FX The US dollar rose to fresh 6-month highs with EURUSD breaking below 1.07 and the May lows of 1.0635 after ECB’s dovish rate hike. A close below 1.0635 will  expose the 1.05 handle. GBPUSD also slumped to test the 1.24 handle. USDCNH rose slightly to 7.29 as PBoC cut RRR but AUDUSD attempted to break above 0.6450 after a hot labor report. CAD was the G10 outperformer as oil prices continued to surge, and EURCAD – as hinted in the FX Watch – slumped below 1.44.   Commodities Fresh highs in crude oil with WTI jumping over $90/barrel and Brent approaching $94. ECB signaling a pause, hot US economic data as well as China RRR cut supported the demand outlook while supply constraints linger. China’s activity data will be a key focus in the day ahead, and whether the RRR cut is followed by another MLF cut. Iron ore continued to climb higher breaking above $120, the highest in five months on the back of strong production from China steel mills with a seasonal pickup in construction. Meanwhile, uranium futures are surging higher driven by supply tensions as nuclear reactor capacity growth increases.   Macro: The ECB raised interest rates 25bp, taking the deposit rate to 4.0%, however the hike was dovish as it came with hints of the end of tightening cycle even though President Lagarde stayed short of saying that ECB is at peak rates. 2023 inflation was upgraded to 5.6% from 5.4%, 2024 (in-fitting with source reporting by Reuters) raised to 3.2% from 3.0% and 2025 lowered to 2.1% from 2.2%, but still ultimately seen just above target. Growth projections for 2023-25 were lowered across the board. The PBoC cut the reserve requirement ratio (RRR) by 25bps effective Friday, September 15, 2023, bringing the weighted average RRR across banks to 7.4% and increasing loanable funds by over RMB500 billion. There is RMB400 billion in medium-term lending facility loans maturing today. US retail sales for August came in firmer than expected although July’s print was revised lower. Headline up 0.6% MoM (exp 0.2%, prev 0.5%) as gasoline station sales surged to 5.2% from 0.1% in July. The control metric also posted a surprise gain of 0.1% despite expectations for a 0.1% decline, although the prior was revised down to 0.7% from 1.0%. US PPI meanwhile rose 0.7% MoM in August, above the expected and prior 0.4%, marking the largest increase since June 2022 and heavily driven by a 10.5% increase in the energy component. Weekly jobless claims rose to 220k from 217k, suggesting a still tight labor market.   Macro events Among the Chinese activity data scheduled for release today, the consensus forecasts a 3.9% increase in industrial production in August, up from 3.7% in July, reflecting stronger manufacturing PMI data. Retail sales are expected to grow by 3.0% Y/Y, boosted by auto sales and catering, surpassing July's 2.5%. While the front-loading of local government bond issuance in August would have supported infrastructure construction, a combination of a high base from the previous year and continued weakness in property construction may limit fixed asset investment growth for August. This likely contributed to the Bloomberg consensus projection of a year-to-date fixed asset investment slowdown to 3.3% Y/Y from 3.4%. Other key events scheduled include US industrial production (Aug) exp 0.1% MoM vs. 1.0% prev, UoM sentiment (Sep P) exp 69.0 vs. 69.5 prev.   Company events Adobe reported Q3 of USD4.89 billion, in line with street consensus and adjusted EPS of USD4.09 beating estimates slightly. Q4 profit guidance of USD4.10 to 4.15 per share surpassed consensus USD4.06 while sale guidance of USD4.98 billion to 5.03 billion was in line. The initial reaction was mild disappointment on the tepid sales outlook.  

EUR: Driven even more by the dollar after dovish ECB hike The ECB delivered a 25bp rate hike yesterday but added a paragraph in its statement that quite clearly hinted this should be the last move of the tightening cycle. That paragraph, which President Christine Lagarde re-read multiple times during her press conference, says ECB rates have “reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. A data-dependent approach was reiterated, but it is now looking more likely that will be used to judge how long rates will be kept at such restrictive levels, rather than to decide whether to add another hike before reaching the peak. We had discussed the asymmetrical downside risks for the euro yesterday, and those fully materialised. With a full 25bp hike already in the price by year-end, the ECB had to move away from dovish language to support the euro, while quite the opposite happened. We think that at this stage EUR/USD will revert to being even more driven by the dollar leg. Markets have taken on board the notion that the ECB has likely peaked, meaning that data releases in the eurozone should lose some degree of market relevance. Lagarde has probably switched from a near-term hawkish narrative to defending a higher-for-longer approach to combat inflation: expect some pushback against rate cut speculation if eurozone data deteriorate further. On the other hand, another Fed hike isn’t fully to be ruled out (although it is not our base case) and markets have had to reprice Fed rate cut expectations quite substantially of late on the back of resilient US economic data. Expect EUR:USD short-term rate differentials to be an even closer function of US activity prints from now on. We could see EUR/USD inch back higher today, but a return to the 1.0600/1.0650 area around the Fed meeting seems appropriate. Francesco Pesole

Gold continues to defy the gravitational pull from rising US Treasury yields and a stronger dollar which gathered further momentum after the US Federal Reserve last week delivered a hawkish pause in their aggressive rate hike campaign. But while the normally strong inverse correlation with dollar and yields have faded, thereby reducing selling pressure from algorithmic focused trading strategies, gold's resilience continues to point to demand from investors seeking a hedge against nervous markets and the rising risk of stagflation hitting the US economy in the coming months.   Key points in this gold note Gold continues to show resilience despite multiple headwinds from dollar strength to rising yields and lower future rate cut expectations Support is likely to be driven by a market in search for a hedge against the FOMC failing to deliver a soft, as opposed to a hard landing. We maintain a patiently bullish view on investment metals as the timing of a fresh push to the upside remains very US ecnomic data dependent.  Gold continues to defy the gravitational pull from rising US Treasury yields and a stronger dollar which gathered further momentum after the US Federal Reserve last week delivered a hawkish pause in their aggressive rate hike campaign, while at the same forecasting considerably higher rates over 2024 and 2025 because of a resilient US economy, a strong labor market and sticky inflation, recently made worse by an OPEC-supported rise in energy prices. Following the FOMC announcement we have seen the dollar reach a fresh 11-month high against a broad basket of major currencies, while the yield on US 10-year Treasuries has reached a 16-year high above 4.5%. The short-term interest rate futures market has reduced bets on the number of 25 basis-point rate cuts by the end of 2024 to less than three from the current level, with risk of another hike before yearend kept open.      

Gold continues to defy the gravitational pull from rising US Treasury yields and a stronger dollar which gathered further momentum after the US Federal Reserve last week delivered a hawkish pause in their aggressive rate hike campaign. But while the normally strong inverse correlation with dollar and yields have faded, thereby reducing selling pressure from algorithmic focused trading strategies, gold's resilience continues to point to demand from investors seeking a hedge against nervous markets and the rising risk of stagflation hitting the US economy in the coming months.   Key points in this gold note Gold continues to show resilience despite multiple headwinds from dollar strength to rising yields and lower future rate cut expectations Support is likely to be driven by a market in search for a hedge against the FOMC failing to deliver a soft, as opposed to a hard landing. We maintain a patiently bullish view on investment metals as the timing of a fresh push to the upside remains very US ecnomic data dependent.  Gold continues to defy the gravitational pull from rising US Treasury yields and a stronger dollar which gathered further momentum after the US Federal Reserve last week delivered a hawkish pause in their aggressive rate hike campaign, while at the same forecasting considerably higher rates over 2024 and 2025 because of a resilient US economy, a strong labor market and sticky inflation, recently made worse by an OPEC-supported rise in energy prices. Following the FOMC announcement we have seen the dollar reach a fresh 11-month high against a broad basket of major currencies, while the yield on US 10-year Treasuries has reached a 16-year high above 4.5%. The short-term interest rate futures market has reduced bets on the number of 25 basis-point rate cuts by the end of 2024 to less than three from the current level, with risk of another hike before yearend kept open.     Looking at our gold monitor below, it is difficult to build a bullish case for gold if current developments were the only driver for the yellow metal. With the dollar and bond yields on the rise, the inverse correlation with a relatively stable gold has deteriorated, a development that has reduced selling pressures from algorithmic trading strategies, normally a major contributor to daily trading volumes. In addition, as mentioned the tailwind from future rate cuts has also faded as the market price in a higher for longer scenario. A development which for now continues to see some asset managers vote with their feet when it comes to investing in gold through Exchange-traded funds, the reason being the high opportunity cost of holding a non-interest paying position relative to short-term government bonds. The current cost of holding a gold position for 12 month is close to 6%, the bulk of that being the cost of borrowing dollars for one year, and until we see a clear trend towards lower rates and/or a upside break forcing a response, real money allocators will be looking for opportunities elsewhere. ETF investors which include the above mentioned group of real money allocators have been cutting holdings for the past four months, leaving the total down by 172.4 tons during this time to 2757.8 tons, a 3-1/2-year low. The leverage fund net long position meanwhile continue to hover around 60k contracts (6 million ounces), some 35k below the one-year average.            

The European Central Bank kept all three key interest rates unchanged. The market's reaction was altogether surprising, strange, expected, and logical. The euro initially rose by 25 pips but then it also lost the same amount in three hours. So the market's response to this significant event can be characterized by a 25-pip move. However, while the event itself was important, its results were not. As mentioned, the rates remained the same, and ECB President Christine Lagarde was quite neutral during the press conference. Here's what she talked about.   First, Lagarde said that she believed the current rates are at levels that will make a substantial contribution to returning inflation to the Bank's 2% target. Rates will need to be kept at their current levels for a sufficiently long duration, but eventually, the ECB will achieve its goal. Decisions on rates will be made based on incoming economic and financial data, and the dynamics of underlying inflation. The APP and PEPP programs (monetary stimulus programs) continue to reduce the ECB's balance sheet at a moderate pace, following the general plan. Lagarde also said that rate decisions will be made from meeting to meeting. This suggests that Lagarde keeps the door open for further rate hikes but the chances of seeing new tightening in the near future are extremely slim. I believe that the results of the meeting turned out to be neutral. I previously mentioned that there were no other options besides keeping rates at their current levels. However, I allowed for the possibility that Lagarde might hint at future rate hikes "if necessary" or, conversely, announce when policy easing would begin. Neither of these scenarios was mentioned. Based on this, I conclude that the market's 25-pip reaction was quite in line with the meeting's outcomes. However, the trading instrument could and should have shown much greater movement, given that two important reports were published in the United States, which turned out to be significantly stronger than market expectations. However, it seems that even these reports were ignored. Thus, the market's reaction to the ECB meeting was logical but if we look at the bigger picture, it actually wasn't. We expected the lack of market activity with such results, but it was quite strange to see such an outcome in conjunction with the GDP and durable goods orders reports in the United States. Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has reached the targets around the 1.0463 level, and the fact that the pair has yet to break through this level indicates that the market is ready to build a corrective wave. A successful attempt to break through the 1.0637 level, which corresponds to the 100.0% Fibonacci level, would indicate the market's readiness to complete the formation of Wave 2 or Wave b. That's why I recommended selling. But we have to be cautious, as Wave 2 or Wave b may take on a more complex form.  

CAD: Macklem turns dovish The Canadian dollar is lagging other pro-cyclical currencies at the start of this week after Bank of Canada Governor Tiff Macklem said in a TV interview yesterday that he expects rates to be cut next year. This is a surprise statement by Macklem, who only two weeks ago reiterated the hawkish bias in the BoC policy statement. Offering a timeline for rate cuts appears inconsistent with the BoC's claim that it “remains prepared to raise the policy rate further if needed” and likely validates the market’s pricing for 100bp of easing next year – despite Macklem’s caveats on the disinflation progress. Despite our view of a dollar decline and outperformance of pro-cyclical currencies next year, we expect the Canadian dollar to underperform other commodity currencies as the BoC cuts rates aggressively (we estimate 150bp in 2024) on a grim economic outlook and as the loonie suffers from its correlation with US economic data.