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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

Facebook Reported Q3 Earnings

China Slows Down Due to Energy, Shipping, and Real Estate Crisis

SimpleFX SimpleFX 20.10.2021 22:44
The National Bureau of Statistics (NBS) showed that the Chinese economic growth slowed to 4.9% in the third quarter of this year. Hurt by power outages, severe outbreaks of COVID-19, supply bottlenecks, and the increasing pressure on policymakers on the rising concerns on the health of the property sector; the growth was considered the slowest since the third quarter of the year 2020.  The power shortage affected the average production; however, NBS spokesperson Fu Linghui added that the economic impact is manageable. Several factories had to cease production in late September as a shortage of electricity, and a surge in the price of coal led local authorities to cut off power drastically. As a whole, the industrial output only rose to 3.1% in September, which marks the slowest pace since March of last year, during the pandemic’s first wave.  Rising energy prices hinder global trade and manufacturing Meanwhile, NBS’s data also revealed that fixed assets investments during the first three quarters of 2021 were weaker than expected. J.P Morgan Asset and Management global market strategist Chaoping Zhu emphasized that investment activities were decreased due to tight credit conditions.  Real estate and other related industries account for approximately a quarter of the country’s Gross Domestic Product (GDP). During the past eighteen months, Beijing made its efforts to reduce the reliance on debt by most developers. Fu added that there was a decrease in contribution from the real estate sector to China’s economy during the third quarter. Chinese currency is still doing well against USD During a briefing in Beijing on Monday, Fu explained that the uncertainties in the current international environment continue to rise, and the domestic economy is still uneven and unstable. However, Fu believes that the economy is qualified and capable of achieving year-end goals. The spokesperson added that its economic progress still shows vitality and resilience, despite various factors affecting its growth.  Is the Chinese equity market already in long-term downturn? China has the world’s second-largest economy. Its growth expanded to 7.9% during the second quarter and 18.3% in the first quarter, which benefited from comparing the pandemic-induced slump early last year. China’s GDP was expected to rise to 5.2% during the quarter based on a Reuters poll. The weak numbers lead to most Asian stock markets being lower than broader investors’ concerns about global economic recovery.  When it comes to the country’s growth outlook in the coming years, Bruce Pang from the China Renaissance said that the country, which was once led in growth recovery, is losing its momentum heading into the fourth quarter. Pang emphasized several reasons, such as the pandemic and China’s efforts to reduce carbon emissions, which drags down economic growth. However, he believes that authorities will have better management on the intensity and pace of the regulatory campaign for the country to achieve significant social and economic development goals for 2021 and the succeeding 5-10 years.  Premier Li Keqiang expressed confidence in achieving full-year development goals and assured that the country has enough tools to cope with economic hurdles despite the slow-paced growth.
5% for the US 10-Year Treasury Yield: A Realistic Scenario

A Market Crash Is Coming? Check How S&P 500, Crude Oil, Hang Seng, USDCNH And Other Assets Performs

Saxo Bank Saxo Bank 26.04.2022 10:34
Macro 2022-04-26 08:34 6 minutes to read Summary:  Market sentiment stabilized yesterday ahead of the heart of earnings season kicking off today, with the slide in the Chinese renminbi halted after official moves signaled some support for the currency. Still, the threat of Covid lockdowns looms in Beijing with tens of millions set for testing. Elsewhere, Elon Musk is set to take Twitter private in a debt-heavy deal, oil rebounded from a deep sell-off and gold has tested existential support. What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - S&P 500 futures tested the 4,200 level yesterday as we highlighted was possible but found quick support before bouncing back to close above Friday’s close. That is a short-term positive signal but earning releases this week can still wreck this rebound trade, so we expect volatility to remain high over the coming days. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) - with another round of supportive rhetoric from central bank officials and pledge from the State Council to boost domestic consumption, markets found a bid in morning trading but their gains pared in the afternoon. Hang Seng Index was up 1.5% while CSI300 was down modestly. Chinese mega cap internet names traded in Hong Kong and retailers traded in the mainland were among the top gainers. HSBC reported in-line earnings, but common equity tier 1 (‘CET1’) capital ratio came at 14.1%, down 1.7 per centage point from 4Q21. Share price fell over 3%. Stoxx 50 (EU50.I) - signals from PBOC to support the Chinese economy and better than expected earnings from HSBC, UBS, Santander, and a FY profit guidance increase from Maersk are lifting equity sentiment with Stoxx 50 futures trading around the 3,735 level in early trading hours. That puts European equity futures back into the trading range from the past two weeks, but technically European equities remain weak it requires good news from earnings, China, and the war in Ukraine to move things higher. GBPUSD and USD/commodity currency and USD/EM pairs – with some relief in risk sentiment yesterday, the US dollar rally eased after first having extended its strength earlier in the day. As noted below, much of the force of the recent move has been linked by a jolt higher in USDCNH, which after a long period of quiet is finally catching up to the broader picture of USD strength and adding to that USD strength elsewhere. The weakest of currencies against the greenback in recent sessions have been commodity-linked, EM and Asian currencies with a significant exposure to China, but also sterling, which has suffered a vicious sell-off as the outlook for the UK economy rapidly deteriorates amidst soaring cost-of-living headwinds, cratering confidence, supply-side limitations, and massive external deficits. GBPUSD traders may eventually eye the ultimate support of 1.2000. USDCNH  at the center of the recent violent extension of the US dollar rally has been a marked weakening of the Chinese renminbi, which has come after a long period of extreme quiet even as volatility picked up elsewhere. Yesterday, China moved to cut the reserve-ratio-requirement for Chinese banks’ forex reserves by 1% (to 8% from 9%) to increase the supply of USD, a gesture suggesting that the recent pace of CNY devaluation has proceeded more rapidly than desired. The PBOC overnight promised targeted support for the economy, but the concerns linked to China’s zero-Covid strategy and threat weighs of a lockdown of Beijing similar to the recent experience in Shanghai.  Gold (XAUUSD)  trades back above $1900 supported by higher oil prices and a softer dollar. This following a two-day sell off that was triggered by aggressive US rate hike signals and a sharp drop in silver (XAGUSD) on growth concerns. With support around $1890 holding once again the yellow metal needs a break above support-turned-resistance at $1915. The Fed is currently on a collision course with the PBoC which needs to add stimulus on mounting growth fears, and it raises the question of whether the FOMC will be able to hike rates as aggressively as expected by the market. Until that question gets answered, the market is likely to get its directional input from oil (inflation and geo-risk gauge) as well as developments in China. Crude oil (OILUKJUN22 & OILUSJUN22)  bounced back following a two-day decline that briefly saw Bent crude dip below $100. A lockdown related drop in Chinese demand for fuel together with the prospect of a rapid succession of US rate hikes to curb growth have been the focus this past week. However, with the supply picture being as tight as it currently is, especially with Europe considering a ban on Russian crude imports, any signs of an improve situation in China would attract a renewed bid. Until then these major opposing forces are likely to keep the market rangebound and nervous. In Brent, only a break below $98 would signal additional and potential deep losses from technical selling. Resistance just above $106.50 where the 21- and 50-day moving averages meet. US Treasuries (IEF, TLT)  were sold late yesterday after posting a new 1-week low in yields, taking the yield for the 10-year benchmark back into the range above 2.82%. The high for the cycle in that important yield has been just above 2.95% - with 3.00% perhaps a psychological resistance ahead of the 2018 high near 3.26%. What is going on? US planting progress and crop conditions continue to highlight a challenging situation. A weekly report released Monday showed corn planting (CORNDEC22) had advanced by 3% to being 7% complete, the slowest pace in almost ten years and trailing last year’s pace of 17%. Winter wheat rated good/excellent dropped 3% to 27% and was near the worst on record. The planting delays and conditions have been caused by the weather being too cold, too wet, or a combination of both. Big grain harvests in North America are needed this year after Russia’s invasion of Ukraine has reduced shipments out of the Black Sea, from where 25% of the global wheat export originates, while raising doubts about this year’s crop production in Ukraine. Twitter board agrees with Musk on deal.  The two parties agreed yesterday with a purchase price of $54.20/share translating into a takeover market value of $44bn and part of the deal is massive use of debt which multiplied with the current interest rates will eat most of Twitter’s immediate operating profits, but since the company is going private the profit generation is no longer the main objective. Our view is that Musk’s acquisition of Twitter could be a problem for Tesla going forward as governments may use Musk’s ownership of Twitter against him in negotiations with Tesla. Bank of Canada Governor Tiff Macklem says BoC considering 50 basis point hike.  In testimony before Parliament, Macklem admitted that the BoC “got some things wrong” in its policy mix, voiced concern about broadening price pressures and guided for further tightening. Bank of Canada rate expectations were actually slightly lower yesterday, with CAD moves of late, at least in USDCAD, yesterday more correlated with risk sentiment and crude oil prices. The Bank of Canada is already priced to hike at least 50 basis points at each of its next three meeting. USDJPY lacks direction ahead of BoJ meeting on Thursday. The Japanese yen gains yesterday and overnight were capped by a rebound in US treasury yields. Japan finance minister Suzuki said that there is no truth to the media report on Japan/US discussion on joint FX intervention. While there may be room for a further fall in USDJPY given the outsized gains we have seen so far, policy divergence between the Fed and Japan remains the key theme and any BOJ policy tweak this week remains on watch. US earnings recap.  Coca-Cola beat expectations yesterday and is seeing higher revenue growth than what analysts had expected suggesting analysts are behind the curve on inflation dynamics and what it means for revenue growth. Activision Blizzard also reported earnings yesterday, which is part of the entertainment industry, and reported worse than expected figures with revenue especially disappointing at $1.48bn vs est. $1.81bn. IMF warns on Asia stagflation risk.  IMF has said that the Asian region faces stagflationary outlook with growth being lower than previously expected and inflation being higher. The larger-than-expected slowdown in China due to prolonged or more widespread lockdowns, longer-than-expected slump in the property market, constitutes significant risk for Asia. Monetary tightening will be needed in most countries, with speed of tightening depending on domestic inflation developments and external pressures. IFO April German business confidence surprises on the upside.  The headline index was up at 91.8 versus an estimated 89.0. The current assessment index is moving upward too, at 97.2 versus estimated 95.9. Finally, the expectations index is out at 86.7 versus estimated 83.5. This is very positive, of course. But we think optimism will not last. There are several factors which will negatively impact the German economy in the coming months: the possible new cold war, prevalent supply chain disruptions, higher energy bills, the acceleration of deglobalisation etc. All of this will have negative consequences on the German export industry. Be ready for worse data in the coming months. Inflation is hitting the UK consumer hard. According to the latest ONS survey, 43 % of UK households said they encountered difficulties paying their energy bill in March and 43 % say they will probably be unable to save in the next twelve months. These data are compared with a year ago. Expect UK consumption to fall sharply in the coming months. The likelihood of a recession is increasing, of course. What are we watching next? Risk of further Chinese Covid lockdowns.  The current focus in China as Covid spreads there is Beijing, where partial shutdowns were already ordered yesterday of one region of the city, but with mass testing of 20 million Beijing area residents set to begin. The province of Inner Mongolia is also a focus on concerns that Covid-related disruptions are set to reduce rare earth metal production there. Technology earnings and their profit margins.  Net profit margins are confirming their downtrend in Q1 according to preliminary earnings data, but technology companies measured by the Nasdaq 100 are seeing less impact on margins from rising input costs. As technology companies are the biggest constituents in the main indices it crucial how these companies perform on earnings this week, but also that they can demonstrate less impact from inflation. The first test of this thesis is tonight with earnings from Microsoft, Alphabet, and Visa. Earnings Watch.  Today’s earnings focus is on Microsoft, Alphabet and Visa which are all reporting after the US market close, which is the first real test of the US technology sector for the Q1 following preliminary disappointments from Netflix and yesterday’s Activision Blizzard earnings. Today: Kweichow Moutai, Ganfeng Lithium, First Quantum Minerals, Tryg, FANUC, Canon, HSBC, Banco Santander, Iberdrola, Atlas Copco, Novartis, UBS Group, Kuehne + Nagel, Microsoft, Alphabet, Visa, PepsiCo, UPS, Texas Instruments, Raytheon Technologies, General Electric, Mondelez, Chubb, 3M Wednesday: LONGi Green Energy, Teck Resources, DSV, Novozymes, Kone, Dassault Systemes, STMicroelectronics, Deutsche Bank, BYD, China Shenhua Energy, China Petroleum & Chemical, UniCredit, Keyence, GlaxoSmithKline, Lloyds Banking Group, Yara International, Iberdrola, Assa Abloy, SEB, Credit Suisse, Meta, Qualcomm, Amgen, Boeing, PayPal, ServiceNow, Ford, Southern Copper Thursday: Nokia, Sanofi, TotalEnergies, Denso, Hitachi, Barclays, Nordea, Apple, Amazon, Mastercard, Eli Lilly, Thermo Fisher, Merck, Comcast, Intel, McDonald’s, Linde, Caterpillar, Hershey, Twitter Friday: ICBC, China Yangtze Power, Midea Group, WuXi AppTec, TC Energy, Imperial Oil, Orsted, Neste Danske Bank, BASF, China Construction Bank, Agricultural Bank of China, Ping An Insurance, COSCO Shipping, Eni, AstraZeneca, BBVA, Hexagon, Exxon Mobil, Chevron, AbbVie, Bristol-Myers, Honeywell, Colgate-Palmolive Economic calendar highlights for today (times GMT) 0900 – ECB’s de Cos to speak 1040 – ECB's de Cos to speak 1200 – Hungary Central Bank Rate Decision 1215 – ECB's Villeroy to speak 1230 – US Mar. Preliminary Durable Goods Orders 1300 – US Feb. S&P CoreLogic Home Price Index 1400 – US Apr. Conference Board Consumer Confidence 1400 – US Apr. Richmond Fed Manufacturing Index 1400 – US Mar. New Home Sales 0130 – Australia Q1 CPI  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:    
US: Drivers Demand Of Oil The Highest This Year! Silver Lost Almost The Half Of Its Recent Gaines

US: Drivers Demand Of Oil The Highest This Year! Silver Lost Almost The Half Of Its Recent Gaines

Saxo Strategy Team Saxo Strategy Team 18.08.2022 10:50
Summary:  US equities traded a bit lower yesterday after the S&P 500 challenged the 200-day moving average from below the prior day for the first time since April in the steep comeback from the June lows. Sentiment was not buoyed by the FOMC minutes of the July meeting suggesting the Fed would like to slow the pace of tightening at some point. Crude oil rose from a six-month low on bullish news from the US and OPEC.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures rolled over yesterday wiping out the gains from the two previous sessions and the index futures are continuing lower this morning trading around the 4,270 level. US retail sales for July were weak and added to worries of the economic slowdown in real terms in the US. The 10-year yield is slowing crawling back towards the 3% level sitting at 2.87% this morning. A move to 3% and potentially beyond would be negative for equities. The next levels to watch on the downside in S&P 500 futures are 4,249 and then 4,200 Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Shares in the Hong Kong and mainland China markets declined. China internet stocks were weak across the board with Tencent (00700:xhkg) +2.7% and Meituan (03690:xhkg) +1%, being the positive outliers. Tencent reported a revenue decline of 3% y/y in Q2, weak, but in line with market expectations. Non-GAAP operating profit was down 14% y/y to RMB 36.7bn, and EPS fell 17% y/y to RMB 2.90 but beating analyst estimates. Revenues from advertising at -18% y/y were better than expected. In the game segment, weaker mobile game revenues were offset by stronger PC game revenues. Beer makers outperformed China Resources Beer (00291:xhkg) +3.8%, Tsingtao Brewery (00168:xhkg) +1.7%. COSCO Shipping Energy Transportation (01138:xhkg) made a new high at the open on strong crude oil tanker freight rates before giving back some gains. USD pairs as the USD rally intensifies The US dollar rally broadened out yesterday, as USDJPY retook the 135.00 area, but needs to follow through above 135.50-136.00 to take the momentum back higher. Elsewhere, AUDUSD has broken down again on the move down through 0.7000 and USDCAD has posted a bullish reversal, needing 1.3000 for more upside confirmation. The GBPUSD pair looks heavy despite a massive reset higher in UK rates in the wake of recent UK inflation data, with a close below 1.2000 indicating a possible run on the sub-1.1800 lows, while EURUSD is rather stuck tactically, as price has remained bottled up above the 1.0100 range low. USDCNH, as discussed below, may be a key pair for whether the USD rally broadens out even more aggressively, and long US treasury yields and risk sentiment are other factors in the mix that could support the greenback, should the 10-year US treasury benchmark move higher toward 3.00% again or sentiment roll over for whatever reason. Certainly, tightening USD liquidity could prove a concern for sentiment as the Fed turns up the pace of quantitative tightening – something it seems behind schedule in doing if we look at the latest weekly Fed balance sheet data.  USDCNH The exchange rate edged higher again to above 6.80 overnight after a brief spike higher earlier this week as China’s PBOC moved to stimulate with a small 10-basis point rate cut of the key lending rate. There is no real drama in the exchange rate yet after the significant rally this spring from below 6.40 to 6.80+, but traders should keep an eye on this very important exchange rate for larger volatility and significant break above 6.83, as China’s exchange rate policy shifts can provoke significant volatility across markets. Crude oil Crude oil (CLU2 & LCOV2) bounced from a six-month low on Wednesday in response to a bullish US inventory report that saw big declines in gasoline and crude oil stocks as demand from US motorist climbed to the highest this year while crude exports reached a record $5 million barrels per day. The prospect for an Iran nuclear deal continues to weigh while OPEC’s new Secretary-General said spare capacity was becoming scarce. US strategic reserves are now at the lowest level since 1985 and the government has by now sold around 90% of what was initially offered in order to bring down prices. While demand concerns remain a key driver for macroeconomic focused funds selling crude oil as a hedge we notice a renewed surge in refinery margins, especially diesel, supported by increased demand from gas-to-fuel switching Gold and silver Gold has so far managed to find support at $1759, the 38.2% retracement of the July to August bounce, after trading weaker in response to a stronger dollar and rising yields. Silver (XAGUSD) meanwhile has almost retraced half of its recent strong gains with focus now on support at $19.50. The latest driver being the FOMC minutes which signaled ongoing interest-rate hikes and eventually at a slower pace than the current. The short-term direction has been driven by speculators reducing bullish bets following a two-week buying spree in the weeks to August 9 which lifted the net by 63k lots, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication investor, for now, trusts the FOMC’s ability to bring down inflation within a relatively short timeframe   What is going on? Financial conditions are tightening, if modestly. Recent days have brough a rise in short US treasury yields, but more importantly it looks as though some of the risk indicators like corporate credit spreads may have bottomed out here after a sharp retreat from early July highs – one Bloomberg high yield credit spreads to US treasuries peaked out above 5.75% and was as low as 4.08% earlier this week before rising to 4.19% yesterday, with high yield bond ETFs like HYG and JNK suffering a sharp mark-down yesterday of over a percent. Factors that could further aggravate financial conditions include a significant CNH weakening, higher US long treasury yields (10-year yield moving back toward 3.00%, for example) or further USD strength. Adyen sees margin squeeze. One of Europe’s largest payment companies reports first-half revenue of €609mn vs est. €615mn despite processed volume came significantly above estimates at €346bn suggesting the payments industry is experiencing pricing pressures. Cisco outlook surprises. The US manufacturer of networking equipment surprised to the upside on both revenue and earnings in its fiscal Q4 (ending 30 July), but more importantly, the company is guiding revenue growth in the current fiscal quarter of 2-4% vs est. -0.2% and revenue growth for the current fiscal year of 4-6% vs est. 3.3%. Cisco said that supply constraints are beginning to ease and that customer cancellations are running below pre-pandemic levels, and that the company’s growth will be a function of availability. Stale FOMC minutes hint at sustained restrictive policy, but caution on pace of tightening. Fed’s meeting minutes from the July meeting were released last night, and officials agreed to move to restrictive policy, with some noting that restrictive rates will have to be maintained for some time to bring inflation back to the 2% target. Still, there was also talk of slowing the pace of rate hikes ‘at some point’, despite pushing back against easing expectations for next year. The minutes were broadly in-line with the market’s thinking, and lacked fresh impetus needed to bring up the pricing of Fed’s rate hikes. Chairman Powell’s speech at the Jackson Hole Symposium next week will be keenly watched for further inputs. US retail sales were a mixed bag. July US retail sales were a little softer at the headline level than the market expected (0% growth versus the +0.1% consensus) but the ex-auto came in stronger at 0.4% (vs. -0.1% expected). June’s growth was revised down to 0.8% from 1%. The mixed data confirmed that the US consumers are feeling the pinch from higher prices, but have remained resilient so far and that could give the Fed more room to continue with its aggressive rate hikes. Lower pump prices and further improvements in supply chain could further lift up retail spending in August. The iron ore miners are resilient despite price pressures Despite China planning more fiscal stimulus to fund infrastructure investment, the iron ore (SCOA, SCOU2) price paired back 8% this week, retreating to its lowest equal level in five weeks at $101.65, a level the iron ore price was last at in December 2021. Since March, the iron ore price has retreated 37%, with the most recent pull back being fueled by concerns China’s Covid cases are surging again with cases at a three-month high, as the outbreak worsens in the tropical Hainan province. Despite iron ore pulling back, shares in iron ore majors like BHP, remain elevated, up off their lows, with BHP’s shares trading 14% up of its July low, and moving further above its 200-day moving average, on hopes of commodity demand picking up. What are we watching next? Norway’s central bank guidance on further tightening. The Norges Bank is expected to hike 50 basis points today to take the policy rate to 1.75% despite an indication from the bank in June that the bank would prefer to shift back to hiking rates by 25 basis points, as a tight labour market and soaring inflation weigh. The path of tightening for the central bank has been an odd one, as it was the first G10 bank to actually hike rates in 2021, but finds itself with a far lower policy rate than the US, for example, which started much later with a faster pace of hikes. But NOK may react more to the direction in risk sentiment rather than guidance from the Norges Bank from here, assuming no major surprises. The EURNOK downtrend has slowed of late – focusing on 10.00 if the price action continues to back up. Japan’s inflation will surge further. Japan’s nationwide CPI for July is due on Friday. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are grappling with high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while signs of any Bank of Japan pivot away from its low rates and yield-curve-control policy are lacking. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier.   Earnings to watch In Europe this morning, the key earnings focus is Adyen which has already reported (see review above) and Estee Lauder which is deliver a significant slowdown in figures and increased margin pressure due to rising input costs. Today’s US earnings to watch are Applied Materials and NetEase, with the former potentially delivering an upside surprise like Cisco yesterday on improved supply chains. NetEase, one of China’s largest gaming companies, is expected to deliver Q2 revenue growth of 12% y/y as growth continues to slow down for companies in China. Today: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0800 – Norway Deposit Rates 0900 – Eurozone Final Jul. CPI 1100 – Turkey Rate Announcement 1230 – US Weekly Initial Jobless Claims 1230 – Canada Jul. Teranet/National Bank Home Price Index 1230 – US Philadelphia Fed Survey 1400 – US Jul. Existing Home Sales 1430 – EIAs Weekly Natural Gas Storage Change 1720 – US Fed’s George (Voter) to speak 1745 – US Fed’s Kashkari (Non-voter) to speak 2301 – UK Aug. GfK Consumer Confidence 2330 – Japan Jul. National CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 18, 2022
China's Property Debt Crisis, Economic Momentum, and Upcoming Meetings: A Market Analysis

A Pick Up In Yields May Come, The Question Is Open As US Treasury Yields Remain Rangebound

Saxo Bank Saxo Bank 18.08.2022 11:38
Summary:  Today we note a further softening in sentiment, in part on a pick up in yields, but that story has yet to really trigger as long US treasury yields remain rangebound, if teasing important levels. We note important supports for the crude oil outlook, the crack spread picture in the energy complex, the still very low valuation of energy stocks relative to the broader market, stocks and earnings on our radar, FX developments as we keep the USDCNH chart front and center as a potential aggravator of weakening risk sentiment and more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: As risk sentiment rolls over, is crude oil set to rally?
Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Saxo Strategy Team Saxo Strategy Team 19.08.2022 11:33
Summary:  Equity markets managed a quiet session yesterday, a day when the focus is elsewhere, especially on the surging US dollar as EURUSD is on its way to threatening parity once again, GBPUSD plunged well below 1.2000 and the Chinese renminbi is perched at its weakest levels against the US dollar for the cycle. Also in play are the range highs in longer US treasury yields, with any significant pull to the upside in yields likely to spell the end to the recent extended bout of market complacency.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures bounced back a bit yesterday potentially impacted by the July US retail sales showing that the consumer is holding up in nominal terms. The key market to watch for equity investors is the US Treasury market as the US 10-year yield seems to be on a trajectory to hit 3%. In this case we would expect a drop in S&P 500 futures to test the 4,200 level and if we get pushed higher in VIX above the 20 level then US equities could accelerate to the downside. Fed’s Bullard comments that he is leaning towards a 75 basis point rate hike at the September meeting should also negatively equities here relative to the expectations. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index edged up by 0.4% and CSI300 was little changed. As WTI Crude bounced back above $90/brl, energy stocks outperformed, rising 2-4%. Technology names in Hong Kong gained with Hang Seng Tech Index (HSTECH.I) up 0.6%. Investors are expecting Chinese banks to cut loan prime rates on Monday, following the central bank’s rate cut earlier this week. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios and reviewing lending practices at some Chinese banks. The shares of NetEase (09999:xhkg/NTES:xnas) dropped more than 3% despite reporting above-consensus Q2 revenue up 13% y/y, and net profit from continuing operations up 28%.  PC online game revenue was above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version. Mobile game segment performance was in line. USD pairs as the USD rally intensifies The US dollar rally is finding its legs after follow up action yesterday that took EURUSD below the key range low of 1.0100, setting up a run at the psychologically pivotal parity, while GBPUSD slipped well south of the key 1.2000 and USDJPY ripped up through 135.50 resistance. An accelerator of that move may be applied if US long treasury yields pull come further unmoored from the recent range and pull toward 3.00%+. A complete sweep of USD strength would arrive with a significant USDCNH move as discussed below, and the US dollar “wrecking ball” will likely become a key focus and driver of risk sentiment as it is the premiere measure of global liquidity. The next key event risk for the US dollar arrives with next Friday’s Jackson Hole symposium speech from Fed Chair Powell. USDCNH The exchange rate is trading at the highs of the cycle this morning, and all traders should keep an eye out here for whether China allows a significant move in the exchange rate toward 7.00, and particularly whether CNH weakness more than mirrors USD strength (in other words, if CNH is trading lower versus a basket of currencies), which would point to a more determined devaluation move that could spook risk sentiment globally, something we have seen in the past when China shows signs of shifting its exchange rate regime from passive management versus the USD. Crude oil Crude oil (CLU2 & LCOV2) remains on track for a weekly loss with talks of an Iran nuclear deal and global demand concerns being partly offset by signs of robust demand for fuel products. Not least diesel which is seeing increasing demand from energy consumers switching from punitively expensive gas. Earlier in the week Dutch TTF benchmark gas at one point traded above $400 per barrel crude oil equivalent. So far this month the EU diesel crack spread, the margin refineries achieve when turning crude into diesel, has jumped by more than 40% while stateside, the equivalent spread is up around 25%, both pointing to a crude-supportive strength in demand. US natural gas US natural gas (NGU2) ended a touch lower on Thursday after trading within a 7% range. It almost reached a fresh multi-year high at $9.66/MMBtu after spiking on a lower-than-expected stock build before attention turned to production which is currently up 4.8% y/y and cooler temperatures across the country lowering what until recently had driven very strong demand from utilities. LNG shipments out of Freeport, the stricken export plant may suffer further delays, thereby keeping more gas at home. Stockpiles trail the 5-yr avg. by 13%. US Treasuries (TLT, IEF) The focus on US Treasury yields may be set to intensify if the 10-year treasury benchmark yield, trading near 2.90% this morning, comes unmoored from its recent range and trades toward 3.00%, possibly on the Fed’s increase in the pace of its quantitative tightening and/or on US economic data in the coming week(s). Yesterday’s US jobless claims data was better than expected and the August Philadelphia Fed’s business survey was far more positive than expected, suggesting expansion after the volatile Empire Fed survey a few days earlier posted a negative reading.   What is going on?   Global wheat prices continue to tumble ... with a record Russian crop, continued flows of Ukrainian grain and the stronger dollar pushing down prices. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat (ZWZ2) futures contract touch a January on Thursday after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. Existing home sales flags another red for the US housing market while other US economic data continues to be upbeat US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. The Philly Fed survey meanwhile outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). New orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard 2.6% with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kashkari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 26, next Friday.  Japan’s inflation came in as expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside.   What are we watching next?   Strong US dollar to unsettle markets – and Jackson Hole Fed conference next week? The US dollar continues to pull higher here, threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher.  The focus on the strong US dollar will intensify should the USDCNH exchange rate, which has pulled to the highs of the cycle above 6.80, lurch toward 7.00 in coming sessions as it would indicate that China is unwilling to allow its currency to track USD direction. As well, the Fed seems bent on pushing back against market expectations for Fed rate cuts next year and may have to spell this out a bit more forcefully at next week’s Jackson Hole conference starting on Thursday (Fed Chair Powell to speak Friday). Earnings to watch The two earnings releases to watch today are from Xiaomi and Deere. The Chinese consumer is challenged over falling real estate prices and input cost pressures on food and energy, and as a result consumer stocks have been doing bad this year. Xiaomi is one the biggest sellers of smartphones in China and is expected to report a 20% drop in revenue compared to last year. Deere sits in the booming agricultural sector, being one of the biggest manufacturers of farming equipment, and analysts expect a 12% gain in revenue in FY22 Q3 (ending 31 July).   Today: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 19, 2022
Asia: Chinese Retail Sales Rose | Does Weaker CNH (Reminbi) Support Chinese Economy?

Asia: Chinese Retail Sales Rose | Does Weaker CNH (Reminbi) Support Chinese Economy?

Alex Kuptsikevich Alex Kuptsikevich 16.09.2022 10:15
China's data package released this morning exceeded expectations in countering the worsening market sentiment. Official data showed a 5.4% y/y rise in retail sales in August compared to the expected 3.8%. The retail sector has benefitted from pent-up demand after a sluggish 2.7% MoM. Industrial production added 4.2% YoY against expectations of 3.8%. These improvements are mainly attributable to the easing of coronavirus restrictions but may also be a reaction to the stimulus package implemented last month. A look at USD/CNH The recent economic acceleration may also be linked to the weaker renminbi, which has lost 4.7% against the dollar in less than a month. The USDCNH gained 11.5% from March local lows. In contrast to Europe, where a weak Euro is becoming a brake on the economy, the weaker renminbi may be warmly greeted by the authorities. China's consumer and producer prices growth is close to 2.5% y/y, compared with 9% CPI growth in the Eurozone and 8.3% in the USA. The weaker yuan supports Chinese exports' competitiveness and slightly boosts domestic consumption but has not yet provoked excessive pressure on prices. Yesterday the Chinese offshore yuan crossed the 7.0 per dollar line and is trading at 7.03 today. A significant psychological level in the past forced the authorities to step in to defend their currency in 2016 and 2018. In 2019 and 2020, the turning points have been higher, close to 7.15. It is well worth being prepared that we will not see any meaningful action or serious verbal interventions by the Chinese or US authorities up to these levels.
Market Reaction to Eurozone Inflation Report: Euro Steady as Data Leaves Impact Limited

Asia Morning Bites: Japanese Inflation Rises, Anticipation of BOJ Policy Adjustment

ING Economics ING Economics 23.06.2023 12:00
Asia Morning Bites Japanese core inflation excluding food and energy edges higher in May - tees up the Bank of Japan for a July tweak to policy.   Global Macro and Markets Global markets:  After several days of decline, US stocks turned around on Thursday, and equity futures indicate that they may have a little further to go today. The S&P 500 rose 0.37%, while the NASDAQ rose 0.95%. China was out for Dragon Boat Day and will be out today too.  US Treasury yields went higher again. The Yield on both the 2Y note and the 10Y bond rose 7.6bp, taking 10Y yields to 3.795%. 10Y UK Gilt yields fell 3.8bp after the larger-than-expected Bank of England hike. EURUSD pushed above 1.10 yesterday, despite the rise in US yields, but it could not hold on to its gains and has retreated back to 1.0956 – not much changed from 24 hours ago.  G-10 currencies including the AUD and JPY lost ground to the USD, but GBP was steadier, helped by higher rates. Most Asian currencies weakened against the USD yesterday. The THB rose to 35.075, and the SGD rose to 1.3447. USDCNH has risen to 7.1957 and topped 7.20 overnight.   G-7 macro: There were further hawkish comments from Jerome Powell overnight, who said that the US may need one or two more rate hikes. Barkin also indicated that he was happy to see rates go higher. The main macro release from the US for the day was existing home sales. Lack of supply seems to be helping house prices to remain supported, as James Knightley writes here. Initial jobless claims held on to the recent highs at 264K, though continuing claims drifted a little lower. Not quite a smoking gun for the labour market, but it is becoming a little more interesting. The Bank of England’s 50bp hike took markets by surprise. James Smith and Chris Turner write about it here. James notes, “We’re tempted to say that today’s 50bp move won’t become a new trend, but two further 25bp hikes seem like the most likely route after today’s meeting”. Today is another quiet day for macro releases, with nothing of note from the US and only retail sales from the UK to look at.   Japan:  May inflation data came out slightly higher than expected. The headline inflation rate was 3.2% YoY in May (vs 3.5% in April, 3.2% market consensus) but core (3.2%) and "core-core" (4.3%) inflation beat market expectations. Inflation excluding food and energy even rose from 4.1% in April. The headline CPI index was unchanged month-on-month, but goods prices fell 0.1% MoM sa, while service prices rose 0.1%. Housing, transportation, telecommunications, and entertainment prices continued to rise, while utilities fell again. We think there are signs of inflationary pressure building up on the supply side, but it is certainly not strong enough for the BoJ to bring about immediate tightening.Looking ahead, the current energy subsidy program will end in September and some power companies will begin to raise electricity fees again. Thus, we see headline inflation staying above 2% for a considerable time. We expect June Tokyo inflation, released next week, will also pick up again.  We think that the BoJ will upgrade its inflation outlook in July and a yield curve control (YCC) tweak is still possible despite the dovish comments from several board members. They will probably justify their action by saying that a YCC tweak is not a tightening, but instead, that it is done to improve market functionality. Another reason that we think a July tweak is possible is that a shift in YCC may need to come as a surprise to avoid a large bond selloff. Singapore:  May inflation is set for release today.  The market consensus points to a slight softening in inflation with core and headline inflation slipping to 4.7%YoY and 5.4%YoY, respectively.  Continued robust domestic demand is preventing price pressures from dissipating quickly.  Despite the dip in inflation, the MAS will likely be on notice monitoring price developments with core inflation still well above target.  
Trend Reversal: West Texas Oil's Recent Minor Pull-Back Likely Ended

Apple's iPhone 15 and Apple Watch Series 9 Unveil Disappoints Investors, Nasdaq 100 Falls 1.1%, Adobe's Stock Declines 4% Ahead of Earnings Report, and OPEC Predicts Tight Oil Market: Market Recap

Saxo Bank Saxo Bank 13.09.2023 08:32
Investors were not impressed by the iPhone 15 and Apple Watch Series 9 reveal, causing Apple's shares to drop 1.8% and affecting the Nasdaq 100, which fell 1.1%. Adobe's stock also declined by 4% ahead of its upcoming earnings report. Meanwhile, OPEC's forecast of a tight oil market led to crude oil prices surging to 10-month highs. OPEC anticipates a significant 3.3mb/d supply deficit in Q4, one of the largest in over a decade. CAD outperformed in the G-10, while EUR made gains following an ECB leak about potential inflation forecast increases. Today's focus is on the US CPI report.     US Equities: Investors were not impressed by the iPhone 15 and Apple Watch Series 9 unveiled on Tuesday, seeing the shares of Apple drop by 1.8%. The Apple decline weighed on the Nasdaq 100 which slid 1.1%. Adding to the selling was a 4% decline in Adobe ahead of reporting on Thursday. Another focus in the tech space was Oracle, which plummeted 13.5% on weak cloud sales. The S&P500 shed 0.6%. Fixed income: The curve flattened as the 2-year yield rose 3bps to 5.02% while the 10-year yield slid 1bp to 4.28%. The short end was under some pressure ahead of today’s CPI data while the long ends held firm and absorbed the USD35 billion 10-year auction and around USD20 billion corporate bond issuance well. China/HK Equities: The Hang Seng Index ended a lackluster session with a thin trading volume session, down 0.4%. Energy and pharmaceutical names weighed on the benchmark. The Hang Seng Tech Index shed 0.5% as gains in Xiaomi and EV makers were offset by losses in Internet stocks. FX: Higher crude oil prices made CAD the G-10 outperformer with USDCAD down to 1.3550 from 1.3590 but EUR attempted to catch up in late NY/early Asian hours on ECB leak that inflation forecasts may be raised higher which are seen to be raising the prospect of a hike this week. EURUSD jumped higher to 1.0760 with EURGBP above the 0.86 hurdle as GBPUSD dipped below 1.25 on not-so-hawkish labor market. USDCNH sticking close to 7.30 and AUDUSD around 0.6425. Commodities: Crude oil prices rallied to fresh 10-month highs after OPEC forecast a significantly tight market. In its latest monthly outlook, the oil group said the market may experience a shortfall of 3.3mb/d in the fourth quarter of the year. This would make it one of the largest deficits in more than a decade. OPEC’s estimate was at odds with EIA’s predicted deficit of 230kb/d, and the IEA’s monthly report will be on watch today. Prices eased from the peaks as API reported a crude inventory build after four straight weekly draws although Cushing hub stockpiles declined, and official data will be reported today. Gold dropped below 200DMA as inflation concerns returned, bringing more fear of rate hikes and US CPI will be on watch today.    
RBI's Strategic INR Support: Factors Behind India's Stable Currency Amidst Global Challenges

The Impact of Global Developments on Financial Markets: Oil Prices, Inflation, and Equities

Saxo Bank Saxo Bank 13.09.2023 13:49
 Following on from weakness in the US and Europe, stocks in Asia fell across the board as oil prices extended gains ahead of today’s key US inflation report. The weakness in US stocks was led by technology companies with Apple dropping almost 2%. The potentially tightest oil market in a decade lifted oil prices while raising fresh inflation concerns saw the 2-year Treasury yield back above 5%, while the dollar traded mixed against its G10 peers after seeing broad gains on Tuesday. US CPI the focus today given the current 50/50 split on whether the FOMC will hike rates one more time.   Equities: Nasdaq 100 futures are sliding further this morning to the 15,478 level as Apple’s iPhone event last night failed to muster any excitement, which means that the market is now in a wait-and-see mode ahead of today’s US inflation report. Energy stocks continue to be in focus given the rally in Brent crude on estimated oil supply shortfall due to Saudi Arabia’s oil production cuts. FX: Higher crude oil prices made CAD the G-10 outperformer with USDCAD down to 1.3550 from 1.3590 but EUR attempted to catch up in late NY/early Asian hours on ECB leak that inflation forecasts may be raised higher which are seen to be raising the prospect of a hike this week. EURUSD jumped higher to 1.0770 with EURGBP above the 0.86 hurdle as GBPUSD dipped below 1.25 on not-so-hawkish labor market. USDCNH takes another leg lower below 7.29 but AUDUSD also dipped to 0.64 handle in Asia. Commodities: Saudi Arabia’s ‘stable market’ reason for cutting production rings increasingly hallow after OPEC in their monthly report said the market may experience a shortfall of 3.3m b/d in the fourth quarter. With the EIA meanwhile only predicting a 230k b/d shortfall, OPEC could find themselves being accused of trying to inflate prices to meet big spending plans among its members. IEA’s report will be on watch today ahead of the US CPI print and EIA’s weekly stock report which according to API’s figures may show a rise. Oil’s rally to a fresh 10-month high and the stronger dollar saw gold drop below 200DMA as inflation concerns returned, bringing more fear of rate hikes. Fixed income: European sovereign curves are likely to bear-flatten this morning after Reuters reported that the ECB expects inflation to remain above 3% next year and growth to be downgraded for this and next year. Despite the upcoming forecasts painting the perfect stagflation picture for the eurozone, policymakers will weigh their options carefully and tilt towards a hawkish pause rather than a hike. Yet, they might need to reinforce their message by ending reinvestments under the PEPP facility. That would buy them enough time to wait for rate hikes to feed through the economy instead of adding pressure to the German and Dutch recessions. The focus today is on the US CPI numbers and the 30-year US Treasury auction. Volatility: VIX traded 43 cents higher at 14.23, but more importantly the VIX futures traded 1.31 higher, up to 15.95, indicating there is some uncertainty about the upcoming US inflation report. Adobe, which is scheduled to release its earnings report later this week, closed lower yesterday. Options traders were divided on the stock, with the put/call ratio at 1, indicating that equal amounts of calls and puts were traded. This might suggest that there is no clear consensus on how the earnings report will be received.  Macro: ECB’s new 2024 inflation projection could be raised above 3% vs 3% in June, firming case for interest rate hike. ECB also to cut 2023 and 2024 economic growth projections to broadly in line with market expectations. UK labor report was mixed with headline earnings up 8.5% YoY in July vs. 8.2% expected. For more, read our latest Macro/FX Watch. In the news: Europe's high gas prices hit industrial output – full story on Reuters. Apple unveiled four new iPhone models with a muted reaction from investors in extended trading – full story in FT. Technical analysis: S&P 500 rejected at 4,540 resistance level, expect set back, support at 4,340.Nasdaq 100 rejected at 15,561 key resistance level. USDJPY uptrend eyeing 149-150. EURUSD downtrend, support at 1.0685, Expect short-term bounce to 1.08. Brent oil uptrend potential to 98.50 Macro events: UK Industrial Production (Jul) exp. -0.7% m/m vs 1.8% prior (0600 GMT), US CPI (Aug) exp. 0.6% m/m and 0.2% core vs 02% and 0.2% prior (1230 GMT), US 30-year T-bond auction ($20 billion) Commodities events:  IEA’s Oil Market Report (0900 GMT), EIA’s Weekly Crude and Fuel Stock Report (1430 GMT) Earnings events: Inditex F424 1H results, which have already reported with EPS at €0.81 vs est. €0.80 and a small positive revenue surprise.  
Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Equity Markets Rise, VIX at 12 Handle After ECB Rate Hike and US Economic Resilience

Saxo Bank Saxo Bank 15.09.2023 08:47
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.  

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