Daily Market Outlook, July 15, 2022

Overnight Headlines

China’s Economy Expands At Slowest Pace Since Wuhan Outbreak
China Renews Medium-Term Policy Loans, Rate Unchanged
Fed Hawks Say They Want 75 Basis Point Rate Hike In July
Fed’s Waller Says 75bps Rate Hike Is His Base Case For July
Fed’s Bullard Favours 75bps Hike At July Meeting – Nikkei
New Zealand Manufacturing Activity Contracts In Month Of June
Dollar Pares Gains As Odds Of 100 bps Fed Rate Hike Drop
U.S. Yield Curve Inversion Shrinks As Markets Pare Back 100-bps Bet
Oil Set To End Volatile Week Below $100 On Slowdown Concern
Asian Shares Mixed After China Says Growth Weakened In Q2
Rio Tinto’s Boosts Iron Ore Shipments But Warns Of Headwinds
SK Hynix Is Said To Weigh Slashing Spending By A Quarter In 2023
UBS, Citi Among Banks Hit By Pullback From Asia’s Rich Clients
Amazon Has Been Slashing Private-Label Selection Amid Weak Sales

The Day Ahead

Asian equity markets are mixed this morning. China Q2 GDP growth was weaker than expected at only 0.4% yr-on-yr, reflecting the impact of the latest lockdowns. However, June data was more upbeat as both industrial production and retail sales strengthened. The New Zealand manufacturing PMI posted its first sub-50 reading for 10 months in June signalling that activity may now be contracting. Italian PM Draghi offered his resignation as divisions emerged in the governing coalition. However, the Italian President instead asked for a vote of confidence in parliament. There are now five left in the Conservative leadership contest with Sunak and Mordaunt still leading. The first televised debate will take place today.

With the calendar elsewhere sparse, the focus today seems set to be on a potentially significant set of US data releases. The Federal Reserve’s next interest rate announcement on 27th July is now less than two weeks away. Another sizeable rise seems almost certain, but its size remains unclear. Following a solid June labour market report and another new high for the year with June CPI inflation, markets see a second successive rise of at least 75 basis points as likely and now regard a 100bp rise as a possibility. However, a weak set of outturns today could yet see the focus switch back to a smaller rise of 50bp. it would also lend weight to growing concerns about downside risks for economic growth.

June retail sales will probably get the most attention today. US retail sales were weaker than expected in May and overall so far in Q2 have disappointed after a strong start to the year. Expect a rebound in June but after adjusting for inflation the numbers may again be down. Industrial production is also expected to post only modest growth in June. Finally, look for no change in the University of Michigan consumer sentiment index at 50 which is already a very weak level. That survey’s inflation expectations data will also be closely watched. Last month’s rise in longer-run inflation expectations was cited by Federal Reserve Chair Powell as one of the reasons why rates were raised by 75bp. However, the increase was subsequently revised away.

Any comments from Fed policymakers will also be of interest. Fed policymakers Bostic and Bullard are scheduled to speak. Both have previously signalled likely support for a 75bp hike but it will now be interesting to see how open they are to a 100bp rise. The Fed is supposed to enter its pre-meeting silent period after this weekend, although in the runup to the June meeting a signal of an intention to hike more aggressively was seemingly sent during the ‘blackout’.

FX Options Expiring 10am New York Cut

EUR/USD: 0.9950 (553M), 1.0070 (200M), 1.0100 (404M)
1.0150 (813M), 1.0200 (1.08BLN)
USD/JPY: 137.00 (360M), 137.5 (440M)
EUR/JPY: 138.00 (351M)
GBP/USD: 1.1890-00 (694M)
AUD/USD: 0.6800-10 (515M), 0.6900 (1.08BLN)
USD/CAD: 1.3000-05 (1.3BLN), 1.3075 (510M)
1.3100 (1.15BLN), 1.3150 (751M), 1.3180 (470M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0350

EUR/USD doing very little in Asia after push below parity this week
Overall bias remains down, especially on Italy political woes
Low of 0.9952 yesterday before bounce, Asia so far 1.0012-27
Specs seem to be taking sell-rally, buy-on-dip approach
Option expiries today – 0.9950 E693 mln, 1.0100 E404 mln
Bids eyed below parity .9950 offers sitting above 1.0050
20 Day VWAP is bearish, 5 Day bearish

GBPUSD Bias: Bearish below 1.2150

Muted action in Asian session, pressure remains to the downside
GBP off lows although upside seems capped by Dollar dominance
BoE back in the frame after better growth data
Energy price inflation, recession fears and political unknowns weigh on GBP
Option expiries today – total GBP644 mln 1.1890-1.1900 above
Offers seen at 1.20 Bids 1.1720
20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 134

Capped at 139.50 ahead of long holiday weekend in Tokyo
Mild retreat in market pricing of FED hike expectations
Market eyes large option strikes on Tuesday at 138 & 140
Traders favour betting on 135/140
US10Y trading sub 3%
Offers seen at 139.55 bids 136.75
20 Day VWAP is bullish, 5 Day bullish

AUDUSD Bias: Bearish below .7050

AUD weighed by CHina GDP data miss adding to growth concerns
China econ plunges in Q2 markets look for policy support
Commodity losses, metals meltdown Iron Ore down over 7% adding further pressure
Offers seen at .6830’s with bids tipped at .6685
20 Day VWAP remains untested confirming downside
20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bearish below 22k

BTC recovers 20K
BTC bulls take solace from FED tempering hawkishness
Trend remains down within broader bearish channel
Support seen at 19k then 18300 the base of the daily VWAP bands failure here opens a retest of lows
Concerns regarding increasing Crypto player forced liquidations leave BTC vulnerable
Additional pressure seen from BTC miners liquidating positions on declining profitability
20 Day VWAP is bullish, 5 Day bearish

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% and 68% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Written by Patrick Munnelly

Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!

Markets Brace for 100 bp July Rate Hike and the Room for Dovish Surprise Grows

Investment Bank Outlook 15-07-2022

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Daily Market Outlook, July 15, 2022