Daily Market Outlook, September 1, 2022

Overnight Headlines

  • Jeremy Grantham Warns Super Bubble In Stocks Has Yet To Burst
  • Treasury Two-Year Yield Tops 3.5% For First Time Since 2007
  • G7 Finance Chiefs To Discuss Russian Oil Price Cap On Friday
  • US Officials Order Nvidia To Halt Sales Of Top Chips To China
  • Asia Factory Activity Drops On China Covid Curbs, Slowdown
  • UN Report Accuses China of Serious Rights Abuses in Xinjiang
  • Yen Fall To Fresh 24-Year Low As US-Japan Policy Gap Weigh
  • Japan MOF Official: Watching Moves With ‘Sense Of Urgency’
  • Iran Seeks Stronger Guarantees For 2015 Nuclear Deal Revival
  • ECB’s Villeroy: Next Rate Move Should Be ‘Orderly, Predictable’
  • Truss Rules Out New Taxes, Energy Rationing In Final PM Pitch
  • UK Long-Run Inflation Expectations Hit Record, Citi/YouGov Poll
  • UK Households Face Biggest Living Standards Shock In Century

The Day Ahead

  • Asian equity markets are mostly lower after another negative close on Wall Street. US Treasury yields continued to climb on hawkish messaging from Fed policymakers who are signalling further interest rate rises and are playing down market pricing for rate cuts later in 2023. There is even speculation that the ECB could raise interest rates by 75bp next week after another record high in Eurozone inflation (headline CPI at 9.1%), although that is probably not a majority view on the Governing Council.
  • Overnight, survey data from China warned about potential weaknesses in its manufacturing sector. The Caixin manufacturing PMI report for August fell to 49.5 (from 50.4), more than expected by analysts and indicative of a contraction in activity.
  • Earlier this morning, Germany reported a rebound in retail sales of 1.9% in July following the drop of 1.5% in June. Compared with a year ago, however, the volume of sales is down 5.5%. In the UK, Nationwide reported annual house price growth holding up better than expected at 10.0% in August, although that was lower than 11.0% in July.
  • The final readings of the UK and Eurozone manufacturing PMI survey for August are due this morning. The preliminary flash results showed a surprisingly sharp drop in the UK manufacturing PMI to just 46.0, partly reflecting sharper contractions in output and demand. The better news was that cost pressures, while still elevated, continued to ease.
  • Also out is the Bank of England’s decision-maker panel business survey. The survey’s results, including inflation expectations, are closely watched by policymakers as they decide on their next move in two weeks’ time.
  • The flash Eurozone manufacturing PMI had remained just below 50 at 49.7, although the output subindex remained firmly in contraction territory (46.5) partly reflecting difficulties in Germany. The first estimates for Italian and Spanish manufacturing PMI will be released today and are expected to remain below 50.
  • Expect the US ISM manufacturing survey’s headline index to have slipped again in August to 52.2 from 52.8, reflecting the uncertain international environment. The price index is likely to give a similar message to the PMI survey that supply constraints are easing but that cost pressures are still above normal. US construction spending and weekly jobless claims data are also due

FX Options Expiring 10am New York Cut

  • EUR/USD: 0.9975 (259M), 1.0000-10 (756M), 1.0090-00 (517M)
  • USD/JPY: 137.75-80 (580M), 138.10 (740M)
  • USD/CHF: 0.9850 (250M)
  • AUD/USD: 0.6865 (873M), 0.6900 (381M)
  • USD/CAD: 1.2950 (785M), 1.3000 (332M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.0250

  • Heavy with risk appetite, as Emini’s slide
  • Off 0.2% with risk appetite, as E-mini S&P -0.5%, 10yr UST testing 3.2000
  • Inflation and cost of living surge encouraged early September risk off
  • EZ inflation at 9.1% makes a 75pt ECB hike an option next week
  • 0.9973 European low then 0.9900 August base are initial supports
  • Close above 1.0108 would be positive
  • 1.0000/10 755 mln are the only close significant strikes for Thursday
  • Weekly projected range support sited at 9830/50
  • 20 Day VWAP bearish, 5 Day bullish

GBPUSD Bias: Bearish below 1.2050

  • Fresh trend low, stronger USD and soured risk weigh
  • Off 0.4%, as risk sensitive currencies lead U.S. dollar higher
  • E-mini S&P -0.55% sparked by Nvidia -6.6% Asian stocks lower
  • UST yields hit trend highs, 10yr +2bp 3.211%- hawkish Fed Logan
  • Close above 1.1735 10 day moving average needed to undermine downside bias
  • 1.1526 lower 20 day VWAP band initial support, Asian1.1617 high resistance
  • Longer-term target remains a test of the 1.1413 March 2020 base
  • 20 Day VWAP is bearish, 5 Day bearish

USDJPY Bias: Bullish above 133.40

  • USD/JPY to fresh year high, multi – year high
  • USD/JPY spurts up to 138.49 EBS early, above 139.38 year high July 14
  • Highest since 1998 when it was as high as 147.64, low earlier 139.00
  • Though higher on stops 139.40+, further upside may be difficult
  • Japanese exporter offers trail up and importers likely to remain cautious
  • Importer bid eyed however on dips to, below 139.00
  • Higher US long yields to blame, Tsy 10s to 3.206% early, best since Jun 28
  • Yield on US Treasury 2s also up early Asia, to 3.508%
  • Option expiries not a factor today, tomorrow, mostly to downside, on 138
  • Some pause in uptrend eyed ahead of US payrolls report tomorrow
  • 20 Day VWAP is bullish, 5 Day bullish

AUDUSD Bias: Bearish below .71

  • Weak headline Aus Capex adding a bit more weight on AUD
  • AUD/USD at session low below 0.6810 after weaker than expected Aus Capex
  • AUD/USD has been under pressure all morning due to risk-off mood in Asia
  • Global slowdown concerns weighing on key commodities important to Australia
  • Australia miner BHP plunged nearly 8% at one stage this morning
  • AUD/USD support at 76.4 of 0.6682/0.7136 move at 0.6778
  • A break below 0.6775 opens the way for a test of the year’s low at 0.6682
  • 20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bearish below 25.3K

  • BTC trades sub 20K
  • Regulatory roadmap for a progressive crypto industry in the UAE
  • Crypto Miner Primeblock’s CEO Has Left Firm After Canceled Spac Deal – CoinDesk
  • FTX CEO Bankman – says his crypto bailouts had ‘mixed results’ – Bloomberg
  • BTC supported by lower VWAP (20.9k) for now, then Jul 13 low 18.9k
  • Aug 28’s 22.2k may pull BTC higher
  • 20 Day VWAP is bearish, 5 Day bearish