Daily Market Outlook, September 29, 2022

Overnight Headlines

  • Fed’s Evans: Fed Must Press On Despite Global Market Volatility
  • Biden Tells Econ Team To Stay In Touch With Allies On Markets
  • US Treasury Alarmed At UK Economic Chaos Unleashed By PM
  • BoE Response Highlights ‘Impossible Trinity’ Of Liquidity Issues
  • Pressure Builds On Kwarteng As UK Tories Slam Economic Plans
  • China’s Covid Worries To Take Shine Off Golden Week Holidays
  • PBoC Speculation Warning Sparks First Yuan Gain In Nine Days
  • Citadel’s Founder Griffin Warns Economy Has Powerful Tailwind
  • World Bank Sees Risk Of Stagflation, Likely Recession In Europe
  • EU Plans Russia Import Bans, Tech Curbs Over Putin Land Grab
  • Pressure Builds On Kwarteng As UK Tories Slam Economic Plans
  • Sterling Slips Back Alongside Euro On Persistent UK Fiscal Angst
  • Turkey’s Erdogan Aims For Interest Rate In Single Digits This Year
  • Amazon Raises Hourly Wages At Cost Of Almost $1 Billion A Year
  • Gold Drops After BoE Move Spurs Biggest Jump In Over Six Months

The Day Ahead

  • Asian equity markets are mostly up this morning following rises in Europe and the US yesterday. That may be a sign that the announcement by the Bank of England that it is delaying the start of active sales of gilts and instead would buy gilts in an attempt to calm UK markets had an initial wider impact. Indeed, some market participants have speculated that central banks may now feel the need to slow the pace of monetary policy tightening because of concerns about the impact on markets. However, there was little sign of that in comments by central bank officials yesterday as both US Federal Reserve and European Central Bank officials pointed to the likelihood of further interest rate hikes.
  • Today’s UK money supply and bank lending data for August may look dated given recent developments. In particular the numbers on mortgage activity will not reflect the impact of last week’s move on stamp duty, the most recent fluctuations in interest rate expectations or this week’s announcements by some lenders about changes to the availability of products. Consequently, it may have little impact on markets.
  • German September CPI data may provide some clues on tomorrow’s outturn for the Eurozone as a whole. Annual headline inflation is expected to have risen sharply from its August rate. Meanwhile, September business confidence readings for the Eurozone are forecast to have weakened in line with recent evidence from business surveys.
  • Early tomorrow the September Lloyds Business Barometer will provide an update on UK business confidence. The headline reading has declined in recent months as companies have become more nervous about both the general economic situation and their own prospects. Meanwhile there have been some signs of wage and price pressures easing. The data was collected before last week’s moves on fiscal and monetary policy but should capture the initial impact of the announcement on the cap on energy prices.
  • There are a lot of scheduled speeches from central bank policymakers today including some from Bank of England officials. BoE Deputy Governor Ramsden is supposed to be talking about ‘real time’ data and so may not touch on recent economic developments, but external Monetary Policy Committee member Tenreyro will discuss inflation developments.

FX Options Expiring 10am New York Cut

  • EUR/USD: 0.9700 (201M), 0.9720-25 (1.4BN), 0.9750 (1.45BN),
  • 0.9780 (275M), 0.9810 (435M)
  • USD/JPY: 144.25-28 (310M), 144.90-00 (1.07BN), 146.00 (301M)
  • USD/CHF: 0.9700 (365M), 0.9900 (1.1BN)
  • EUR/CHF: 0.9380 (649M)
  • EUR/GBP: 0.8825 (679M)
  • AUD/USD: 0.6610 (1.02BN), 0.6640-50 (496M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.00

  • EUR/USD – Bullish outside day, as yield spreads tightened
  • -0.15% after closing up 1.5%, supported by the lower USD, as risk recovered
  • BoE calmed markets, pledging to restore order by buying gilts
  • ECB policymakers are becoming hawkish – 75pt Oct hike viable
  • Yield spreads supported EUR – bund 10yr -10bp 2.155%, 10yr UST -23bp 3.737%
  • 20 day VWAP bands fall – bearish setup, as over sold signals unwind
  • Early EZ 0.9535 low and NY 0.9751 high are initial support, resistance
  • 0.9720/25 795mln are the only close strikes for Thursday
  • 20 Day VWAP bearish, 5 Day bullish

GBPUSD Bias: Bearish below 1.10

  • Soft after a bullish outside day, as BoE buys time
  • Off 0.5% early after closing up 1.4%, as BoE bought bonds
  • BoE acted and markets have recovered, but the moves will only buy time
  • Credible UK government policy needed to reverse the sterling downtrend
  • PM Truss is facing growing pressure from Conservative MPs to sack Kwarteng
  • August UK car output climbed, soaring costs to fuel inflation
  • Bullish outside day unwinds oversold signals seen earlier this week
  • 1.0706 lower 20 day VWAP band and 1.10 initial support, resistance
  • 20 Day VWAP is bearish, 5 Day bullish

USDJPY Bias: Bullish above 140

  • Bid after Wednesday’s fall as UST yields open higher
  • +0.2% early after closing down 0.5% with the U.S. dollar broadly lower
  • Yield spreads narrowed as UST yields slumped, 10yr -23bp – opens +3bp 3.737%
  • Foreign investors net sellers of Japanese shares last week…
  • Positive Asian markets – Nikkei +0.7%, AsiaxJP +0.7%, E-mini S&P flat
  • BoJ intervention – now pivotal 141.04 support
  • Psychological 145.00 first resistance, then pre intervention 145.90 high
  • NY 143.91 low, then 143.10 are initial supports
  • 20 Day VWAP is bullish, 5 Day bullish

AUDUSD Bias: Bearish below .6750

  • Pares gains as bearish sentiment remains entrenched
  • AUD/USD down 0.6% in Asia as risk recovery runs out of steam
  • Bearish sentiment remains entrenched as Fed hawkish talk continues
  • Sellers rush to take advantage of 1.3% rally from 29-month low of 0.63635
  • BOE steps to stem risk rout, China verbal warnings taken in stride
  • UST yields drift higher after sharp pullback, GBP drops 0.9%, undermine AUD
  • Australia monthly CPI measure slows slightly to 6.8% y/y in Aug
  • Asia range 0.6522-0.6471; support 0.640, 0.6445-50, resistance 0.6540-50
  • 20 Day VWAP is bearish, 5 Day bearish

BTCUSD Bias: Bearish below 25.3K

  • BTC continues to rotate around 19k
  • Bank of England bond intervention… helps sink global yields
  • US rate drop leads to broad based USD selling, risk rally
  • Encouraging words for crypto from Stanley Druckenmiller
  • Daily bull hammer forms
  • BTC is still down ~58.5% so far this year
  • First resistance sited at 21k support now see at 18k
  • 20 Day VWAP is bullish, 5 Day bullish