Daily Market Outlook, September 30, 2022

Overnight Headlines

  • Fed Officials Reinforce Rate Hike Calls, Say Markets Got Message
  • Oil Set For First Quarterly Drop Since 2020 As Macro Mood Sours
  • Europe Gas Falls As Traders Weigh Fallout Of Pipeline Eruptions
  • Gold Edges Up On Softer Dollar, To Fall For Sixth Straight Month
  • Aluminium Extends Gains, Record Spike On Russia Supply Fears
  • Pres Biden: US Will Never Recognise Russian Claims On Ukraine
  • Senate Pass Bill To Stop Government Shutdown, Sent To House
  • Biden Administration Sets Sanctions Targeting Iran’s Oil Exports
  • PBoC Makes Biggest Weekly Net Cash Injection Since Jan 2020
  • China’s Economy Struggles On Covid-19 Curbs, Property Woes
  • BoJ Boosts Amounts At Regular Bond Buy, Yields Stay Elevated
  • Japan To Confirm Yen Intervention Size, Eyes On War-Chest Size
  • Japan PM Kishida Orders Specific Stimulus Steps By End-October
  • ECB Eye Jumbo Hike To Fight Inflation Even Amid Debtors Suffer
  • Truss Holds Emergency Talks With OBR Failing To Calm Markets
  • UK Job Vacancies Decrease To Post-Pandemic Levels, REC Says

The Day Ahead

  • Equity markets remained under broad pressures in the Asia-Pacific region, falling for a seventh straight week, following another negative end to trading on Wall Street. Investors continued to assess prospects of further policy tightening by the Fed and other major central banks across the world. In UK news, there are reports that PM Truss and Chancellor Kwarteng will meet with the head of the independent Office for Budget Responsibility (OBR) which had not been asked to produce a forecast to accompany last week’s mini-budget.
  • Revised GDP figures released earlier this morning showed the UK economy grew by 0.2%q/q in Q2 compared with the prior estimate of a 0.1%q/q contraction. It implies that the economy is probably not currently in a technical recession defined as two consecutive quarters of negative growth.
  • Lloyds Bank Business Barometer survey released overnight showed business confidence remaining steady at 16% in September following three months of declines. The survey also showed some renewed upward pressure on output prices and wages. As responses were taken in the first half of the month, they will not have accounted for the government’s Growth Plan announcements which aim to increase the economy’s trend rate of growth recent, nor the recent volatility in financial markets.
  • UK money supply and bank lending data for August will be released later today but 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.
  • Inflation data updates for the Eurozone and the US will be closely watched. In the Eurozone, upside risks to CPI inflation after yesterday’s German data, which could see the headline rate rising near to 10% in September. That would maintain pressure on the ECB to hike rates further in the coming meetings even as economic activity is slowing.
  • In the US, the PCE deflator is the Fed’s preferred inflation gauge. Echoing the already released CPI figures, we look for the headline PCE deflator to rise by 0.2%m/m in August, bringing the year-on-year rate down to 6.1% from 6.3%. However, look for the annual core rate, which excludes food and energy, moving up to 4.9% from 4.6%. The fall in the headline rate is likely to be partly driven by lower gasoline prices. That should support real personal spending during the month.

FX Options Expiring 10am New York Cut

  • EUR/USD: 0.9690-00 (1.3BLN), 0.9750 (650M) 0.9795-00 (1.65BLN), 0.9850 (644M), 0.9900 (1.1BLN) 0.9930-35 (403M), 0.9950 (256M), 1.0020 (418M)
  • USD/JPY: 143.00 (509M), 144.00 (675M), 144.95-00 (1.13BLN) 146.00 (361M).
  • EUR/JPY: 141.00 (300M)
  • USD/CHF: 0.9780 (214M).
  • EUR/CHF: 0.9500 (306M) 0.9600 (931M), 0.9650 (450M), 0.9700 (361M)
  • GBP/USD: 1.1050 (518M), 1.1200 (521M), 1.1350 (210M)
  • EUR/GBP: 0.8800 (530M), 0.8850 (303M), 0.8875 (411M)
  • AUD/USD: 0.6500 (310M), 0.6575 (325M).
  • USD/CAD: 1.3500 (515M) 1.3550 (270M), 1.3700 (270M), 1.3725 (250M), 1.3850 (250M)

Technical & Trade Views

EURUSD Bias: Bearish below 1.00

  • Choppy month end, though strikes contained
  • Off 0.2%, towards the base of a 0.9795-0.9844 range, dragged around by GBP
  • Choppy trading amid light liquidity at quarter end, after volatile September
  • European inflation data today key event risk CPI flash poll 9.7%, core +4.7%
  • Close above 0.9849, 38.2% Aug-Sept fall would be bullish for next week
  • 0.9683 NY low and 0.9844 Asian high are initial support and resistance
  • 0.9800 1.556 BLN and 98.45/50 718 MLM are Friday’s close strikes
  • 20 Day VWAP bearish, 5 Day bullish

GBPUSD Bias: Bearish below 1.10

  • Volatile sterling cries out for credible policy
  • A choppy session to end an extremely volatile month for sterling in Asia
  • Trades near the base of a 1.1071-1.1222 range with solid volumes on D3
  • Bid on optimism into today’s Truss-OBR meeting, which faded
  • Markets need a credible budget statement next week not Nov 23rd
  • 1.0764 low Thursday and today’s 1.1222 high initial support resistance
  • 20 Day VWAP is bearish, 5 Day bullish

USDJPY Bias: Bullish above 140

  • Positive data – bid but intervention fears cap
  • +0.2% near top of a 144.33-144.77 range, capped by 145+ intervention fears
  • Modest risk off at quarter end, Nikkei -1.8% – down 7.6% in September
  • Strong Japan factory, retail sales… and jobs …
  • Japan to announce size of yen-buying intervention today
  • Psychological 145.00 first resistance, then pre intervention 145.90 high
  • Wednesday’s 143.91 NY low, then 143.10 are initial supports
  • 20 Day VWAP is bullish, 5 Day bullish

AUDUSD Bias: Bearish below .6750

  • Consolidates, RBI hike looms next week
  • AUD/USD trades in a narrow 0.6518-0.6479 range ahead of a Sydney holiday Mon
  • Fed tough talk, risk aversion continue to cap rallies
  • China, Japan FX threats, BOE bond buys limit downside…
  • Higher iron ore prices support; Dalian iron sees best month in six
  • Focus turns to Tuesday’s RBA rate decision, 50 bps hike expected…
  • support 0.6435-45, resistance 0.6530-40
  • 20 Day VWAP is bearish, 5 Day bullish

BTCUSD Bias: Bearish below 25.3K

  • BTC rotates around 19.5k
  • Circle Announces Acquisition of Elements to Accelerate Crypto Payments
  • UK watchdog dismisses criticisms over crypto authorisations
  • Encouraging words for crypto from Stanley Druckenmiller
  • 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