Market News
- USD (USDIndex 92.72) keeps the bid even as yields cool (92.82 high yesterday)
- Yields down from highs earlier in the week, (10yr 1.33%, now from 1.37%).
- Equities stalled again – USA500 -5 at 4514 (Dow -0.2% & Nasdaq -0.57%). USA500.F under 4500 at 4493. (FB & APPL lost over 1%, COIN over 3% & PYPL 2.74%, Visa +1.25%, & Mastercard +1.84%). Asian markets lower too. ASX 200 (-0.4%), Nikkei 225 (-0.5%),
- USOil recovered further to $69.40 after inventories yesterday, now back to $69.20. EIA inventories expected to show a drawdown of 5.9million barrels later.
- Gold slipped again (lows yesterday were $1782). Back to 1788 now, having breached 21EMA on Tuesday. Next support 1769
- Yesterday – BOC – no surprises – JOLTS – a record 10.93mln jobs opening in July vs 8.7mln unemployed Americans.
- Overnight – China news dominates, – PPI at 13 yr high (+9.5%) although CPI softer (0.85 vs 1.0%), Regulator calls in Gaming Stock owners, and Evergrande (huge real estate corporation) defaults of $300bn of debt). German trade surplus widened (17.9b vs 13.3bn) – imports slumped.
ECB Preview: If it was just the usual hawkish crowd arguing for a scaling back of asset purchase volumes, it may be easy to dismiss, but in the minutes to the last meeting there was already a hint of things to come when council members argued that strengthening the dovish guidance on rates would take the pressure off other policy instruments – i.e. QE. In a Reuters interview in August, chief economist Lane, hardly known for his particularly hawkish credentials, admitted that the ECB will have to “assess at the September meeting the appropriate calibration for the final quarter of the year, taking into account the movement in market interest rates and the inflation outlook”. Given that VP Guindos has repeatedly flagged the possibility of further upward revisions to the growth outlook, a taper announcement today seems pretty likely. However, as Lane stressed, “in the grand scheme of things, this is a local adjustment” and “purchases in the second and third quarters were significantly higher than in the first, but even in the first quarter, compared to historical norms, purchases were pretty high.” So a drop back in PEPP purchases closer to levels seen in Q1 and at the same time, a very dovish guidance on the rate outlook from Lagarde is on the cards, which would wrap the taper in a dovish package.
European Open – The December 10-year Bund future is up 7 ticks, slightly outperforming Treasury futures. Eurozone bonds managed to find some buyers yesterday, but yields have been trending higher going into today’s ECB meeting, which is expected to see the ECB dropping the reference to “significantly higher” purchases than in Q1 to signal a slight taper from next month. Lagarde will wrap that in very dovish guidance on rates, however, and a commitment to step up purchases again if necessary, which should help to limit the impact of the announcement and bonds could benefit in the end. DAX and FTSE 100 futures are still down -0.6% and -0.8% respectively ahead of the ECB and U.S. futures are also in the red, as investors in Asia in particular fret about the impact of virus developments on the global recovery. FX markets are also showing signs of risk aversion, with Dollar, Yen and CHF the main winners. EURUSD down to 1.1820 from 1.1850 yesterday, GBP struggled and Cable dipped to 1.3725, after the government tax hikes, but back to 1.3775 now. USDJPY rallied to 110.40 but has since dipped to test 110.05.
Today – ECB & Ms. Lagarde Press conference, US Weekly Claims, EIA Oil Inventories, BOC’s Macklem, Fed’s Daly, Evans, Bowman & Williams.
Biggest Mover @ (06:30 GMT) CADCHF (-0.42%) From a breach 0f 0.73 on Tuesday and 0.7275 support yesterday, to test 0.7230, the pair is back down again today. Faster MA’s aligned lower, MACD signal line & histogram below 0 line and moving lower. RSI 33 moving lower. H1 ATR 0.00071, Daily ATR 0.00605.
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Stuart Cowell
Head Market Analyst
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