Equity markets tanked, while the Dollar and Yen got safe haven bids before the more Dovish than expected BOJ pulled the JPY lower. CAD rallied on a new Trudeau government in Canada, and all of this before the event of the month later today – the FOMC Announcement.
The Market Week – September – Week 3
If Equities took centre stage last week, then this week they took over the entire theatre! Monday saw a sell-off not seen since May, the catalyst being Chinese property developer Evergrande potentially defaulting on its $300 billion debt mountain and the potential contagion it could cause. USD & JPY got a safe-haven bid before the Dovish BOJ pulled the Yen lower. All this before the FOMC tonight, BOE & SNB tomorrow and a raft of PMI data too!
The number and quality of the US jobs recovery grinds on and will be central to the FED’s taper timeframe. The weekly US unemployment claims ticked higher again last week, from pandemic lows at 312,000 to 332,000. This week they are expected to dip to 325,000. However, there are finally signs that the long term unemployed may be finding jobs.
The vaccine rollouts continue to drive sentiment, but the Delta variant remains a significant concern as plans for the winter season in the northern hemisphere emerge. In Asia lockdowns remain in place and the vaccination rates continue to improve. However, as booster jabs start in Europe, low-income country vaccination rates remain very low.
This week FX volatility picked up as stock markets tumbled and sentiment cooled ahead of the FED. The USDIndex rallied to 20-day highs at 93.42, EURUSD sank to 1.1700 from 1.1830 before recovering to 1.1725. The USDJPY pushed over 110.00, sank to 109.10 before ticking higher. Cable peaked at 1.3850 before losing over 200 pips and trades below 1.3650.
The Loonie was in focus this week following Prime Minister Justin Trudeau’s win in federal elections, however, he failed to get the majority he hoped to secure when he called the snap election last month. USDCAD, having rallied to test 1.2900 from 1.26040, pulled back to 1.2740 lows. This week all eyes turn to Berlin and who will follow the 16-year rule of Mrs Merkel.
The US stock markets tanked on Evergrande worries and the September effect. All three indices broke and breached their 50-day and tested their 100-day moving averages. This week the USA500 has posted 4 days under the 50 MA and a new 44-day low, the USA100 a new 22-day low and the USA30 a new 65-day low.
Gold plummeted to early August lows in a volatile week at $1742, before bouncing to $1775. Still well below last week’s support at $1788 which is now the 21-day moving average, which in turn has declined from $1800 last week.
USOil prices peaked at $72.75 before declining to test $69.00 as supply from the US Gulf came back on stream and the weakening of global sentiment. $71.00 was recovered ahead of this week’s inventory data which are expected to show a drawdown of 3.3 million barrels.
The yield on the US 10-Year Treasury Note remains very much in focus and a key market mover. From a spike to 1.38% on Friday the rate collapsed to 1.30% on the stock market sell-off on Monday before rising 3 bps to 1.33% today as markets stand by for the FED decision.
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Stuart Cowell
Head Market Analyst
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