Sample Category Title

As was to be expected, it's been a choppy week so far in financial markets with Europe a very mixed bag on Tuesday while US futures are marginally higher after making marginal losses on Monday.

On the one hand, we could be seeing investors warily waiting for the FOMC minutes and taking in all of the speeches from various Fed officials in the meantime. On the other, this week may just be a void in an otherwise turbulent year thanks to a lack of major catalysts and the US Thanksgiving bank holiday at the end of the week.

Saudi Arabia has gone some way to filling that void, with so much attention now likely to be on the Gulf over the coming weeks. It goes without saying that it came as quite a shock as everything unfolded as it wasn't what anyone was expecting, quite the opposite in fact. And it could have a major impact on the outcome next month.

But the 2-1 win over one of the tournament favourites, Argentina, was a monumental victory and undoubtedly one of the biggest shocks in World Cup history. It's blown Group C wide open and cast serious doubt over whether Lionel Messi will ever get his hands on the trophy.

In other news, Saudi Arabia also rejected reports that OPEC+ is considering increasing output on 4 December.

OPEC+ speculation drives oil market volatility

Oil prices are bouncing back as OPEC+ members continue to reject reports of an output hike at the next meeting. An announcement from the G7 around the Russian oil price cap is due any day now and could complicate the group's mission to balance supply and demand in the market, especially if the Kremlin responds by slashing exports to participating countries, as they've threatened.

That Russia is a key member of the alliance seriously complicates matters. I do wonder whether members could consider reconfiguring output targets, rather than boosting them, in order to account for lost Russian crude. Of course, that would likely require the backing of Russia which may not be forthcoming.

Oil prices will likely remain highly volatile over the next couple of weeks against this backdrop, with the EU embargo and potential price cap scheduled to start the day after the OPEC+ meeting on 4 December. If the cap agreement goes to the wire, OPEC+ may opt to delay the meeting given the uncertainty it would generate.

Gold rebounds off the prior resistance level

The slight recovery in risk appetite today is coinciding with a pullback in the US dollar and a rebound in gold. The yellow metal has held onto the bulk of November's gains over the last week, seeing support around $1,730 on Monday where it met firm resistance on multiple occasions in September and October.

The key level to the upside remains $1,780 where it peaked around last week and saw substantial support around in the first half of the year.

Another dead cat bounce?

Bitcoin is trading higher on Tuesday, but for how long? The knock-on effects of the FTX collapse are still being uncovered, with more names being added to the exposure list every day. Confidence in the markets has been shattered and it may take time to rebuild.

There remains considerable uncertainty around the full consequences of the FTX collapse and as long as that remains the case, any rallies we see in cryptos may simply become dead cat bounces, as opposed to market bottoms. The latest occurred around $15,500, where it rebounded off a couple of weeks ago, and a break of this could trigger another sharp decline.

The latest PMI business surveys from the euro area will hit the markets early on Wednesday, starting with the French numbers at 08:00 GMT. They are expected to confirm the economy is headed straight into recession, making the ECB's rate decision next month even harder. As for the euro, despite the recent bounce, it's still too early to envision a sustainable recovery. 

In dire straits

The economic data pulse in the Eurozone has been weakening for several months now, as the energy crisis spiraled out of control. With soaring energy costs serving as rocket fuel for inflationary pressures, consumers have seen their real incomes decline and business confidence has fallen off a cliff.

Worst of all, the European Central Bank cannot ride to the rescue this time. With inflation running in the double digits, policymakers have little choice but to keep raising interest rates at an extraordinarily fast pace. Over time, this will cause lending to dry up and squeeze consumers even more, inflicting more damage on the economy.

The silver lining is the recent decline in energy prices. After European governments announced they'll intervene in the power market, prices fell very substantially. Most nations had already stockpiled energy supplies for the winter, so investors saw the forceful intervention as a sign that the worst had passed, for now.

Make no mistake, there will still be a recession. Too much economic damage has already been done. The good news is the downturn probably won't be as long or as deep as investors feared just a few months ago.

Upcoming data

Investors will get an update on how businesses view the economy with the latest batch of PMI surveys on Wednesday. On the Eurozone level, both the manufacturing and the services indices are expected to have slipped further into contractionary territory in November.

That would reaffirm what the European Commission's latest forecasts suggested, namely that the recession will begin this quarter already. Markets are currently leaning towards another 75bp rate increase when the ECB meets again next month, but a batch of worrisome business surveys could tip the scales back towards a smaller hike of 50bp, dealing a blow to the euro.

In this case, euro/dollar could edge lower for a test of the 1.0090 region, defined by the peaks of October. On the other hand, a set of surprisingly strong numbers could cement the case for another 75bp hike, propelling the pair higher towards the 1.0370 zone.

Too early for a reversal

In the bigger picture, it's still difficult to be optimistic on the euro, as the next few months will probably be a tough period for the Eurozone economy, especially in case the winter is particularly cold. Even though the US economy is losing steam too, the situation is not as worrisome yet, and it will probably take longer before it falls into a recession.

For a trend reversal to become a realistic scenario, the euro would need a positive catalyst to dispel the current gloom. Peace talks between Ukraine and Russia could do the trick, as the mere possibility would also hammer energy prices lower.

Other upside risks for the euro include a sharp cooldown in US inflation that leads the Fed to pause its tightening cycle, or signs that China will open the stimulus floodoors to support its embattled economy.

Unfortunately, none of these elements are realistic at this stage. Hence, the prospect of a trend reversal remains premature, and probably a story for next year.

The Australian dollar edges higher vs its US counterpart on Tuesday, after daily Tenkan-sen (0.6591) provided firm ground for a four-day pullback from Nov 15 peak (0.6797).

Aussie regained traction on renewed risk mode, but fresh advance is facings headwinds from daily cloud top, reinforced by 10DMA (0.6653), also near pivotal Fibo barrier at 0.6665 (38.2% of 0.6797/0.6584) though shallow easing suggests that bulls so far hold grip and keep pivotal barrier under pressure.

Daily techs are bullishly aligned and support the action which needs to clearly break above daily cloud to generate initial signal of reversal, which would require further support on extension above 100DMA/50% retracement (0.6691).

Caution on failure at cloud top which would soften near-term structure, but bias is expected to remain positive as long as the action holds above daily Tenkan-sen.

Res: 0.6653; 0.6665; 0.6691; 0.6730.
Sup: 0.6591; 0.6557; 0.6514; 0.6503.

Retail sales fell 0.5% month-on-month (m/m) in September, in-line with Statistics Canada's advance estimate. Adjusting for the impact of inflation, the volume of sales was down just 0.1% on the month.

Statistics Canada's advance estimate for October points to a 1.5% m/m gain.

Lower receipts at gasoline stations (-2.4%) weighed on the headline in September. The drop was entirely due to lower prices, which fell by 7.4% m/m. In volume terms gasoline sales were actually higher, with lower prices encouraging more driving. Sales of motor vehicle and parts were flat.

Core sales, which exclude autos and gasoline, declined by 0.4%, partially reversing a gain in the month prior. In real terms core sales were down 0.7% m/m.

• Sales at food and beverage stores declined by 1.3%, with an even larger drop in real terms (-2.2%). Sales also edged lower at health and personal care stores (-0.2%), and at stores selling sporting goods, hobby items, and books (-1.5%), following an outsized gain in the prior month.
• Performance was mixed in the housing-related categories. Sales were up 1.4% at furniture & home furnishings stores, increasing for the second consecutive month. However, receipts fell at building materials & garden equipment & supplies stores (-2.0%) and electronic & appliance stores (-0.6%), with the latter declining for the fifth consecutive month.
• Sales at clothing and accessories stores were up 1.7% on the month. General merchandize stores (+0.6%) and miscellaneous retailers (+0.6%) also saw higher sales.
• E-commerce sales were down 5.4% m/m and were just a hair lower (-0.1%) than they were a year ago.

Key Implications

Today's release caps data for the third quarter. Looking at the quarterly numbers, spending at retail stores looks to have eased notably in Q3. In nominal terms sales were down 1.0% on the quarter, after advancing by 3.3% in Q1 and 2.8% in Q2. And, the weakness is not just due to lower gasoline prices, as the volume of sales also fell in Q3. Another culprit for weaker sales could be the shift in spending toward services, and away from goods sold at retail stores. There's limited data to gauge consumer spending trends on services, however, one such category, spending on dining out in bars and restaurants, is showing that spending had plateaued at the end of summer.

Indeed, the most likely reason is that consumers are starting to tighten their purse string, under the weight of financial headwinds: high inflation, rapidly rising interest rates and shrinking wealth. Higher debt servicing costs are expected to hit household finances hard over the remainder of this year, and will remain a challenge next year as well, pointing to significantly weaker consumer spending in 2023.

Daily Pivots: (S1) 1.0311; (P) 1.0359; (R1) 1.0412; More...

Outlook in EUR/USD remains unchanged and intraday bias stays neutral. Consolidation from 1.0481 could extend further. As long as 1.0092 resistance turned support holds, further rally is still expected. On the upside, break of 1.0481 will resume the rise from 0.9534 and target 1.0609 fibonacci level. However, sustained break of 1.0092 will turn bias to the downside for 55 day EMA (now at 1.0041) and below.

In the bigger picture, a medium term bottom was in place at 0.9534, on bullish convergence condition in daily MACD. Even as a corrective rise, rally from 0.9534 should target 38.2% retracement of 1.2348 (2021 high) to 0.9534 at 1.0609. Sustained trading above 55 week EMA (now at 1.0566) will raise the chance of trend reversal and target 61.8% retracement at 1.1273. This will now remain the favored case as long as 1.0092 resistance turned support holds.

Daily Pivots: (S1) 1.1766; (P) 1.1837; (R1) 1.1895; More...

Sideway trading continues in GBP/USD and intraday bias remains neutral for the moment. Further rally is expected as long as 1.1644 resistance turned support holds. On the upside, break of 1.2028 will resume whole rise from 1.0351 to 100% projection of 1.0351 to 1.1494 from 1.1145 at 1.2288. However, sustained break of 1.1644 will bring deeper fall to 1.1145 support instead.

In the bigger picture, rise from 1.0351 medium term bottom is at least correcting whole down trend from 1.4248 (2021 high). Further rise is expected as long as 1.1145 support holds. Next target is 61.8% retracement of 1.4248 to 1.0351 at 1.2759.

Daily Pivots: (S1) 0.9549; (P) 0.9574; (R1) 0.9616; More...

USD/CHF retreats after hitting 4 hour 55 EMA and intraday bias stays neutral for the moment. Further decline is still expected with 0.9680 resistance intact. Below 0.9474 minor support will turn bias back to the downside for 0.9355 low. Break there will resume the fall from 1.0146 to 0.9287 fibonacci level.

In the bigger picture, rise from 0.8756 (2021 low) has completed at 1.0146, well ahead of 1.0342 long term resistance (2016 high). Based on current downside momentum, fall from 1.0146 might be a medium term down trend itself. Break of 61.8% retracement of 0.8756 to 1.0146 at 0.9287 will pave the way to 0.8756. In any case, risk will stay on the downside as long as 55 day EMA (now at 0.9767) holds.

Daily Pivots: (S1) 140.77; (P) 141.51; (R1) 142.86; More...

USD/JPY retreated ahead of 142.45 minor resistance and intraday bias remains neutral first. On the upside, firm break of 142.45 will turn bias back to the upside for stronger rebound to 55 day EMA (now at 143.34) and above. However, break of 139.63 minor support will turn bias back to the downside for 137.66. Break there will resume the decline from 151.93, to 133.07 fibonacci level, as a correction to the larger up trend.

In the bigger picture, a medium term top should be formed at 151.93. Fall from there is correcting larger up trend from 102.58. It's too early to call for bearish trend reversal. But even as a corrective move, such decline should target 38.2% retracement of 102.58 to 151.93 at 133.07, or further to 55 week EMA (now at 130.28).

Dollar and Euro are so far the worst performer in quiet trading today. The greenback is clearly weighed down again by stocks' rise and yield's decline. There are news that China's Shanghai is back in tougher restrictions, but investors are not too bothered. Canadian Dollar is also soft after data showed retail sales contraction. Meanwhile, New Zealand Dollar is the strongest one, looking ahead to tomorrow's historical 75bps rate hike by RBNZ. Swiss Franc is also strengthening slightly together with Sterling.

Technically, while NZD/USD recovered today, it's held well inside range of 0.6063 and 0.6205. Further rally is in favor as long as 0.6063 minor support holds. But NZD/USD would then be facing long term fibonacci level of 38.2% retracement of 0.7463 to 0.5511 at 0.6257. Loss of upside momentum could limit upside there, and break of 0.6063 minor support would indicate the start of a near term pull back, at least.

Suggested readings on RBNZ:

• The Consensus Calls for the RBNZ to Hike by 75bp Tomorrow
• RBNZ Might Need to Slam the Brakes in November as Economy Heats Up

In Europe, at the time of writing, FTSE is up 0.70%. DAX is up 0.14%. CAC is up 0.08%. Germany 10-year yield is up 0.018 at 2.011. Earlier in Asia, Nikkei rose 0.61%. Hong Kong HSI dropped -1.31%. China Shanghai SSE rose 0.13%. Singapore Strait Times rose 0.28%. Japan 10-year JGB yield dropped -0.0012 to 0.245.

Canada retail sales dropped -0.5% mom in Sep, down -1.0% qoq in Q3

Canada retail sales dropped -0.5% mom to CAD 61.1B in September. Sales declined in 7 of 11 subsectors, led by sales at gasoline stations (-2.4%) and food and beverage stores (-1.3%). Excluding gasoline and auto, sales contracted -0.4%mom. IN volume terms retail sales also declined -0.1% mom.

For Q3, sales were down -1.0% qoq, the first quarterly decline since Q2 of 2020. In volume terms, sales were down -1.4% qoq in Q3.

According to advance estimate, sales rose 1.5% mom in October.

ECB Holzmann backs another 75bps hike to give a strong signal about determination

ECB Governing Council member Robert Holzmann told FT in an interview, that he could "see no signs that core inflation is reducing". He added that another big rate hike "would give a strong signal about our determination," as "it would tell businesses and trade unions we are serious so don't underestimate us, be careful."

He backs another 75bps rate hike in December but he was still "open to changing my mind" based on the ECB's new quarterly economic forecasts. He added that interest rates could need to rise to a level where they "caused pain". Hence, it's important to hike "early" because "afterwards the pain is much, much larger."

RBA Lowe not ruling out return to 50bps hike, nor pausing

RBA Governor Philip Lowe reiterated in a speech that the Board expects to "interest rates further over the period ahead", and interest rate is "not on a pre-set path".

"We have not ruled out returning to 50 basis point increases if that is necessary," he said. "Nor have we ruled out keeping rates unchanged for a time as we assess the state of the economy and the outlook for inflation."

"As we take our decisions over coming meetings, we will be paying close attention to developments in the global economy, the evolution of household spending and wage and price setting behaviour."

"Developments in each of these three areas will affect the pace at which inflation returns to target and whether the economy can remain on an even keel over the next couple of years."

NZ goods exports rose 14% yoy in Oct, imports surged 24% yoy

New Zealand goods exports rose 14% yoy to NZD 6.1B in October. Goods imports rose 24% yoy to NZD 8.3B. Trade deficit widened from NZD -1.7B to NZD -2.1B, much larger than expectation of NZD -1.7B.

Annual goods expects, comparing with the year ended October 2021, rose 14% to NZD 71.1B. Annual goods imports rose 25% to NZD 84.0B. Annual trade deficit swelled to fresh record of NZD -12.9B, comparing to NZD -4.9B a year ago.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 140.77; (P) 141.51; (R1) 142.86; More...

USD/JPY retreated ahead of 142.45 minor resistance and intraday bias remains neutral first. On the upside, firm break of 142.45 will turn bias back to the upside for stronger rebound to 55 day EMA (now at 143.34) and above. However, break of 139.63 minor support will turn bias back to the downside for 137.66. Break there will resume the decline from 151.93, to 133.07 fibonacci level, as a correction to the larger up trend.

In the bigger picture, a medium term top should be formed at 151.93. Fall from there is correcting larger up trend from 102.58. It's too early to call for bearish trend reversal. But even as a corrective move, such decline should target 38.2% retracement of 102.58 to 151.93 at 133.07, or further to 55 week EMA (now at 130.28).

Economic Indicators Update

Canada retail sales dropped -0.5% mom to CAD 61.1B in September. Sales declined in 7 of 11 subsectors, led by sales at gasoline stations (-2.4%) and food and beverage stores (-1.3%). Excluding gasoline and auto, sales contracted -0.4%mom. IN volume terms retail sales also declined -0.1% mom.

For Q3, sales were down -1.0% qoq, the first quarterly decline since Q2 of 2020. In volume terms, sales were down -1.4% qoq in Q3.

According to advance estimate, sales rose 1.5% mom in October.

Full release here.