Sample Category Title

Daily Pivots: (S1) 0.9452; (P) 0.9504; (R1) 0.9575; More...

Intraday bias in USD/CHF stays neutral as recovery from 0.9355 is in progress. Upside of recovery should be limited below 0.9680 minor resistance to bring another decline. On the downside, break of 0.9355 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 0.9793) holds.

Daily Pivots: (S1) 139.15; (P) 139.95; (R1) 141.01; More...

USD/JPY is staying in consolidation above 137.66 temporary low and intraday bias stays neutral at this point. Stronger rise cannot be ruled out, but upside should be limited below 145.16 support turned resistance. Break of 137.66 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 130.58).

Daily Pivots: (S1) 0.6634; (P) 0.6693; (R1) 0.6750; More...

Intraday bias in AUD/USD remains neutral for consolidation below 0.6796. Further rally is expected as long as 0.6521 resistance turned support holds. On the upside, break of 0.6796 will resume the rise from 0.6169 to 0.6871 fibonacci level.

In the bigger picture, the break of 0.6680 support turned resistance confirms medium term bottoming at 0.6169. It's too early to call for trend reversal. But even as a corrective move, rise from 0.6169 should target 38.2% retracement of 0.8006 to 0.6169 at 0.6871. Sustained trading above 55 week EMA (now at 0.6934) will raise the chance of the start of a bullish up trend. This week now remain the favored case as long as 0.6521 resistance turned support holds.

Markets

The UK announced a £55bn fiscal consolidation effort, consisting of £30bn in spending cuts (mainly going in effect from FY 2025/26) and £25bn in tax raises which brings the overall tax burden to a postwar record. UK finance minister Hunt’s Autumn Statement was aimed at tackling inflation and restoring investor confidence by bringing Britain on a sustainable path of debt reduction. He nevertheless also announced some supportive measures including household handouts and an extension to the energy price cap beyond April to address the cost-of-living squeeze and targeted investments to lift long-term growth. The OBR estimates that the UK economy will drop 1.4% next year and inflation would still amount to 7.4%. The pound fell but closed off intraday lows. EUR/GBP finished slightly higher at 0.873. Cable eased to 1.186 from a 1.196 intraday high. Gilt yield rose especially on the front end of the curve. Hunt said the UK is already in a recession but his plan would make it shallower thanks to the supportive measures. The fact that spending cuts don’t kick in straight away, probably also spurred the move. Changes ranged between 4 bps (30y) and 12.3 bps (2y). Core bond yields elsewhere also gained with US Treasuries underperforming Bunds. That’s despite a further easing in housing data and a steep drop in the Philly Fed business indicator but it followed comments from Fed’s Bullard. He said in his view rates should be at least 5-5.25%, adding that he hasn’t yet seen a lot of impact on inflation from earlier tightening. Kashkari (Minneapolis) later joined the growing Fed pushback against recent market repricing by downplaying the relevance of one month’s inflation data. He also said that the overwhelming feedback from local contacts is that there is still a lot of demand and not enough workers to meet that. US yields rose 3.6 bps (30y) to 9.7 bps (2y) on a daily basis. German yields advanced 2.4-3.6 bps in the 2y-10y segment. The dollar strengthened overall but was not able to retain all intraday gains. EUR/USD bounced of resistance near the 1.04 area towards the 1.03 zone before closing at 1.036. The trade-weighted greenback only eked out a slight net gain from 106.33 to 106.69.

Asian bourses follow WS’s choppy performance yesterday. Indices trade mixed but daily swings are limited to around 0.50% in both ways. Japanese inflation hit its fastest clip in 40 years (see below) but BoJ governor Kuroda already said that current inflation situation isn’t sustainable. The Japanese yen reacted muted with USD/JPY stabilizing just below 140. The US dollar eases slightly. US yields give up a little over 1 bp.

Today’s economic calendar concludes the UK update with October retail sales. They came in slightly below consensus at 0.6% m/m (-6.1%) for headline sales and 0.3% m/m (-6.7%) for sales ex auto fuel. The immediate market impact is limited and in any case contained to UK soil. EUR/GBP wanders in the low 0.87 area. Lacking drivers, we expect muted, sideways trading on other markets - core bonds and FX/dollar - going into the weekend. We look out whether weekly lows in the dollar and core bond yields hold. Speeches by ECB governors including Lagarde, Nagel and Knot are worth mentioning though. They serve as a wildcard, as does the amount of ECB TLTRO repayments.

News Headlines

British consumer confidence as measured by market research firm GFK improved modestly this month but remains at a very low level compared to historic standards. The headline index improved in November to -44 from -47 after setting an all-time low at -49 in September. The subcategories personal finances (over the previous and the next 12 months), economic situation (also both for the previous and the next 12 months), climate for major purchases and savings intentions al improved, albeit modestly. GFK indicated that the improvement was due to relief amongst UK consumers after the exit of PM Truss after her government’s plans triggered elevated financial uncertainty.

Inflation in Japan accelerated more than expected in October. The closely watched core measure excluding fresh food rose from 3.0% in September to 3.6% in October, reaching the highest levels since early 1982. It was the seventh consecutive month for this price measure to surpass the 2% BoJ inflation target. The headline index also jumped from 3.0% to 3.7%. The core index excluding food and energy jumped from 1.8% to 2.5% Y/Y, an indication that price pressures are becoming more broad-based. Price rises are also mitigated by government measures. Even so, the report probably won’t change the BoJ ultra-easy policy as it expects core inflation to return well below 2.0% next year and in 2024.

UK retail sales volumes rose 0.6% mom in October, above expectation of 0.3% mom. Ex-fuel sales volume was up 0.3% mom, below expectation of 0.6% mom.

In the three months period to October, comparing with the previous three months, sales volume was down -2.4% while ex-fuel sales volume was also down -2.4%, continuing the down trend started since summer 2021.

In value term, headline sales was up 1.8% mom while ex-fuel sales was up 1.0% mom. Comparing the three month periods, headline sales value was down -0.7% while ex-fuel sales value was down -0.1%.

Full release here.

Inflation in Japan soared to the highest levels in more than 30 years, to 3.7% in October, up from 3% printed a month earlier. It was expected, maybe slightly higher than expected, and came as another proof that the Bank of Japan (BoJ) is making the same mistake of ignoring the rising inflation as did the Federal Reserve (Fed) last year.

High inflation print sure revived the BoJ hawks, and the calls for a policy rate hike, and kept the dollar-yen below the 140 level, but it’s unsure whether the BoJ will give up on its ultra-soft policy stance. Therefore, if the US dollar picks up momentum, which will certainly be the case, the USDJPY could easily rebound back above its 50-DMA, which stands near 145.

And the reason I think the US dollar will recover is because most Fed members remain relatively hawkish regarding the Fed’s policy tightening.

In this context, US stocks slid another day as more Fed members threw more hawkish comments into the mix, to dampen the investor mood, although some better-than-expected earnings from retailers pulled the S&P500 higher to the close.

The latest man to kill the market joy was St Louis Fed President, Mr. Bullard, who said that the rates should raise at least until the 5-5.25% range, while showing a chart that plotted rates between 5-7%. Maybe that was a mistake, maybe not! Other than him, Neel Kashkari also said that he wants to see inflation stop climbing, and that we are not there yet.

We are not there yet, is what the market is also pricing through US dollar options. Although the dollar index lost up to 8% since the end of September peak, it hit, and rebounded from a long-term trendline and option traders are building topside structure over the one-month tenor that covers the next US inflation report and the Fed’s next policy meeting in December. So traders see the dollar gain ground on potentially stronger inflation data in the next release, and a certainly hawkish Fed statement, accompanying the 50bp hike that’s priced at 80% as of today.

So, the ambiance in the stock markets is not as cheery as it was at the end of last week. The S&P500 started the day in a bad mood but recovered relatively well to close the session only 0.30% lower. A couple of encouraging earnings from retailers may have helped lift sentiment.

Moving forward, we could expect the downside correction on index level to deepen. The first bearish target for the S&P500 stands at 3855 level, which is the major 38.2% retracement on the latest rebound. That level should distinguish between the continuation of the actual bear market rally, and a bearish reversal for some more pain.

Higher taxes, windfall taxes, no spending cut, a gloomy growth forecast, but unharmed gilt & GBP 

The autumn budget announcement in Britain was… reasonable. The British government said it will borrow £170 billion instead of £185 billion expected. That, along with higher taxes helped boosting appetite in British sovereign bonds. The 10-year gilt yield tested the 3% mark to the downside for the first time since September, and could further ease given that the BoE also softened its policy stance lately on unideal economic conditions.

Now, one thing that was less expected was the spending cuts, or the lack thereof. Jeremy Hunt said yesterday that they won’t cut spending until the next general election. But the increase of the energy price cap which will have dramatic consequences for families, and their budget. A British family with two children, for example, will see its energy bill tripled.

From the economic lenses, both the U-turn on spending cuts, and higher energy bills will boost inflation, and that could be negative for the pound, if the Bank of England doesn’t compensate with higher interest rate hikes. And the BoE said last time that it won’t go crazy hawkish to avoid a complete economic meltdown in the UK.

And indeed, what was really scary for sterling traders yesterday was the gloomy growth forecast. Jeremy Hunt said that the UK is already in recession – stating the obvious. But he also said that growth will fall 1.4% next year, versus a 1.8% expansion printed previously, and recession will last over a year, while the BoE will probably be raising rates to fight inflation during this period. Even though it will probably be raising less than what it should to really fight inflation.

The outlook for pound sterling remains bearish, but because Cable selloff derailed sometime around April this year, and fell free with Liz Truss, the pair could further recover some of its losses. At 1.30, Cable will still be in the negative trend building since mid-2021.

Market movers today

A quiet day on the data front gives markets plenty of time to focus on central bank comments from various ECB speakers (Lagarde, Nagel and Knot) and Fed's Collins during the day.

In Norway, we expect mainland GDP to have risen 0.4% q/q in Q3, higher than Norges Bank expected in its monetary policy report in September. But as leading indicators have weakened considerably, we think this will be regarded as 'yesterday's news' anyway.

The 60 second overview

US: St. Louis Fed President James Bullard has raised his own estimate for how high Fed needs to raise interest rate. He now sees a rate of 5-5.25% as a minimum level compared to 4.75-5% in the past.

Japan: Inflation has also come to Japan. CPI inflation ex fresh food rose to 3.6% y/y in October, which was the highest level in 40 years in October.

Oil: Brent dropped to USD90/bbl - the lowest in about a month. Demand worries and US selling of SPR are probably main reasons for the drop, which comes only weeks before EU's embargo on Russian oil imports are set to begin.

Equities: A hawkish Fed speech and inflationary data brought equities lower yesterday. The negative correlation between yields and equities returned, with the US 10y adding 10bp but S&P -0.3%. Sector performance was scattered without direction between cyclicals and styles. US futures are unchanged this morning.

FI: It was a rather uneventful session yesterday with European rates mostly range trading and 10y German Bunds ended 2bp higher on the day at 2.02%. The little volatility should be seen in light of the overnight ECB sources story suggesting a slowdown of rate hikes at the December meeting. In the afternoon, we saw a small parallel move higher in the trading range on the back of spillover from the UK's Hunt comments and projections not showing a decline debt to GDP trend until 2025/2026.

FX: Continued Scandi weakness with EUR/SEK trading around 11.00 for the first time in almost a month at the same time as EUR/NOK is testing 10.50 from the downside. EUR/USD consolidating between 1.03-1.04. The antipodean currencies strengthened against the USD over the night. USD/JPY stable at 140.

Credit: For the second day in a row credit markets were slightly weak, with iTraxx Xover widening 9bp and Main 2bp.

Nordic macro

After a revision of historical figures, we have upgraded our forecast for Norwegian mainland GDP to 0.4% q/q in Q3, among other things because consumption growth came out stronger than anticipated. That would be a fair deal higher than Norges Bank expected in its monetary policy report in September, but as leading indicators have weakened considerably, we think this will be regarded as 'yesterday's news' anyway.

Key insights from the week that was.

Critical data for Australia’s economy was received this week; elsewhere though, it was the mindset and actions of policy makers that filled the headlines.

Of the data received this week, Australia’s October labour force survey was most significant. Against the market’s expectation for a 15k increase in employment, 32k jobs were instead created in the month. This was despite activity being restricted by holidays and sick leave as well as the floods, with participation edging down 0.02ppts from 65.55% to 65.53%. As a result of these two outcomes, the unemployment rate declined to 3.4% in October, its lowest level since November 1974. Westpac expects a further marginal decline in the unemployment rate to 3.3% in coming months before employment growth slows below population growth and the unemployment rate begins to trend higher. Note, immigration’s revival has already been seen, growth in the working age population lifting from 0.6%yr last December to 1.2%yr in October. Highlighting the continued need for further labour force gains though, growth in hours worked remains ahead of population growth, and underemployment is also near record lows.

It is not surprising then that wage growth in the private sector showed strength in Q3 2022. Underlying the 1.0% gain in the headline Wage Price Index was not only the largest minimum wage/award increase in more than a decade, but also a notable lift in individual bargaining agreements. Hence, private sector wages posted its largest quarterly gain since September 2010, up 1.2% in Q3 to be 3.4% higher than a year ago. Additionally, nearly half of the jobs in the private sector reported an increase in compensation; and of those that did, the average increase was a stellar 4.3% in the quarter. We expect the tightness in the labour market to continue flowing through to strong wage increase over next year, with the headline measure to rise from 3.6%yr in 2022 to 4.5%yr in 2023.

Meanwhile, steady progress in the recovery of overseas travel was evident in the October overseas arrivals and departures release, but it is clear that the pace is slowing. Since the June/July holidays, the seasonally adjusted three-month average growth rate for arrivals has declined from 18.8% in August to 6.2% in October; and for departures, it has fallen from 12.6% to 2.9%. The December/January period will see a strong boost to travel, but the recent easing in travel flows raises questions around the extent to which momentum can be sustained in 2023. The visa detail however remains constructive, with net arrivals of students and temporary workers tracking average monthly gains well above pre-pandemic levels – at around 20k/month and 10k/month respectively. This should, in time, go some way towards alleviating the critical labour undersupply problems Australia currently faces.

The November meeting minutes of the RBA were also received this week. While still highlighting the inflation challenge before Australia, the tone of these minutes was more dovish at the margin, their view on the interest rate outlook moderated to the Board “expects to increase interest rates further over the period ahead” in November from “likely to require further increases in interest rates over the period ahead” in October. Clearly, having raised interest rates aggressively through 2022 and with uncertain lags between policy announcement and effect, the RBA Board seem to increasingly be of the view that the risks to activity as well as inflation need to be monitored, and also believe that “acting consistently” will “support confidence in the monetary policy framework among financial market participants and the community more broadly”. While Westpac continues to believe the RBA will need to raise the cash rate to a peak of 3.85%, this is likely to only occur in 25bp increments, with 3.85% reached in May 2023.

Jumping to the US. This week’s data was decidedly mixed, with October retail sales ahead of expectations (1.3% for headline and 0.7% for the control group, albeit with part of the strength due to price movements) but the PPI, industrial production and housing data weaker. The focus of market participants was instead the run of Fedspeak delivered through the week. While there was some variation across speakers, the take home point from their messaging was that policy needs to remain restrictive for some time and that we have not yet seen this cycle’s peak for the fed funds rate. Arguably this cautious attitude towards the outlook is being evinced because we are yet to see a succession of weaker CPI prints and as the labour market is still historically tight. Until slack increases, the FOMC want to keep financial conditions tight; that requires the market to remain focused on upside risks for inflation and policy. It is unlikely to be a coincidence that this tone was struck just after the US 10 year yield breached the 4.0% level to the downside.

Over in the UK, overnight the Sunak Government delivered a Fiscal Update that stood in stark contrast to its predecessor. The Government’s fiscal package involves £55bn of fiscal tightening over the next five years, comprised of £30bn in spending cuts and £25bn of tax hikes, the latter the largest tax increase in three decades. The budget’s major profiles were of little surprise to markets though given a broad outline had already been circulating in the media over recent weeks. The OBR’s assessment does however emphasise the stark fiscal outlook, with the tax burden set to reach 37.1% of GDP (a post-war record) and net debt to peak at 97.6% of GDP in 2025/26 before easing modestly upon the improvement of economic conditions. Indeed, the economy is expected to remain in recession through to 2024 as historic inflation pressures see UK households face the largest fall in real wages in six decades, declining 7% into 2023/24. Overall, the budget was welcomed as a more appropriate fiscal stance given the high-inflation environment, but risks to the activity outlook are firmly to the downside, raising the possibility of a deeper and more sustained period of negative and/or below-trend growth should inflation pressures persist longer than expected.

Whereas the US and UK’s growth prospects into 2023 are weak to very weak, China’s momentum looks to be strengthening. In our view, the market was right to discount the weaker-than-expected October activity data – with retail sales hit by lockdown uncertainty in the month and total fixed asset investment resilient despite even weaker conditions for housing – given the significant increase in support for the economy announced at the weekend.

As we highlighted this week, these changes make clear that authorities are now seeking a return to growth for the housing sector and, more importantly, that China is embarking on a progressive domestic re-opening of their economy, with large-scale lockdowns to be avoided from now on. That guidance on the latter comes as case loads reach new highs in many regions signals authorities’ intent to seek to live with the virus. It is critical however that these measures restore confidence across the economy. Without that, the robust growth we are forecasting cannot eventuate (3.5% for 2022 and 6.0% in 2023; year-average). While secondary to a domestic re-opening, the market will also continue to assess geopolitical uncertainties and their impact on trade. Meetings held at this week’s G20 were constructive, but there needs to be follow through if trade relations with the West are to improve. In the meantime, China is likely to continue investing into expanding their Asian markets which have shown considerable promise of late.

Short term Elliott Wave View in SP500 (SPX) shows an incomplete bearish sequence from 1.04.2022 high favoring further downside. Short term, rally from 10.13.2022 low is unfolding as a zigzag Elliott Wave structure. Up from 10.13.2022 low, wave A ended at 3905.64 and pullback in wave B ended at 3709.83. Wave C higher is in progress as a 5 waves impulse structure before the Index turns lower again.

Up from wave B, wave ((i)) ended at 3859.84 and pullback in wave ((ii)) ended at 3743.57. Index then rallies again in wave ((iii)) towards 4025.94. Internal subdivision of wave ((iv)) takes the form of an zigzag correction. Down from wave ((iii)), wave (a) ended at 3951.95 and rally in wave (b) ended at 4002.79. Wave (c) finished at 3908.16 and also wave ((iv)). Rally as wave ((v)) has started and as far as pivot at 3908.16 low stays intact, expect the Index to extend higher 1 more leg. Potential target is a 100% – 161.8% Fibonacci extension from 10.13.2022 low which comes at 4080.43 – 4312.02 area.

SPX 45 Minutes Elliott Wave Chart

https://www.youtube.com/watch?v=kt9ZKZPM02o

Daily Pivots: (S1) 1.3288; (P) 1.3344; (R1) 1.3384; More....

Intraday bias in USD/CAD remains neutral for the moment. On the upside, break of 1.3494 support turned resistance will argue that fall from 1.3976 has completed with three waves down to 1.3224. Further rally would then be seen back to 1.3807 resistance first. However, sustained trading below 1.3207 cluster support (61.8% retracement of 1.2726 to 1.3976 at 1.3204) will carry larger bearish implication and target 1.2952 support next.

In the bigger picture, as long as 1.3222 cluster support (38.2% retracement of 1.2005 to 1.3976 at 1.3223) holds, larger up trend from 1.2005 (2021 low) is still expected to resume through 1.3976 high at a later stage. . However, firm break of 1.3222/3 will indicate that the trend might have reversed. Deeper fall would be seen to next cluster support at 1.2726 (61.8% retracement at 1.2758).