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Yesterday was all about the US retail health, and the sales data looked good at the first sight. But in reality, it was mixed. The US retail sales grew 1.7% in October, up from 0.8% printed a month earlier and better than 1.2% penciled in by analysts. That was the best month since March, however the jump was mostly because things costed more due to an inflation hovering around a three-decade high.

The good news is that people could spend more to buy less, the bad news is that an increasing number of people see their purchasing power hit significantly, the savings are melting and the most affected households’ pullback could, at some point, hit the headline number. As such, the strong retail sales data from the US is a half good news.

The same goes for the US big retailers that revealed their Q3 results yesterday. Both Walmart and Home Depot announced better than expected sales. A part of it was thanks to people spending more for buying less, although a part of it was still a higher demand. The transactions at Walmart for example increased 6% compared to the same time last year, and people spent 3% more at the register. At Home Depot, on the other hand, the amount people spent jumped by 13% from last year to $82 per visit. As a conclusion, the retail story is not all rosy or all depressive. It’s just greatly influenced by the decent rise in consumer prices, which could tilt the economic risks lower if nothing is done. Yes, I am looking at you, Jerome.

Overall

The overall market sentiment was upbeat yesterday on strong US retail sales and an ok-ish meeting between Joe Biden and Xi Jinping. The two talked for 3.5 hours in a meeting with no concrete outcome. The major take was that the relationship didn’t get worse than what it already was, and that’s good to open dialogue for the future. But yesterday’s Biden-Xi summit was a small battle in a long war.

In other news, the Beijing Olympics could be a no-go for the US. There has been a proposal of diplomatic boycott made to Joe Biden, in response to China’s human right abuses. So, there are a lot of things that could go wrong anytime.

Nasdaq led gains yesterday even though the strong retail sales boosted the expectations of a tighter Federal Reserve (Fed) policy, but Asia chose not to follow up on US session gains. The sentiment was rather mixed.

In the FX, the US dollar continues gaining field against the majors, while euro is retreating at a sustained speed. The EURUSD slipped below the 1.13 mark on the back of diverging European Central Bank (ECB) and Fed expectations, where the Fed hawks are slowly getting in charge of the market while Christine Lagarde does everything to keep the hawks away. She reckoned at a speech on Monday that inflation proved more sustained that they expected, but she still expects it to fade next year. Let’s all hope that inflation would magically fade. The problem is, if the ECB remains this ignorant, while the others start tightening, well the single currency will soften, and the softer euro will be an additional boost for inflation in the Eurozone.

Market movers today

• In the euro area, final HICP figures will reveal more details about the trend in underlying inflation pressures, after core inflation surged to the highest level since 2002 in October. We took a closer look at the euro inflation dynamics and outlook in Euro Area Research - Measuring the euro area inflation pulse, 15 November.
• UK CPI inflation figures for October are also on the agenda.

The 60 second overview

The dollar keeps strengthening: EUR/USD continued lower yesterday, following strong US data. In addition to relative macro surprises being USD positive, the more outspoken views by the Biden administration to act against inflation can equally be implied to be a USD-positive. Dollar strength has been a general theme over 2021 but has picked up pace since the late-summer. We continue to see more downside to EUR/USD, (still) targeting 1.10. In markets there has clearly been a regime shift favouring USD.

ECB increase cash collateral: Yesterday's main attention was to the implications of ECB's increase in cash collateral limit to EUR150bn. The sharp drop in Schatz-ASW spread in the end of Monday's trading session of 3bp was completely reversed yesterday as it rose almost 4bp through the day. Schatz yields dropped 4bp in outright terms despite the announcement. There was no immediate effect over GC year-end turn. Bund-ASW similarly performed to 47.5bp which is the widest since the onset of the COVID-19 crisis.

US retail sales: The (nominal) US retail sales rose 1.7% in October and even when factoring in some increase in prices, this was a surprise. That said, the strong retail sales are also a reflection that the Covid situation is still having effect on consumer demand, as it equally indicates that goods demand remains elevated while services demand is subdued versus pre-Covid trends. With Covid cases rising in Europe already, we are likely to continue seeing such unusual consumption patterns in the US over the coming 1-2 quarters and goods inflation may stick.

Equities: Equities finished higher on Tuesday, bolstered by solid macro data. After markets have struggled for direction the last trading days, cyclicals took the lead, with consumer discretionary and tech among best sectors. S&P 500 and Nasdaq hit fresh records, gaining 0.4% and 0.8% each on Tuesday, Dow and Russell 2000 0.2%. Asian markets are not as compelled this morning, with most markets lower (Mainland China the exception). US futures have dipped slightly into negative.

FI: Inflation products performed during the day, and have proven quite sensitive to news about the natural gas supply heading into winter. The catalyst for 5y5y inflation 3bp higher and German 2030 linker 3bp lower was the news from Germany that it has suspended the certification of Nordstream2 pipeline.

FX: Yesterday's session in FX markets was characterised by greenback performance while the rise in real yields and drop in gold weighed on ZAR. EUR/SEK edged back above 10.05 while EUR/NOK edged a few figures lower on higher natural gas prices. Finally, GBP gained on the stronger than-expected labour market report boosting expectations of a Bank of England rate hike in December.

Credit: Sentiment stabilized in credit yesterday where iTraxx Xover tightened 2bp and Main 0.2bp. HY bonds were unchanged and IG tightened 1bp.

General trend

• USD/JPY trades near ¥115.
• Nikkei drops despite higher opening and recent Yen weakness; Index heavyweight Fast Retailing weighs.
• S&P ASX 200 has extended declines; CBA weighs on the Financials index.
• Shanghai Composite ended morning trading slightly higher (+0.2%).
• Hang Seng has remained modestly lower.
• Companies due to report during the NY morning include Baidu, Bilibili, Diana Shipping, iQIYI, Lowe’s, Shoe Carnival, Target, TJX, VIA optronics.

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened 0.0%.
• CBA.AU Reports Q1 (A$) Cash profit 2.2B v 1.8B y/y.
• NUF.AU Reports FY21 (A$) Net +65.1M v -456.1M y/y; Underlying EBITDA 370M v 235.8M y/y; Rev 3.2B v 2.85B y/y.
• (AU) AUSTRALIA Q3 WAGE PRICE INDEX Q/Q: 0.6% V 0.6%E; Y/Y: 2.2% V 2.2%E.
• (NZ) New Zealand Q3 PPI Input Q/Q: 1.6% v 3.0% prior; PPI Output Q/Q: 1.8% v 2.6% prior (Producer prices increased more in the year ended September 2021 than in any other year for more than a decade).
• (AU) Australia sells A$1.5B v A$1.5B indicated in 1.25% May 2032 bonds, avg yield 1.9068%, bid to cover 2.50x.
• (AU) Reserve Bank of Australia (RBA) offers to buy A$800M in Semi Govt Bonds v A$800M prior; Apr 2024 to Nov 2032.
• (NZ) New Zealand PM Ardern: Entire country to transition to traffic light system and leave lockdowns after Nov 29; Auckland border to be removed Dec 15th.

Japan

• Nikkei 225 opened +0.3%.
• (JP) JAPAN OCT CORE MACHINE ORDERS M/M: 0.0% V +1.8%E; Y/Y: 12.5% V 17.7%E.
• (JP) Japan Ruling LDP party considering debating revisions to capital gains tax in 2022 as part of efforts to address income inequality – press.
• (JP) Japan Govt said to have proposed paying oil refiners to keep down the price of gasoline – press.
• (JP) Japan Oct Trade Balance: -¥67.4B v -¥320.0Be; Adj Trade Balance: -¥444.7B v -¥609.2Be.

Korea

• Kospi opened +0.2%.
• (KR) South Korea and US diplomats talking about North Korea end of war declaration – Yonhap.
• (KR) South Korea reports second largest number of daily cases on record, 3,187.

China/Hong Kong

• Hang Seng opened -0.2%; Shanghai Composite opened -0.1%.
• (CN) Reportedly US asked China to release oil from reserves as part of discussion on economic cooperation - SCMP.
• (CN) China Vice President Wang: Foundation of global economic recovery is not solid; China to continue opening up and provide market opportunities.
• 3333.HK Said to have dissolved some units of its online marketplace - press.
• (CN) China PBOC sets Yuan reference rate: 6.3935 v 6.3924 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY50B in 7-day reverse repos v CNY50B prior; Net drain CNY50B v Net drain CNY50B prior.
• (CN) China furnishing companies said to be increasing prices due to increases in costs related to logistics and raw materials - Press.

Other

• (TW) US President Biden: US will not change its policy on Taiwan, Taiwan makes its own decisions; Not encouraging independence for Taiwan - comments after yesterday's summit with China President Xi.
• (SG) SINGAPORE OCT NON-OIL DOMESTIC EXPORTS M/M: 4.2% V 0.6%E; Y/Y: 17.9% V 18.0%E; Electronic Exports Y/Y: 14.9% v 14.4% prior (exports rise for 11th consecutive month).

North America

• (US) Weekly API Crude Oil Inventories: +0.7M v -2.5M prior.
• (US) Fed's Daly (non-voter, dove): Expects to have more clarity on economy by next summer; Fed still has ground to cover on aiding job recovery, If we hadn't had the Delta variant, I would be thinking about raising rates, but that's not where we are - Q&A with reporters.
• TSLA CEO Musk files form 4 for additional sale of 2.11M options and 934.1K shares on Nov 16th to satisfy tax obligations related to exercising stock options (7th consecutive day of selling, total sales now ~$8.8B, about 5% of his stake).

Europe

• (UK) New rules (removing caps on transactions between EU/UK) after Brexit have raised credit and debit fees by £150M/year – press.

Levels as of 00:15ET

• Hang Seng -0.4%; Shanghai Composite +0.4%; Kospi -1.1%; Nikkei225 -0.3%; ASX 200 -0.7%.
• Equity Futures: S&P500 -0.0%; Nasdaq100 -0.0%, Dax -0.1%; FTSE100 -0.4%.
• EUR 1.1327-1.1264; JPY 114.97-114.71; AUD 0.7306-0.7263; NZD 0.7001-0.6980.
• Commodity Futures: Gold +0.1% at $1,856/oz; Crude Oil -0.8% at $79.11/brl; Copper -0.0% at $4.34/lb.

Daily Pivots: (S1) 0.8410; (P) 0.8447; (R1) 0.8466; More...

Intraday bias in EUR/GBP stays on the downside for retesting 0.8401 low. Decisive break there will resume larger down trend from 0.9499, and target 0.8276 long term support next. On the upside, though, break of 0.8477 minor resistance will delay the bearish case and turn intraday bias neutral first.

In the bigger picture, price actions from 0.9499 (2020 high) are still seen as developing into a corrective pattern. Deeper fall could be seen as long as 0.8656 resistance holds, towards long term support at 0.8276. However, firm break of 0.8656 resistance would argue that a medium term bottom was already formed. Stronger rise would be seen to 0.8861 support turned resistance to confirm completion of the corrective pattern.

Daily Pivots: (S1) 1.5463; (P) 1.5491; (R1) 1.5530; More...

Intraday bias in EUR/AUD stays on the downside for retesting 1.5354 support. Firm break there will resume whole decline from 1.6434 to retest 1.5250 low. Also, for now, near term outlook will remain bearish as long as 1.5743 resistance holds, in case of recovery.

In the bigger picture, the down trend from 1.9799 (2020 high) is in progress. Firm break of 1.5250 low will confirm resumption and target 61.8% retracement of 1.1602 (2012 low) to 1.9799 at 1.4733. Sustained break there could bring more downside acceleration to 61.8% projection of 1.9799 to 1.5250 from 1.6434 at 1.3623. In any case, break of 1.6434 resistance is needed to signal medium term bottoming, or outlook will stay bearish.

Daily Pivots: (S1) 1.0512; (P) 1.0531; (R1) 1.0549; More....

Intraday bias in EUR/CHF is turned neutral as it turned sideway after hitting 1.0505 low. On the downside, Sustained break of 1.0505 low will confirm long term down trend resumption. Next target will be 161.8% projection of 1.1149 to 1.0694 from 1.0936 at 1.0200. On the upside, though, break of 1.0596 resistance will now indicate short term bottoming, and turn bias back to the upside for stronger rebound.

In the bigger picture, current downside momentum argues that fall from 1.1149 is probably resuming the down trend from 1.2004 (2018 high). Focus is now on 1.0505 (2020 low). Decisive break there will confirm this bearish case and target 61.8% projection of 1.2004 to 1.0505 to 1.1149 at 1.0223 next. Strong support from 1.0505 will bring rebound first. But outlook will stay bearish as long as 1.0936 resistance holds.

Daily Pivots: (S1) 1.2515; (P) 1.2541; (R1) 1.2590; More...

Intraday bias in USD/CAD remains neutral as consolidation from 1.2603 temporary top is extending. As noted before, fall from 1.2947 has possibly completed with three waves down to 1.2886. Further rise is in favor as long as 1.2386 support holds. On the upside, break of 1.2603 will resume the rally to 1.2894/2947 resistance zone. However, break of 1.2386 will revive near term bearishness and bring retest of 1.2886 low.

In the bigger picture, medium term outlook is neutral for now. The pair drew support from 1.2061 cluster and rebounded. Yet, upside was limited below 38.2% retracement of 1.4667 to 1.2005 at 1.3022. On the upside, firm break of 1.3022 should affirm the case of medium term bullish reversal. However, break of 1.2286 will turn focus back to 1.2005 low again.

Daily Pivots: (S1) 0.7273; (P) 0.7320; (R1) 0.7349; More...

AUD/USD's fall from 0.7555 resumed by breaking 0.7275 temporary low. Intraday bias is back on the downside. As noted before, rebound Rebound from 0.7105 could be complete with three waves up to 0.7555, and fall from 0.8006 is still in progress. Deeper fall should be seen to 0.7169 support, and then 0.7105. On the upside, however, break of 0.7369 minor resistance will turn bias back to the upside for retesting 0.7555.

In the bigger picture, with 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051) intact, we're seeing price action from 0.8006 as a correction only. That is, up trend from 0.5506 low would resume after the correction completes. In that case, main focus will be 0.8135 key resistance (2018 high). Sustained break there will carry larger bullish implications. However, sustained break of 0.6991 will argue that the whole medium term trend has indeed reversed.

Daily Pivots: (S1) 114.34; (P) 114.59; (R1) 115.09; More...

USD/JPY's break of 114.69 indicates resumption of medium term up trend from 102.58. Intraday bias stays on the upside. Next target is 100% projection of 102.58 to 111.65 from 109.11 at 118.18. On the downside, break of 113.74 support is needed to indicate short term topping. Otherwise, outlook will stay bullish in case of retreat.

In the bigger picture, corrective decline from 118.65 (2016 high) should have completed at 101.18 already. Rise from the 102.58 is seen as the third leg of the up trend from 101.18. Next target is 118.65 high. This will now be the preferred case as long as 111.65 resistance turned support holds, even in case of deep pull back.

Daily Pivots: (S1) 0.9256; (P) 0.9284; (R1) 0.9331; More....

USD/CHF's rise from 0.9084 is still in progress and intraday bias stays on the upside for 0.9367 resistance next. On the downside, below 0.9236 minor support will turn intraday bias back to the downside for 0.9084 instead.

In the bigger picture, the corrective structure of the rebound from 0.8925 argues that fall from 0.9471 is not complete yet. It could either be the second leg of pattern from 0.8756 (2021 low), or resuming larger down trend from 1.0237 (2018 high). We'd pay attention to the downside momentum and assess the odds later. But for now, medium term outlook will be neutral at best as long as 0.9471 resistance holds.