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Daily Pivots: (S1) 111.74; (P) 112.00; (R1) 112.49; More...

USD/JPY's rally continues today and hit as high as 112.74 so far. Intraday bias stays on the upside. Current up trend from 102.58 should target 61.8% projection of 102.58 to 111.65 from 109.11 at 114.71 next. On the downside, below 112.12 minor support will turn intraday bias neutral and bring consolidation. But retreat should be contained above 110.81 support to bring another rally.

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 114.54 resistance and then 118.65 high. This will now be the preferred case as long as 108.71 support hold, even in case of pull back.

US stock futures were little changed in early trading as investors wait for the upcoming earnings season that kicks off this week. Companies that will publish their results this week include the Bank of America, JP Morgan, Blackrock, and Citigroup. Analysts will be focusing on the companies’ revenue growth and cost structure as wages rise. Already, Bank of America and JP Morgan have warned about their rising costs. In response, the companies have cut down their costs by closing branches and laying off staff. Other companies that are expected to publish their results this week are Netflix, Walgreens Boots Alliance, UnitedHealth Group, and Progressive.

The US dollar index was little changed today as the market continued reflecting on the latest American employment numbers. The data showed that the country’s economy added just 194k jobs in September, which was substantially lower than the previous 366k. The data was also substantially lower than the median estimate of 500k that analysts were expecting. Still, on the positive side, the country’s participation rate held steady, wages rose, while the unemployment rate declined to 4.8%. The next key data to watch will be the US inflation data that will come out on Wednesday.

The Canadian dollar rose as the market reflected on the strong jobs report published on Friday. The data showed that the country’s economy added more than 157k jobs in September. This was a strong report since the market was expecting the economy to add just 50k jobs. Unemployment also moved below 7% for the first time since the pandemic started. The loonie also rose as oil prices held steady. Elsewhere, the economic calendar will be relatively muted today. The only key data to watch will be the Norwegian inflation data and the Turkish employment numbers.

USDCAD

The USDCAD pair declined to a low of 1.2450, which was the lowest level since July 29. On the four-hour chart, the pair moved below the key support at 1.2543, which was the lowest level last week. On the four-hour chart, it moved below the short and long-term moving averages. It also declined below the neckline of the head and shoulders pattern. Therefore, the path of the least resistance for the pair is to the downside.

EURUSD

The EURUSD pair was little changed during the Asian session. It is trading at 1.1567, which was below last Friday’s high of 1.1585. On the four-hour chart, it has formed a bearish flag pattern and moved below the short and longer-term moving averages. It is also along the middle line of the Bollinger Bands while the MACD has moved below the neutral line. The pair will likely break out lower in the near term.

USDJPY

The USDJPY price rally gained steam early today. The pair rose to a high of 112.22, which was the highest level in weeks. The price managed to move above the key resistance level at 112.00, which it struggled to move above several times before. It also rose above the short and longer-term moving averages. Therefore, the path of the least resistance for the pair is to the upside.

Released last Friday, the US jobs data wasn’t brilliant in September. The US economy added less than 194’000 new nonfarm jobs compared with the 500’000 expected by the analyst. The jobless rate fell to 4.8% from 5.2% printed a month earlier, but that was mostly because people left the workforce, rather than finding a job.

And the worse of all is that the bad data couldn’t be perceived as ‘good for the market’, as even a second consecutive month big miss on US jobs figures, which hinted at a slowing recovery in the US labour market, wouldn’t get the Fed to change its mind on tapering its bond purchases; the positive pressure on inflation is simply too strong.

With slowing recovery in US labour market and strong inflationary pressures, the Fed is caught between the devil and the deep blue see.

But hey, some Fed doves are still reluctant to clear the skies as the soft jobs figures bring in the idea of a dovish taper from the Fed. Anyway, we will have a look into the Fed’s latest meeting minutes on Wednesday, which should provide some clarity on what will hit the fan in a couple of weeks.

US crude past $80pb and no signs of a slowing rally

The barrel of US crude is now trading above the $80 level and given the global energy crunch and a cautious OPEC, there is little that could halt the positive trend, other than worsening growth expectations.

In this respect Goldman Sachs cut its growth forecast from 5.7% to 5.6% for this year and from 4.4% to 4% for the next. But on the other hand, India warned that it has no more than a couple of days worth of coal reserves left, German fuel reserves are running out of fuel, and China unloaded an Australian coal shipment despite an important ban on Australian imports, and their morose relationship of nowadays.

All in all, it looks like the oil bears are good for hibernating… bad news for inflation.

Bears vs bulls

Major US indices closed Friday’s session in the red. The S&P500 slid a meagre 0.19%, while Nasdaq led losses with a 0.51% slide, although they were up for the week. Energy companies did well of course, the biggest gainer was APA, which jumped 7% on Friday, while Exxon gained more than 2.5%, as FAANG stocks were mixed with small gains or losses.

And we’ll see if it’s the bulls or the bears taking the lead this week, as earnings season kicks off!

US markets are closed today, but from tomorrow we will start watching the third quarter earnings creep in with the US big banks that will announce their results first, as usual. We may see some two-sided volatility in the coming days, and further rise in US yields.

The US 10-year yield has now spiked above the 1.60% mark which is expected to encourage a ‘wave of new selling by convexity hedgers’, and an accelerated rise in US yields could further weigh on growth stocks.

Q3 earnings seen higher despite a challenging quarter

Regarding the earnings, we had a rough quarter with global shortages, slow logistics, bottlenecks, empty shelves, energy crunch, and high energy prices, but the expectation is still a 28.3% profit growth for the S&P500 companies; bank and energy company earnings could boost the overall performance to cover up for the others.

An increase in profits would be the fifth consecutive increase and the longest winning streak in more than 15 years, which is not bad at all for a world in crisis!

Where are the ECB hawks?

Germany will release the final inflation data for September on Wednesday, and the number is a scary 4.1% rise year over year.

Inflation in Europe is at such levels that it’s difficult to believe that the European Central Bank (ECB) will hold on to its soft monetary policy for too long. At some point, the doves may give in to the hawks, and that could trigger a rebound in the single currency against the US dollar.

I would expect to see the EURUSD consolidate, and recover from the 1.15 support, especially if the Fed decides to carry on with a dovish taper due to the slowing jobs recovery in the US.

Market movers today

• It will be a quiet start to another interesting week, as we have no tier one data today (US markets are closed due to Columbus Day).
• Later this week, we have US CPI inflation and retail sales, which will add more clues on the inflation outlook and how long US goods consumption will stay at very high levels. In Europe we get German ZEW, which has nose-dived lately and IMF also publishes new global forecasts. FOMC minutes are due out on Wednesday (also plenty of Fed speeches during the week).
• Developments in gas and electricity as well as the Chinese developer crisis should still be watched closely.
• Scandi CPIs are due out during the week starting with Norwegian CPI inflation this morning. Also the Swedish Prospera Inflation Expectations survey is released this week.

The 60 second overview

Non-farm payrolls: The jobs report on Friday was another disappointment but still strong enough for the Fed to start tapering at its next meeting in early November, in our view. While headline NFP rose just 194,000, the two past months were revised higher by a total of 169,000. Also there may be some problems with the seasonal adjustment, as private payrolls rose by 317,000 (i.e. government employment fell). There were also some concerning parts from a Fed perspective: The labour force shrank causing the unemployment rate to fall below 5% and wage growth was much higher than anticipated - both adding to the stagflation concerns we have been discussing lately.

Downside risks to growth: Following a very strong rebound from the COVID-19 crisis, we see rising downside risks to global growth over the coming quarters. We discuss briefly five factors that have developed worse than expected over the past month, see Research Global: Five reasons we see rising downside risks to growth, 11 October.

Debt limit: The debt limit can was kicked down the road after the Republicans agreed to hike the debt limit making US Treasury able to fund itself until early December. The question is whether the Republicans are interested in finding a more permanent solution? Senate Minority Leader Mitch McConnell said over the weekend that they will not, so we are likely set for another round of game of chickens with a lot of uncertainty next month, see Reuters.

Bank of England rate hike? It is not only in the US that we are about to see tighter monetary policy. Michael Saunders (hawk) and Governor Andrew Bailey both sounded concerned about higher inflation.

Brexit: We have not really talked much about Brexit in 2021 but the EU-UK negotiations on changing the Northern Ireland protocol are about to begin, which may weigh on GBP. Our base case is that they will reach an agreement eventually (probably close to the deadline) but worst case is that the free trade agreement from December is ripped apart over the issue. For more details see also FT.

Equities: Equities a notch lower Friday driven by Europe and US. Most interestingly the inflation/stagflation trade continuing to perform driven by energy and secondly financials and materials. The jobs report did not move the needle much but we argue it will fuel the inflation/stagflation rotation as the underlying message in the report suggests labour demand/supply imbalances are more pronounced than most investors think. In the US most indices lower on Friday with Dow -0.03%, S&P 500 -0.2%, Nasdaq -0.5% and Russell 2000 -0.8%. Asian markets are spilt this morning with Hong Kong sharply higher while South Korea is lower. PBOC lifting Chinese sentiment after another money market injection Saturday. US and European futures are marginally lower this morning.

FI: Global bond yields initially declined after the weaker than expected US labour market report on Friday. However, the combination of rising energy prices and that the jobs report will not stop the Federal Reserve from tapering then bond yields moved higher and 10Y Treasuries ended above 1.6%. It has stayed above 1.6% in Asian trade this morning.

FX: EUR/USD was largely unchanged in the 1.1540-1.1580 range after the release of the US jobs report on Friday. USD/JPY climbed back above 112 as US interest rates rose further.

Credit: CDS indices followed equities in red on Friday while cash bonds held up better. Xover widened 5.5bp and Main widened 1bp. HY bonds tightened 1bp and IG closed 0.5bp tighter.

Nordic macro

In Norway, inflation has come down sharply over the summer and autumn as we expected, driven by base effects and lower imported inflation. We are now seeing growing global price pressures, the krone has weakened somewhat, and wage growth is picking up, which all points to core inflation bottoming out. Thanks to an additional base effect this month, we therefore expect core inflation to rise to 1.3% y/y in September. The high power prices will probably push headline inflation up to 4.0%.

General trend

• GBP rises amid BOE comments.
• USD/JPY trades at the highest level since late 2018 amid recent rise in UST yields.
• Nikkei rebounds from opening decline [Yen extends drop; Kishida played down tax concerns]; Topix Banks index supported by higher UST yields.
• Hang Seng has extended gain [TECH index rises after Meituan news; Lenovo drops on withdrawal of listing application] Property index lags, various CN/HK property developers in the headlines (Evergrande, Fantasia, Modern Land).
• Shanghai Composite has remained slightly higher.
• S&P ASX 200 has declined after opening flat [Star Entertainment weighs on Consumer Discretionary index].
• US equity FUTs decline after higher open.

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened flat.
• Star Entertainment [SGR.AU]: Issues response to media reports concerning allegations.
• (AU) Reserve Bank of Australia (RBA) Offers to buy A$1.60B in Govt bonds v A$1.60B prior.
• (NZ) New Zealand PM Ardern: Need to maintain coronavirus restrictions longer; Auckland to remain in Lv 3 lockdown, to review in 1 week.

China/Hong Kong

• Hang Seng opened +1.3%, Shanghai Composite +0.2%.
• (CN) China State Council said to call to that energy supply be ensured; To allow power generators to increase industrial tariff by 20% - financial press.
• Evergrande [3333.HK]: Reportedly Evergrande's offshore creditors' advisers prepare backup contingency plan – press [Oct 8th].
• (CN) China Vice Premier Liu He: China is negotiating cancellation of tariffs and sanctions; Exchanged views with USTR on the trade agreement - comments after Friday teleconference.
• (CN) China City Harbin (NE China) said to be offering home buyers a subsidy of up to CNY100K for a purchase - China Daily.
• (CN) China Sec Journal: PBOC may roll over MLF with a larger amount in Oct to maintain reasonable growth of credit and money supply [Note: PBOC normally conducts MLF operations around the 15th of the month].
• (CN) Funds raised by property trust firms in China declined by >40% m/m in Sept [amid issues related to Evergrande] – Shanghai Securities News.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B prior; Net drain CNY190B v Net drain CNY320B prior [Oct 11th].
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B prior; Net drain CNY320B v Net drain CNY330B prior [Oct 9th].
• (CN) China PBOC sets Yuan reference rate: 6.4479 v 6.4604 prior.
• Lenovo [992.HK]: Withdraws application to list on Shanghai STAR board.
• Meituan [3690.HK]: China's market regulator fines Meituan CNY3.4B for conducting monopolistic behaviour - press.

Japan

• Nikkei 225 opened -0.3%.
• (JP) Japan Chief Cabinet Sec Matsuno: Will strengthen tax system towards raising wages first.

Korea

• Kospi is closed for holiday.

Other Asia

• (SG) Singapore PM: Will allow vaccinated travelers from more countries, including UK and US, to enter without quarantining.

North America

• (US) Treasury Sec Yellen: confident that Congress will be able to raise debt ceiling on Dec 3rd.
• (US) Senate minority leader McConnell sends letter to Pres Biden saying he will not provide assistance again to Democrats in raising the US debt limit.
• (US) Goldman Sachs analysts cut US 2021 GDP growth forecast from 5.7% to 5.6%; Cuts US 2022 GDP growth forecast from 4.4% to 4.0%.
• (US) Fed's Daly (non-voter, dove): labor market is going to have ups and downs, especially with the Delta variant; It is too soon to say that it is stalling.

Europe

• (UK) BOE Gov Bailey: Inflation will be higher than our forecast; Concerned with inflation being above target - press interview.
• (UK) BOE's Saunders (QE dissenter): households should get ready for “significantly earlier” interest rates rise due to increasing inflation pressure - UK press interview.
• (UK) UK Manufacturers of steel, glass, ceramics and paper, have warned the govt that unless something is done about rising wholesale gas prices they could shut down production.
• (UK) Brexit Min Frost expected to tell EU Tuesday that "significant change" to the Northern Ireland protocol is vital for the restoration of genuinely good relations between EU and UK – press.
• (UK) China Customs: bans imports of UK cattle beef that is under 30 months in age due to mad cow disease case found in beef.
• (AT) Austria Chancellor Kurz steps down after pressure from his coalition partner, the Greens; proposes Foreign Min Alexander Schallenberg as next PM, will remain as party leader.

Levels as of 01:20 ET

• Nikkei 225, +1.5%, ASX 200 -0.3% , Hang Seng +2.2%; Shanghai Composite +0.5% ; Kospi closed.
• Equity S&P500 Futures: -0.1%; Nasdaq100 -0.2%, Dax +0.1%; FTSE100 flat.
• EUR 1.1579-1.1563 ; JPY 112.72-112.15 ; AUD 0.7332-0.7291 ;NZD 0.6947-0.6916.
• Gold flat at $1,757/oz; Crude Oil +2% at $80.94/brl; Copper +0.2% at $4.2900/lb.

Daily Pivots: (S1) 0.7285; (P) 0.7312; (R1) 0.7335; More...

Intraday bias in AUD/USD remains mildly on the upside as rise from 0.7169 is in progress. Further rally would be seen to 0.7477 resistance first. Sustained break there will argue that larger decline from 0.8006 has completed and turn near term outlook bullish. On the downside, below 0.7224 minor support should resume the fall from 0.7477 through 0.7169 to retest 0.7105 low.

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) 1.2431; (P) 1.2496; (R1) 1.2541; More...

Intraday bias in USD/CAD remains on the downside for 1.2421 key structural support. Sustained break there will argue that whole choppy rise from 1.2005 has completed. Deeper fall could then be seen back to retest 1.2005 low. On the upside, though, break of 1.2592 support turned resistance will turn bias back to the upside for 1.2773 resistance first.

In the bigger picture, the failure to sustain above 55 week EMA (now at 1.2684) revives some medium term bearishness in USD/CAD. Still as long as 1.2005 support holds, we'd expect another rise ahead, to 38.2% retracement of 1.4667 to 1.2005 at 1.3022. Sustained break there will indicate larger bullish reversal. However, firm break of 1.2005 will resume the down trend from 1.4667 (2020 high) .

Daily Pivots: (S1) 0.8485; (P) 0.8493; (R1) 0.8507; More...

Intraday bias in EUR/GBP stays on the downside with 0.8525 minor resistance intact. Deeper fall should be seen to retest 0.8448 low first. Firm break there resume larger down trend from 0.9499, towards 0.8276 key support. On the upside, above 0.8543 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 0.8656 resistance holds.

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 0.8668 resistance holds, towards long term support at 0.8276. However, firm break of 0.8668 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) 1.5794; (P) 1.5823; (R1) 1.5864; More...

Intraday bias in EUR/AUD remains on the downside with 1.5886 minor resistance intact. Current fall from 1.6434 should target 100% projection of 1.6434 to 1.5907 from 1.6232 at 1.5705 first. Break there will pave the way to 161.8% projection at 1.5379. On the upside, above 1.5886 minor resistance will turn bias neutral and bring consolidations. But near term outlook will now remain mildly bearish as long as 1.6232 resistance holds, in case of recovery.

In the bigger picture, rise from 1.5250 medium term bottom is seen as a correction to the down trend from 1.9799 (2020 high) only. With 38.2% retracement of 1.9799 to 1.5250 at 1.6988 intact, such down trend is expected to resume at a later stage. Firm break of 1.5250 will target 61.8% retracement of 1.1602 (2012 low) to 1.9799 at 1.4733. In any case, sustained break of 1.6988 fibonacci level is needed to indicate long term reversal.

Daily Pivots: (S1) 1.0711; (P) 1.0723; (R1) 1.0745; More....

Intraday bias in EUR/CHF is turned neutral with current recovery. But further decline is expected as long as 1.0770 resistance holds. Decisive break of 1.0694 support will resume whole decline from 1.1149. Next target is 61.8% projection of 1.1149 to 1.0694 from 1.0936 at 1.0655. On the upside, though, break of 1.0770 minor resistance will turn bias back to the upside for rebound towards 1.0811 support turned resistance first.

In the bigger picture, the rejection by 55 week EMA maintains medium term bearishness. Fall from 1.1149 (2021 high) is currently seen as the second leg of the patter from 1.0505 (2020 low) first. Hence, in case of deeper fall, we'd look for strong support from 1.0505 to bring rebound. However, sustained break of 1.0505 will resume the long term down trend from 1.2004 (2018 high). Also, medium term outlook will now be neutral at best as long as 1.0936 resistance holds.