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Daily Pivots: (S1) 0.7208; (P) 0.7260; (R1) 0.7293; More...

Intraday bias in AUD/USD remains neutral as consolidation form 0.7219 is still extending. On the downside, below 0.7219 will resume the fall from 0.7477 to retest 0.7105 low. Firm break there will resume whole decline from 0.8006 for 0.6991 support next. On the upside, above 0.7320 minor resistance will turn bias back to the upside for 0.7477 resistance instead.

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.

The market is painted in flashy red on the back of a combination of several factors ranging from the risk of a US government shutdown if the US policymakers can’t agree to raise the debt ceiling before Thursday night, the energy crunch that puts pressure on energy prices, which in return puts pressure on the inflation expectations, and combined with the US approaching its debt ceiling deadline without having found an agreement to raise the ceiling puts a strong positive pressure on the US yields. The US 10-year yield advanced past the 1.50% mark, as US equities had their worst day since May.

US debt ceiling will likely be raised and provide relief to the market

On Monday, Republicans blocked a bill that would push back the debt ceiling to December, and avoid a government shutdown by October 1st. Ok so the first time I heard bout the debt ceiling discussion, years ago, I thought it was a big deal, but it’s not, as the Congress raised the debt ceiling dozen times in the past two decades. Well this time, Democrats are also trying to simultaneously pass a $4 trillion spending bill. It’s complicated, but the debt ceiling will certainly be raised as no politician on both sides of the table wants to see the US default on its obligations by mid October. So I am not much worried about that. I mean, it also happened that the US politicians couldn’t agree on raising the debt ceiling, which resulted in US government being shut for weeks, but at the end of the day, an agreement is always sealed.

Obviously, the political deadlock in the US will likely continue exercising some more downside pressure on the US stock markets. The S&P500 is again testing its 100-dma to the downside, which could be an interesting buy level for those expecting an imminent relief in the US stock markets with an eventual deal between the US policymakers for raising the debt ceiling.

Energy crunch should also wane

Wherever we turn our heads we see problems regarding to energy supply. We already talked about the Chinese supply shortages, which are mostly driven by government asking many provinces to curb activity or shut down factories to meet Beijing’s green goals. That’s partly understandable, but fully bad for the market mood.

Elsewhere, supply chain disruptions and a slower-than-needed rise in alternative energy production that fails to keep up with the pace of the post-pandemic recovery in activity, are also weighing on the global energy production and pressuring energy prices higher.

US crude flirted with $77 per barrel then fell yesterday, and Brent crude hit $80 for the first time in almost three years as we saw Brits making long queues in front of British gas stations to get some fuel for their vehicle as there is not enough truck drivers to drive oil to the gas stations. Apparently, many truck drivers weren’t British and had to leave the country with the Brexit.

On the other hand, OPEC+ output reportedly fell by 150’000 barrels per day versus the 400’000 barrel increase planned by the cartel. That decline is due to a maintenance work in Kazakhstan and unplanned supply disruptions in Nigeria, Mexico and Libya. Add to that the pressure on US oil reserves due to the Hurricane Ida, you have a nice squeeze in global oil supply.

But most factors that push oil prices higher are short-term issues. The UK will now hire more truck drivers and even mobilize the army to get oil in stations and end the chaos, OPEC exports rebounedd in September as the group is planning to add more supply in the coming months, and the Hurricane Ida’s impact on US oil reserves should slowly fade. The latest API data showed an unexpected 4.1-million-barrel rise in US oil reserves last week, and today’s more official EIA data should also surprise after seven straight-week decline in US oil inventories. If that’s the case, we shall see a further downside correction in oil prices from the actual levels, but the market could easily find support near the $72 per barrel before making sure that the supply issues are fully resolved.

FTSE 100 outperforms

The energy crunch and rising energy prices are a boon for the FTSE stocks. While European indices fell more than 2% on Tuesday’s session, FTSE 100 managed to limit losses and closed the session only 0.5% lower. Firmer oil and commodity prices, combined with a nosedive in the British pound will likely invite dip buyers as we approach the 7000p mark.

Daily Pivots: (S1) 1.1667; (P) 1.1685; (R1) 1.1702; More...

Outlook in EUR/USD remains unchanged and intraday bias stays mildly on the downside for 1.1663 low. Firm break there will resume the fall from 1.2265, and the pattern from 1.2348, to 1.1602 key support next. On the upside, however, above 1.1749 minor resistance will turn bias back to the upside for 1.1908 again.

In the bigger picture, rise from 1.0635 is seen as the third leg of the pattern from 1.0339 (2017 low). Further rally remains in favors long as 1.1602 support holds, to cluster resistance at 1.2555 next, (38.2% retracement of 1.6039 to 1.0339 at 1.2516). However sustained break of 1.1602 will argue that the rise from 1.0635 is over, and turn medium term outlook bearish again. Deeper fall would be seen to 61.8% retracement of 1.0635 to 1.2348 at 1.1289 and below.

Market movers today

• Another quiet day on the data front, Euro Area Economic Sentiment Indicators will be released for September while business and consumer confidence surveys (NIER) are due for release in Sweden.
• ECB's Annual Forum continues with several speeches today, while Daly and Bostic are on the wires from Fed.

The 60 second overview

The sentiment in the global financial markets turned towards risk-off mode as equity markets declined and credit spreads widened on the back of the rising inflation outlook, rising rates, more hawkish comments from the Federal Reserve combined with the fiscal uncertainty in the US as an increase in the debt ceiling still has not been passed in the US Congress. One of our favourite measures for risk-off sentiment, the VIX volatility index, also jumped yesterday.

However, it is risk-off with a "twist" as the yield on 10Y Treasuries as well as 10Y German government bonds rose yesterday rather than seeing the traditional flight-to-quality in a risk-off scenario.

This morning, Asian equity markets are following the negative sentiment from the US as uncertainty continues to dominate sentiment combined with the above factors. Furthermore, the oil price stabilised this morning after a recent rise, but uncertainty remains high.

Equities: Global equity markets broadly lower yesterday with the energy sector going against the trend. One very big change from the movements we saw Monday is that risk appetite took a big hit yesterday and the cyclical value trade change to a defensive value trade as yields continued higher. Risk off move also seen in the VIX index rising to 23. In US FANMAG complex broadly lower but European tech companies took the biggest beating yesterday. Dow -1.6%, S&P 500 -2.0%, Nasdaq -2.8% and Russell 2000 -2.3%.

The negative tone has continued in Asia this mooring with most indices down 1-2%. Futures in Europe is flat this morning while optimism is creeping back in US with futures being up roughly 0.5%.

FI: Global bond yields continue to rise and 10Y Treasuries have broken through 1.5% while 30Y US Treasuries broke through 2%. The US curve bear-steepened for the first time since early August on the back of hawkish statements from the Federal Reserve. There was a solid spill-over effect on to European bond market, where the 10Y German government bond yield was testing the -20bp-level and there was a modest widening of the BTPS-Bund spread of a few bps.

FX: The broad based risk-off mood and spike in market volatility weighed heavily on risk-, commodity- and USD-rate sensitive currencies yesterday. Most heavily hit in G10 space was the GBP but also NZD, NOK and AUD posted large losses. In the rest of the majors space ZAR and MXN were the biggest underperformers in a session where everything lost ground against the greenback.

Credit: The high-beta segment of credit markets sold off sharply yesterday. iTraxx Xover widened 7bp (taking it to 249bp) while Main widened a more modest 1bp (to 50bp). HY bonds widened 8bp, but IG closed less than 0.5bp wider.

Nordic macro

Sweden. Today the September business- and consumer confidence surveys (NIER) are reported. Up to date, overall business confidence across sectors have held up very well with manufacturing confidence at record high. However, considering that there are several signs of a slow-down in the global manufacturing cycle it is reasonable to expect something similar in Swedish confidence numbers. The situation is special though, since it is not necessarily demand that is softening but rather supply shortages that affect businesses. So at this juncture it is of special importance to monitor what corporates say regarding the development of demand on one hand and delivery times on the other.

Two speeches by Riksbank board members on the agenda (Breman and Flodén), none of them are likely so say much on current monetary policy considering that the minutes from the September board meeting are released tomorrow.

General trend

• UST yields pare rise during Asia.
• Australia bond yields rise after earlier gain in US rates.
• BOJ may release bond buying schedule this week [Rinban announcement].
• Japan GPIF shuns yuan-denominated Chinese sovereign bonds.
• Evergrande downgraded by Fitch despite grace period.
• US equity FUTs rose after prior declines, some impact seen from the Evergrande asset sale news; Evergrande also has a $47.5M bond interest payment due on Wed (Sept 29th), relates to the 9.5% Mar 2024 USD bond [any grace period?].
• Chipmakers trade generally lower after Micron results/guidance.
• AU and Japan financials drop following US declines.
• Nikkei lagged ahead of LDP election results.
• Hang Seng index pared decline [Evergrande and Property index rise; TECH index tracks losses on Nasdaq].
• Shanghai Composite declined by over 2% during morning trading [Utilities declined by >3%].
• S&P ASX 200 weighed down by Resources, Energy and Financial indices.
• Crude Oil FUTs have extended declines.
• NZD moved slightly lower amid rise in virus cases; RBNZ is due to hold next Monetary Policy Review (MPR) on Oct 6th (Wed).
• Vietnam reports surprise contraction in Q3 GDP.
• China's HNA said to have made proposal to holders of CNY unsecured debt.

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened -0.3%.
• SIQ.AU Receives nonbinding proposal from consortium of TPG Global and Potentia Capital for A$10.35/shr.
• (NZ) New Zealand to double border levy to NZ$43.73, effective Dec 1st.
• (AU) Australia APRA plans on publishing paper on macroprudential policy framework from Sept 24th meeting - Quarterly Statement by the Council of Financial Regulators (CFR).
• (AU) Reserve Bank of Australia (RBA): Excess cash at exchange settlement (ES) accounts at A$371.0B v A$369.3B prior (record high).
• (AU) Australia Treasurer Frydenberg: COVID payments to end when 80% [of population] is fully vaccinated - press.

Japan

• Nikkei 225 opened -1.9%.
• (JP) JAPAN LDP ELECTION RESULTS: KISHIDA 256 TOTAL VOTES; KONO 255 VOTES TOTAL, TO HEAD INTO RUNOFF (AS EXPECTED).
• (JP) JAPAN LDP LEADERSHIP 2ND ROUND ELECTION RESULTS: KONO RECEIVES 39 OF 47 RANK AND FILE VOTES.
• 7201.JP CEO Uchida: On track to reach operating profit margin target announced in turnaround plan, despite part shortages – press.
• (JP) GPIF Official Niroshi Nagaoka: Confirms GPIF will not invest in China Govt bonds for now; To use FTSE WGBI Benchmark without China Debt.
• 6723.JP CEO: Expects chip demand to outpace supply through 2022, cannot foresee end of chip shortages next year.

Korea

• Kospi opened -1.4%.
• (KR) North Korea confirms test firing of new type of hypersonic glide vehicle, fired yesterday.
• (KR) North Korea convenes Supreme People's Assembly meeting without leader Kim – KCNA.
• (KR) Bank of Korea (BOK) may seek to start to give monthly GDP - Korean press.

China/Hong Kong

• Hang Seng opened -0.9%; Shanghai Composite opened -0.8%.
• 3333.HK Has a $47.5M bond interest payment due on Wed (Sept 29th), relates to the 9.5% Mar 2024 USD bond; co. still needs to make a total of ~$547.6M in offshore bond coupon payments by Dec 28th - financial press.
• 2066.HK Evergrande disposes of 1.75B shares in company for CNY10B to Shenyang Shengjing Finance Investment Group [subsidiary of the State-owned Assets Supervision and Administration Commission of Shenyang People's Government (“Shenyang SASAC”)].
• (CN) China PBOC sets Yuan reference rate: 6.4662 v 6.4608 prior.
• (CN) China considering increasing industrial power prices in order to ease shortages, also considering raising rate for residential users - press.
• (CN) China PBOC Open Market Operation (OMO): injects CNY100B in 14-day reverse repos v CNY100B prior; Net Inject CNY40B v Net inject CNY100B prior.
• (CN) China PBOC to conduct CNY5.0B in 3-month Central Bank Bill Swap (CBS) operation on today's session v CNY5.0B prior.
• (CN) China supports waiver of Intellectual Property for coronavirus vaccines – Xinhua.
• (CN) China State Planner (NDRC): Will strengthen transportation of recently released thermal coal capacity; Will ensure rail capacity for coal transportation.
• (HK) Hong Kong Monetary Authority (HKMA) Chief Exec Yue said examining expanding the usage of the yuan (CNY) in Hong Kong equity trading.
• (CN) China PBOC Gov Yi Gang: No need to purchase assets at this time - article on interest rate system (yesterday after the close).

Other

• (VN) Vietnam Q3 GDP Y/Y: -6.2% v +2.3%e (Lowest level since calculations began).

North America

• MU Reports Q4 $2.42 v $2.33e, Rev $8.27B v $8.11Be; Guides Q1 below consensus; Confirms initiates a quarterly dividend (announced in August).
• TSLA Elon Musk: govts can slow down, but not destroy advances in crypto assets; situation in China will improve next year as COVID lifts, things are going well for Tesla in China - Code Conf comments.
• (US) Weekly API Crude Oil Inventories: +4.1M v -6.1M prior.
• (US) Fed's Bullard (non-voter, hawk): We are past the point of any kind of taper tantrum, see the start of tapering in Nov; see upside risks to inflation.
• (US) Commerce Sec Raimondo: If China does not play by the rules, we will need aggressive measures; We want to do business in China but they must give us access.
• AAPL Delivery times for new iPhone 13 are getting longer due to impact of COVID on suppliers in Vietnam - Nikkei.

Europe

• (FR) France accuses UK of starting a new fishing war, after UK rejected 75% of applications from small French boats looking to fish around UK.

Levels as of 01:15ET

• Hang Seng -0.5%; Shanghai Composite -1.7%; Kospi -1.6%; Nikkei225 -2.0%; ASX 200 -0.9%.
• Equity Futures: S&P500 +0.6%; Nasdaq100 +0.6%, Dax +0.4%; FTSE100 +0.1%.
• EUR 1.1690-1.1679; JPY 111.68-111.35; AUD 0.7254-0.7227; NZD 0.6964-0.6937.
• Commodity Futures: Gold +0.0% at $1,737/oz; Crude Oil -1.4% at $74.22/brl; Copper -0.3% at $4.23/lb.

Daily Pivots: (S1) 1.3467; (P) 1.3592; (R1) 1.3664; More...

Intraday bias in GBP/USD remains on the downside at this point. Current fall from 1.4248 is in progress for 1.3482 resistance turned support. Sustained break there will target 1.3163 fibonacci level. On the upside, though, above 1.3608 support turned resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 1.3748 resistance holds.

In the bigger picture, fall from 1.4248 is at least a correction to the up trend from 1.1409 (2020 low). Such correction could extend to 38.2% retracement of 1.1409 to 1.4248 at 1.3164 before completion. However, considering the rejection by 1.4376 key resistance (2018 high), sustained trading below 1.3164 will argue that it's indeed a bearish trend reversal and would target 61.8% retracement at 1.2493. Nevertheless, break of 1.3912 resistance will revive medium term bullishness and target 1.4248/4376 resistance zone again.

Daily Pivots: (S1) 0.9265; (P) 0.9284; (R1) 0.9311; More....

USD/CHF is still bounded in consolidation from 0.9331 and intraday bias remains neutral at this point. Overall, further rally is expected as long as 0.9162 support holds. On the upside, break of 0.9331 will target 0.9471 key resistance. Sustained break there will carry larger bullish implications. However, break of 0.9162 will turn bias back to the downside for 0.9017 support instead.

In the bigger picture, the strong rally above 55 week EMA (now at 0.9175) now tilts favor to the case of bullish trend reversal. That is, decline from 1.3042 (2016 high) is probably completed at 0.8756 already. Sustained break of 0.9471 resistance should confirm this case and pave the way to retest 1.0342 ahead. However, rejection by 0.9471 will mix up the outlook again and retain some medium term bearishness.

On Tuesday, the US Dollar surged by 98 pips or 0.78% against the Canadian Dollar. The currency pair tested the upper boundary of a descending channel pattern during yesterday's trading session.

Everything being equal, the exchange rate could continue to trend higher during the following trading session. The potential target for the USD/CAD pair would be near the 1.2800 level.

However, the 200– hour simple moving average at 1.2715 could provide resistance for the currency exchange rate within this session.

Downside risks pressured the GBP/JPY currency pair lower on Tuesday. As a result, the British Pound fell by 183 pips or 1.20% against the Japanese Yen during yesterday's trading session.

The exchange rate is currently trading near the lower boundary of an ascending channel pattern and could be set for a breakout.

If the breakout occurs, a decline towards the support level at 149.50 could be expected today.

However, if the channel pattern holds, buyers may target the 50– hour SMA at 151.61 within this session.

On Tuesday, the Australian Dollar declined by 79 pips or 1.08% against the US Dollar. The AUD/USD currency pair breached the 50– and 200– hour SMAs during yesterday's trading session.

All things being equal, the exchange rate could continue to edge lower during the following trading session. The potential target for bearish traders would be near the 0.7200 level.

However, the currency exchange rate could find support at 0.7227 within Wednesday's trading session.