Sample Category Title

Notes/Observations

• Major European PMI data for Sept (Beats: none Misses: Germany, France, Euro Zone).
• No surprises from schedules rate decisions; Norway becomes the 1st in G10 to hike rates; SNB, Philippines, Taiwan all unchanged (as expected).
• BOE seen holding off on hawkish rhetoric despite higher inflation as growth has softened.
• Fed signals bond-buying taper coming 'soon,' rate hike next year.
• Evergrande contagion risks concerns ease (Note: still awaiting to see if company made scheduled bond interest payments due on Thursday).

Asia

• Australia Sept Preliminary PMI Manufacturing registered its 16th month of expansion (57.3 v 52.0 prior).
• RBNZ stated that it would proceed with its proposal to tighten Loan-to-Value Ratio (LVR) restrictions on lending to owner-occupiers to reduce risky mortgage lending.
• Evergrande Chairman said to have told an internal meeting the firm would do its best to resume work and production, urged company execs to ensure quality delivery of properties, top priority is helping wealth investors redeem their products.
• Evergrande 2nd largest shareholder (Chinese Estates) sold $32M worth of its stake and plans to exit the holding completely.

Coronavirus

• FDA authorized a 3rd Pfizer vaccine shot to those 65 and over at high risk.

Americas

• FOMC kept policy steady (as expected). Noted that a moderation in the pace of bond buying might soon be warranted.
• DOT PLOT SUMMARY saw 0-1 hike in 2022, 3-4 hikes in 2023 (prior: 0 hikes in 2022; 2 hikes in 2023) . Noted that 9 of 18 members saw hike in 2022, 17 of 18 members saw hike in 2023 (prior: 7 of 18 in 2022, 13 of 18 in 2023).
• Fed Chief Powell post rate decision press conference noted that it had discussed pace of tapering and generally agreed that if economy played out as expected then could finish tapering by middle of next year. Inflation still expected to drop back to longer run targets. If sustained higher inflation were to become a concern, then would certainly respond.
• Treasury Sec Yellen said to call for compromise with UK Fin Min Sunak on digital services tax. Asked Wall Street CEOs to weigh in on the debt ceiling issue. She also spoke to Ireland Fin Min Donohoe on global tax deal and emphasized the goal of stabilizing the international tax system and stopping the race to the bottom through this once in a generation opportunity offered by the OECD Inclusive Framework.
• Former Treasury Sec Paulson and Mnuchin said to have spoken with both McConnell and Yellen stressing the need to address the debt ceiling. McConnell still wanted the Democrats to approve the debt ceiling hike on their own through the budget reconciliation process.
• Brazil Central Bank (BCB) raised the Selic Target Rate by 100bps to 6.25% and pledges another 100bps hike at its next meeting.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

• Indices [Stoxx600 +1.11% at 468.32, FTSE +0.51% at 7,119.65, DAX +0.99% at 15,660.55, CAC-40 +1.11% at 6,710.85, IBEX-35 +0.89% at 8,886.50, FTSE MIB +1.11% at 26,003.00, SMI +1.12% at 11,970.68, S&P 500 Futures +0.72%].
• Market Focal Points/Key Themes: European indices open higher across the board and advanced into the green as the session progressed; sectors tending to the upside include technology and real estate; while laggard sectors include materials and consumer staples; automotive sub sector under pressure following revised sales outlook for market by IHS, Faurecia cutting guidance; oil and gas subsector supported on higher commodity prices; Argo Blockchain prices it’s ADS; focus on BOE policy meeting la; Otis bids for remaining stake from Zardoya; MS and Eleia raise bids for Augean; earnings expected during the US session include Nike, Accenture and Costco.

Equities

• Consumer discretionary: Royal Mail [RMG.UK] +1% (trading update), XLMedia [XLM.UK] -3% (earnings).
• Financials: Augean [AUG.UK] +2% (discloses raised offers).
• Healthcare: Valneva [VLA.FR] +11% (vaccine trials), Nicox [COX.FR] -4% (trial results).
• Industrials: Faurecia [EO.FR] +7% (cuts outlook), Zardoya Otis [ZOT.ES] +33% (stake sale).
• Technology: Playtech [PTEC.UK] +1% (earnings).

Speakers

• ECB Economic Bulletin noted that the recovery in global economic activity continued, although persisting supply bottlenecks and the spread of the more contagious Delta variant of the coronavirus (COVID-19) casted a shadow.
• SNB Policy Statement reiterated language on FX; CHF currency remained highly valued and willing to intervene more strongly in the FX market. Reiterated mortgage and property vulnerabilities increased; Mortgage lending and property prices had risen strongly. Regularly reassessed need for countercyclical buffer.
• SNB President Jordan post rate decision press conference noted that was watching to see if inflation dynamics were temporary. Reiterated view that CHF currency remained highly valued. Reiterated view that SNB expansionary policy was the right one; saw no reason to change it.
• Norway Central bank (Norges) Policy Statement noted that it was most likely to raise Deposit Rate further in Dec. Economic upswing to likely continue through autumn.
• Norway Central Bank (Norges) Gov Olsen post rate decision press conference noted that the domestic economy was quickly on its way to normalization. Not very concerned about inflation challenging target.
• France Fin Min Le Maire reiterated view that inflation was not a source of concern.
• Ireland Finance Ministry noted that the recent phone conversation on corporate tax between Donohoe and Yellen was constructive; both sides agreed to keep in touch.
• Poland Central Bank member Kochalski stated that the moment to raise rates has not yet arrived.
• Poland Central Bank Dep Gov Kightley stated that a weaker PLN currency (Zloty) helped the economy at this time.
• Philippines Central Bank (BSP) Policy Statement noted that the prevailing monetary settings were appropriate but prepared to take further action if necessary. Keeping steady hand on policy levers to ensure recovery. CPI to ease back into target range by Nov.
• (TW) Taiwan Central Bank Policy Statement reiterated its stance to continue accommodative policy. Expected mild inflation and growth in 2021.
• China's financial regulators said to have given instructions to Evergrande in order to avoid near-term dollar bond default.

Currencies/Fixed income

• USD moved off its 1-month highs against major pairs but holding onto gains after the Fed signaled bond-buying taper was coming 'soon, and possible rate hike beginning next year. Dealers noted that the greenback had advance ahead of the Fed and undergoing some profit-taking.
• NOK currency was firmer after the Norges became the 1st of the G10 members to hike rates. It indicated that another rate hike could come in December. EUR/NOK hit a 3-month low at 10.08 after the decision.
• Euro Zone government bond yields were higher in the session following the ‘hawkish’ Fed signals on taper and potential rate hikes. Yields did move off their most elevated level as various EU PMI data missed expectations.

Economic data

• (NL) Netherlands Q2 Final GDP Q/Q: 3.8% v 3.1%e; Y/Y: 10.4% v 9.7%e.
• (NO) Norway July AKU Unemployment Rate: 4.2% v 4.8% prior.
• (FR) France Sept Business Confidence: 111 v 110e; Manufacturing Confidence: 106 v 109e; Production Outlook Indicator: 23 v 12e; Own-Company Production Outlook: 19 v 18e.
• (ES) Spain Q2 Final GDP Q/Q: 1.1% v 2.8%e; Y/Y:17.5 % v 19.8%e.
• (MY) Malaysia mid-Sept Foreign Reserves: $116.2B v $116.3B prior.
• (FR) France Sept Preliminary Manufacturing PMI: 55.2 v 57.0e (10th month of expansion); Services PMI: 56.0 v 56.1e; Composite PMI: 55.1 v 55.7e.
• (CH) Swiss National Bank (SNB) left Key Policy Rate unchanged at -0.75% (as expected); Both Sight Deposit and Policy Rates kept unchanged at -0.75%.
• (DE) Germany Sept Preliminary Manufacturing PMI: 58.5 v 61.4e (15th month of expansion); Services PMI: 56.0v 60.3e; Composite PMI: 55.3 v 59.2e.
• (EU) Euro Zone Sept Preliminary Manufacturing PMI: 58.7 v 60.3e (15th month of expansion); Services PMI: 56.3 v 58.5e; Composite PMI: 56.1 v 58.5e.
• (NO) Norway Central Bank (Norges) raised the Deposit Rates by 25bps to 0.25% (as expected).
• (PH) Philippines Central Bank (BSP) left the Overnight Borrowing Rate unchanged at 2.00 (as expected).
• (PL) Poland Aug Unemployment Rate: 5.8% v 5.8%e.
• (TW) Taiwan Aug M2 Money Supply Y/Y: 8.4% v 8.7% prior; M1 Money Supply Y/Y: 15.4% v 16.7% prior.
• (UK) Sept Preliminary Manufacturing PMI: 56.3 v 59.0e (16th straight expansion); Services PMI: 54.6 v 55.0e; Composite PMI: 54.1 v 54.6e.
• (HK) Hong Kong Q2 Current Account Balance: $68.5B v $60.6B prior; Overall Balance of Payments (BoP): -$37.6B v +$8.2B prior.
• (TW) Taiwan Central Bank (CBC) left the Benchmark Interest Rate unchanged at 1.125% (as expected).

Fixed income issuance

• (EG) Egypt to sell USD-denominated 6-year, 12-year and 30-year bonds.

Looking ahead

• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.
• 05:30 (EU) ECB allotment in its quarterly 3-year TLTRO-3 Tender.
• 06:00 (RO) Romania to sell RON200M in 4.25% 2036 Bonds.
• 06:15 (NL) ECB’s Elderson (Netherlands, SSM member).
• 06:45 (US) Daily Libor Fixing.
• 07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.10%; Expected to maintain Overall bond purchase at £895B; (Gilt Purchase Target unchanged at £875B ; Corporate Bond Target unchanged at £20B).
• 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision: Expected to leave One-Week Repo Rate unchanged at 19.00%.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) Aug Chicago Fed National Activity Index: 0.50e v 0.53 prior.
• 08:30 (US) Initial Jobless Claims: 320Ke v 332K prior; Continuing Claims: 2.60Me v 2.665M prior.
• 08:30 (CA) Canada July Retail Sales M/M: -1.2%e v +4.2% prior; Retail Sales (ex-auto) M/M: -1.5%e v +4.7% prior.
• 08:30 (US) Weekly USDA Net Export Sales.
• 09:00 (RU) Russia Gold and Forex Reserve w/e Sept 17th: No est v $620.1B prior.
• 09:00 (ZA) South Africa Central Bank (SARB) Interest Rate Decision: expected to leave Interest Rates unchanged at 3.50%.
• 09:45 (US) Sept Preliminary Markit Manufacturing PMI: 61.0e v 61.1 prior; Services PMI: 54.9e v 55.0 prior; Composite PMI: No est v 54.8 prior.
• 10:00 (US) Aug Leading Index: 0.7%e v 0.9% prior.
• 10:30 (US) Weekly EIA Natural Gas Inventories.
• 11:00 (US) Sept Kansas City Fed Manufacturing Activity Index: 25e v 29 prior.
• 12:00 (US) Q2 Financial Account Household Change in Net Worth: No est v $4.997T prior.
• 13:00 (BR) Brazil Aug Tax Collections (BRL): 146.6Be v 171.3B prior.
• 15:00 (AR) Argentina Q2 Unemployment Rate: No est v 10.2% prior.
• 17:00 (KR) South Korea Aug PPI Y/Y: No est v 7.1% prior.
• 18:45 (NZ) New Zealand Aug Trade Balance (NZD): No est v -0.4B prior ; Exports: No est v 5.8B prior; Imports: No est v 6.2B prior.
• 19:01 (UK) Sept GfK Consumer Confidence: -7e v -8 prior.
• 19:30 (JP) Japan Aug National CPI Y/Y: -0.3%e v -0.3% prior; CPI Ex-Fresh Food (core) Y/Y: 0.0%e v -0.2% prior; CPI Ex-Fresh Food/Energy (core-core) Y/Y: -0.4%e v -0.6% prior.
• 20:30 (JP) Japan Sept Preliminary PMI Manufacturing: No est v 52.7 prior; PMI Services: No est v 42.9 prior; PMI Composite: No est v 45.5 prior.
• 21:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years; 3~5 Years; 5~10 Years and 25 Years~ maturities.
• 23:30 (TH) Thailand Aug Customs Trade Balance: $0.9B v $0.2B prior; Exports Y/Y: 15.1%e v 20.3% prior; Imports Y/Y: 39.6%e v 45.9% prior.
• 23:30 (JP) Japan to sell 3-Month Bills.

Asian markets moved higher on Thursday as concerns eased over troubled Chinese property giant Evergrande. In an effort to sooth jitters around the struggling real estate firm, the People's Bank of China injected $17 billion into the financial system. European stocks have opened higher, following positive cues from Wall Street overnight after the Fed signaled tapering could start 'soon'.

King dollar hit its highest level in a month this morning before retreating, while gold extended losses. Despite the rebound witnessed across equity markets, sentiment remains shaky with caution in the air. The debt woes of China Evergrande Group are likely to remain on the minds of investors for the rest of the week. Other risk events to watch out for range from the Bank of England rate decision and Eurozone PMI surveys on Thursday to numerous speeches from Fed officials on Friday.

FOMC prepares markets for tapering

As widely expected, the Federal Reserve left monetary policy unchanged in September. Although no official announcement of tapering was made, Fed Chairman Jerome Powell said the central bank could begin cutting bond purchases as soon as November with the process completed by mid-2022.

GDP growth for 2021 was revised lower to 5.9% from 7.0% in its June 2021 projections but growth in 2022 and 2023 was upwardly revised. Inflation is still described as “largely transitory” and was adjusted significantly higher once again.

But the focus was all on the dot plot for Fed officials' interest rate projections. Back in June, seven officials were forecasting a rate rise in 2022. However, the latest dot plot shows nine officials, resulting in a split 9-9 on whether rates will be hiked next year. While this hawkish shift is likely to fuel rate hike expectations, it points to the market being much more sensitive to US economic data going forward.

After kissing the monthly high at 93.52, the Dollar Index slipped this morning with prices approaching the 93.20 level as of writing. Although the Fed meeting is done and dusted, the next few days could see increased volatility due to the US weekly initial jobless claims and numerous speeches from Federal Reserve officials.

BoE meeting in focus

The major risk event for sterling will be the Bank of England policy meeting this afternoon. Markets widely expect the central bank to leave monetary policy unchanged. However, much attention may be directed to what the bank has to say about the recent spike in inflation after consumer prices hit 3.2% in August, its highest rate since March 2012.

It is also worth keeping in mind that the BoE was split evenly last month on whether the minimum conditions for a rate hike had been met. All eyes will be on whether the two new committee members impact this balance.

Looking at the technical picture, GBPUSD remains bearish on the daily charts. Sustained weakness below 1.3670 could open a path back down towards the July low at 1.3570. Alternatively, a solid move above 1.3670 could mean an advance towards 1.3750 might be on the cards.

Evergrande shares soar

Asian equity markets are having a good day as perceptions of reducing Evergrande risks lift sentiment. Evergrande’s stock price has rocketed over 20.0% higher in Hong Kong today despite any resolution probably meaning equity owners get wiped out. Much the same sentiment seemed to sweep New York markets overnight as it quickly became clear that the US dollar would be the Fed taper pressure valve, and not US bonds or stocks. That allowed Wall Street to seize the day on what it perceived as diminishing Evergrande tail risks.

The S&P 500 jumped by 0.95%, the Nasdaq leapt 1.02% higher and the Dow Jones powered to a 1.01% gain. Futures on all three have continued rallying in Asia, climbing by around 0.20%. Japan is on holiday today, but South Korea has returned with the Kospi playing catchup for the past three sessions, easing by 0.40%.

Elsewhere though it is Thunderbirds Are Go as Asian markets follow Wall Street and hitch a ride on Evergrande hopes. China’s Shanghai Composite has risen 0.70% with the CSI 300 climbing by 0.60%. Hong Kong is 0.65% higher thanks to the buying frenzy in Evergrande stock. Singapore has jumped 0.85% higher with Taipei gaining 0.90% and Kuala Lumpur rising by 0.50%. Manila is 1.05% higher ahead of a BSP decision expected to leave rates at record lows, while Bangkok is just 0.20% higher. Australian markets are rallying strongly as well, boosted by a continuing rally in commodities prices. The ASX 200 is 1.0% higher while the All Ordinaries has rallied by 1.15%.

European markets enjoyed a strong session yesterday thanks to Wall Street, and a Fed taper is probably good news for them in the medium term as the euro is likely to fall as euro-rates remain low forever. With Asia also climbing aboard the rally today, European equities should enjoy another strong start. My one caveat on all the joy in equities today is that much of it seems to be built on diminishing Evergrande tail-risks. I would argue that all it will take is one nasty headline to emerge on that front and the entire day’s rally could quickly evaporate.

Oil prices rise on falling US inventories

Oil prices powered higher overnight as official US Crude Inventories fell by 3.50 million barrels, sending US crude stocks to their lowest level in three years. With Gulf of Mexico production returning slowly, and natural gas prices remaining sky high, the structural outlook for oil remains promising as OPEC+ struggles to meet even its current production quotas.

Brent crude rose by 1.60% to USD 75.85 overnight, climbing another 0.65% to USD 76.35 a barrel in Asian trading today. WTI rallied 1.55% to USD 71.95 before climbing another 0.60% higher to USD 72.35 a barrel in the Asia sessions.

Brent crude has support at USD 74.50 and USD 73.35 a barrel, and only a fall through USD 72.00, where its 50 and 100-day moving averages (DMAs) lie, changes the medium-term bullish outlook. Resistance is nearby at USD 76.70 and a rally through that level signals more gains targeting USD 78.00 a barrel.

WTI has support at USD 72.00 and USD 70.70 a barrel. Only a failure of the USD 69.50 region, the week’s lows and the 50 and 100-DMAs, signals a chance in the bullish outlook. Resistance is at USD 73.00 and v74.25 a barrel. In any case, even if we get sudden downward spikes in either contract due to short-term long capitulation, sell-offs should be short in duration with plenty of longer-term buyers waiting to pounce.

FOMC and Evergrande send gold lower

The temporary lull in Evergrande nerves removed haven support from gold overnight, as did a stronger post-FOMC US dollar. Gold fell by 0.35% to USD 1768.00, having failed above daily resistance at USD 1780.00 an ounce intra-session. In Asia gold has eased once again after a giant rally in Evergrande stocks, falling by 0.23% to USD 1764.00 an ounce.

Much of gold’s recent rally has been built of increasing fear gauges led by our friends in China. It is unlikely that the Evergrande saga is past “peak-fear,” and we are probably only one headline from another havens rally. As such, gold is not likely to capitulate lower this week and should hold any dips towards support at USD 1740.00 an ounce. However, with a higher US dollar clearly the FOMC taper pressure valve at the moment, unless Evergrande turns into a contagion mess, gold is unlikely to gain enough momentum to recapture USD 1800.00 an ounce.

As such, I expect any gold rally this week to run out of momentum in the USD 1780.00 to USD 1790.00 an ounce zone, with v1740.00 an ounce covering support below. That should be a wide enough range to keep short-term traders happy, but I am afraid the Evergrande may only be giving long-term bullish investors a temporary respite.

The US dollar rises on FOMC tapering talk The US Dollar had a choppy session overnight but with the FOMC clearly signalling that a year-end start to tapering is imminent, and with more members joining the 2022 hiking club on the dot plot, the US dollar finished the night higher. It would appear, for now, that the US Dollar is the favoured method of expressing the Fed taper, and not equities or bonds. The dollar index finished 0.26% higher at 93.44, easing to 93.37 in Asia as profit-taking hit the market.

Among the majors, euro and sterling look the most intriguing. EUR/USD fell to 1.690 overnight before rising to 1.1705 in Asia. GBP/USD fell to 1.3617 overnight before recovering slightly to 1.3638 in Asia. Failure of 1.1680 on EUR/USD will signal a test of 1.1600. Failure if 1.1600 signals a larger move targeting 1.1200 to 1.1300 in the weeks ahead. GBP/USD appears to be tracing out a head and shoulders formation. Failure of around 1.3600 signals a 400 point move lower to 1.3200.

USD/JPY rose 0.50% to 109.80 overnight after the FOMC decision. Liquidity is much-diminished today with Japan away but any slight move higher in US yields should see 110.00 tested and a break of the recent 109.00 to 110.00 range. However, I believe that USD/JPY needs to break through the 110.50/111.00 range to signal a long-awaited directional move is finally occurring. That will likely require US yields to move quite a bit higher, certainly not a guaranteed outcome.

AUD/USD and NZD/USD have both eased back to their weekly lows today and look vulnerable to any negative headlines coming out of China. Asian currencies, for their part, have given ground only modestly overnight post-FOMC. Another neutral USD/CNY fixing from China is aiding stability in the region and it appears that regional currencies are being more responsive to positive or negative developments in Asia, rather than the US, for now.

I'm hearing the name Tina a lot these days and frankly, I can't disagree with it. Tina stands for “There Is No Alternative” and is mostly used these days to justify the relentless equity rally. With interest rates at rock bottom globally and zero in much of it, even a 2.0% yield on a half-decent stock looks attractive. In a world where the Italian and Greek governments can fund at close to zero per cent, and you have to pay the Germans for the right to lend them money, Tina looks even more attractive. No red carpet awards designer dress required.

China markets have taken Tina to heart today, sending Evergrande's shares 22.0% higher intra-day so far after Hong Kong, where they are listed, returned from holiday. Vacuous promises from the Evergrande Chairman that obligations home buyers and wealth management product owners would be met, along with being able to pay a local coupon payment today, have markets in a worst is over frenzy. China investors seem to have taken Tina to heart although Tina Evergrande does sound like the stage name of a Eurovision Song Contest contestant, the sacred peak of Euro musical talent.

A story posted by www.asiamarkets.com yesterday said that the China government is getting ready to take Evergrande over and split it into three separate companies to be folded into the bottomless maws of state-owned enterprises. That was apparently good news; certainly, mainland China and US markets thought so. I'm pretty sure though that Tina Evergrande holders would be left dressed in rags, making today's price action even more irrational. Nor is there any word yet on whether Evergrande intends to pay the coupon due today on its offshore US dollar bonds. It has 30 days to do so before being labelled a defaulter. The Eurovision song contest is often controversial, and I suspect Tina Evergrande will be just as much. I note that major shareholders are dumping their holdings into Tina Evergrande's rally today, so perhaps holding off on voting for her song, a better contestant will surely follow.

Speaking of Tina, we saw a similar effort in New York overnight. The FOMC meeting was interesting in that it signalled that a taper was almost locked and loaded to start by the end of the year. Perhaps more intriguing was the Fed dot plot. Half of the 18 committee members now have their first rate hike dot in 2022, and if employment accelerates along with inflation, more may join them. The reaction was what I expected though, such is life as a pilot pish in the world's capital markets. US yields stayed pretty much unmoved as expected. The US dollar rose which I did expect. But equity markets in the US rallied strongly. Not what I expected. I suspect Tina belted out a top-ten chorus after US yields stayed put and the encore was a diminishing of Evergrande nerves as outlined above. Tina may never win the Eurovision song contest, but until the cold reality of the Fed taper hits home, she is still going to sell a lot of records.

Markets in Asia have shrugged off Fitch's downgrade of China growth today, preferring Moody's narrative that China will permit faster credit in the second half of 2021, even though we are already halfway through it. Evergrande resolution hopes are also driving positive sentiment across equities and commodities where the dip-buyers were already out in force yesterday.

Looking ahead, we have more central banks to come today in a busy week for the masters of monetary policy. Norway will almost certainly hike rates today, the first G-10 central bank to do so. With oil and gas prices firm to stratospheric, it's hard to construct a bearish case for the Norwegian Krone at the moment. The Philippines will ignore above-target inflation once again and leave rates unchanged at 2.0%. ASEAN monetary policy is entirely focused on economic recovery, inflation be damned. Brazil hiked by 100 bps overnight, but Turkey will remain on hold today, lest another central bank governor joins the unemployment queue. The Bank of England will also remain on hold with some tail risk that they may signal more clearly, a tightening path. With gas prices wreaking havoc in Britain and not enough wind in the North Sea (who would have thought) to fill the energy gap, the BOE will probably sit on its hands.

• Fed signals November taper and early rate hike, but slow timeline lifts markets
• Dollar jumps in response before pulling back, Wall Street buoyed too
• Evergrande fears ease further, boosting sentiment
• Pound bounces off one-month lows, awaits BoE decision

Powell outlines taper roadmap

The Federal Reserve took its biggest step yet towards scaling back its pandemic stimulus on Wednesday following the conclusion of its two-day policy meeting. As expected, the Fed kept its policy unchanged but signalled that “a moderation in the pace of asset purchases may soon be warranted”. Chair Jerome Powell indicated that the Fed has already met its inflation goal for tapering, while all it would take to satisfy its employment test is another “reasonably good” jobs report.

His remarks make a November taper announcement almost certain, marking the end of an era of unprecedented stimulus for the US economy. Markets took the hawkish signals in their stride, with shares on Wall Street holding onto their session gains after the announcement. Powell’s suggestion that tapering could end in the middle of next year likely reassured investors as this was a longer timeline than the end of Q1 2022 that some FOMC members had hinted at.

However, what was more striking is that markets barely reacted to the updated dot plot chart. Policymakers are now pencilling in three rate hikes in 2023, which is slightly more hawkish than expected, but were split about the timing for the first rate hike, with half the committee expecting liftoff in 2022 and the other half in 2023.

Dollar gives up gains, stocks supported by bond market calm

The notably hawkish tilt boosted the greenback, pushing the dollar index to one-month highs, as the short end of the US yield curve steepened following the meeting.

However, the dollar is paring those gains today as long-term yields failed to catch up. The yield on 10-year Treasury notes slid on Wednesday and is up only modestly today. The lack of any hint of a taper tantrum in Treasuries is one explanation why the FOMC outcome was greeted positively by stock markets. If bond markets are signalling that interest rates won’t rise much in the long run and the Fed’s early action will likely be enough to keep a lid on inflation, then that’s good news for equities.

The S&P 500 closed up almost 1% yesterday, ending a four-day losing streak. The Dow Jones and Nasdaq Composite were up by a similar amount and US futures were pointing to solid gains for today as well.

US debt ceiling and Evergrande woes are a worry

A bigger worry, though, for US Treasuries, in the near term is Congress stalling on raising the debt ceiling on federal government borrowing. The House has already approved a bill for averting a possible government shutdown at the end of the month and suspending the ceiling so as to avoid a default. But the Senate has not even yet set a date for when it will debate the bill.

For now, there’s no sign of much panic but anxiety could increase in the coming days.

In broader equity markets, the mood was mostly upbeat, as fears about a global fallout from Evergrande’s debt crisis eased further on Thursday. The Hang Send index rebounded by more than 1% as Evergrande shares surged after the company said it reached a settlement with a major domestic bondholder on the interest payment that’s due today.

However, investors remain nervous about Evergrande’s cash flow problems as it’s still unclear whether it will be able to meet the payments for its dollar-denominated bonds.

Loonie soars, pound firmer ahead of BoE

In the FX sphere, the Canadian dollar was a surprise winner from the Fed meeting, jumping more than 1% over the last 24 hours. Despite the FOMC’s predictions of three rate increases in both 2023 and 2024, markets might be thinking the Bank of Canada will outpace the Fed over the coming years when it comes to policy tightening.

The Australian and New Zealand dollars also advanced firmly today, and the euro and pound weren’t far behind. The euro climbed back above the $1.17 handle as the US dollar was unable to hold onto yesterday’s gains. Traders ignored weaker-than-expected flash PMI numbers for September out of the Eurozone today.

Sterling was also on a steadier footing ahead of the Bank of England policy decision at 11:00 GMT. There’s a risk the BoE will cut the target of its asset purchases from the current £895 billion and pave the way for a rate hike in the first half of 2022. But investors aren’t as optimistic about the outlook given that the UK is facing a much more severe energy and supply shortages crisis than other countries.

There was little reaction in the Swiss franc after the SNB’s dovish hold at its meeting today.

Today in the late European session we get BoE's interest rate decision, and the bank is widely expected to remain on hold at 0.10%, as GBP OIS imply a probability of 98.93% for such a scenario to materialize and is also expected to keep its QE program unchanged. It should be noted that latest data released, showed that the employment market tightened in July and most importantly the UK CPI rates accelerated substantially, with the headline rate reaching an over nine year high at 3.2% yoy for August. It should be noted that BoE Governor Bailey in an interview early August had hinted that the bank's policymakers are evenly split in regards of tightening its policy or not. The dilemma for BoE is clear as should the bank tighten its monetary policy too early, it may undermine the recovery of the UK economy. If it tightens too late it may allow for inflationary pressures to be ingrained in the UK economy. Should there be any hints of an earlier tightening of the bank's monetary policy we may see the pound gaining.

GBP retreated against the USD yesterday, yet the 1.3600 (S1) support line held its ground. We tend to maintain a bearish outlook for cable as long as it remains below the downward trendline incepted since the 14th of September. Please note that the RSI indicator is between the readings of 50 and 30 implying that the bears may have the advantage. Should the bears actually remain in charge we may see the pair breaking the 1.3600 (S1) support line, which mind you was also tested on the 20th of August yet withstood the downward pressure. Should the bulls take over, we may see GBP/USD breaking the prementioned downward trendline and aim if not breach the 1.3750 (R1) resistance line.

USD gains on Fed's interest rate decision

USD rose yesterday against a number of its counterparts reaching levels not seen in a month after FOMC's interest rate decision as the bank seems to prepare to start tightening its monetary policy. The Fed left policy settings intact keeping rates at 0.0-0.25%, and asset purchases at $120 billion per month, and refrained from announcing the start of a possible taper yet in its statement the bank said that “a moderation in the pace of asset purchases may soon be warranted”. In the opening statement of his press conference Fed Chairman Powell outlined the timeline of a possible tapering with an end date being “around the middle of next year”, while half of FOMC participants forecast that conditions to start hiking rates seem to be reached by the end of 2022. Overall, the interest rate decision reflected the improvement of economic conditions in the US and well messaged the bank's intentions.

The USD Index rose yesterday breaking the 93.20 (S1) resistance line, now turned to support. We tend to see slight bullish tendencies still being present despite the correction lower during today's European session, as the RSI indicator, below our 4-hour chart is between the readings of 50 and 70. Should the buying interest be actually maintained, we may see the index rising and breaking the 93.70 (R1) resistance line. Should the correction lower be extended and a selling interest be displayed for the Dollar, we may see the index breaking below the 93.20 (S1) support line and aim for the 92.85 (S2) level.

Other economic highlights today and the following Asian session:

Today we highlight the release of the preliminary PMI figures from the Eurozone, UK and the US while we also note the interest rate decisions of SNB from Switzerland which is expected to remain on hold, Norgesbank from Norway which could proceed with its first post-pandemic rate hike and CBT from Turkey which is expected to remain on hold. In the American session, Canada's retail sales for July are to be released, while in tomorrow's Asian session we get from Japan the inflation rates for August as well as the preliminary Jibun bank manufacturing PMI for September.

USD Index H4 Chart

Support: 93.20 (S1), 92.85 (S2), 92.40 (S3)

Resistance: 93.70 (R1), 94.10 (R2), 94.55 (R3)

GBP/USD Cash H4 Chart

Support: 1.3600 (S1), 1.3430 (S2), 1.3300 (S3)

Resistance: 1.3750 (R1), 1.3875 (R2), 1.3990 (R3)

The EUR/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.1721
Prev Close: 1.1688
% chg. over the last day: -0.28%

Despite the fact that the Federal Reserve plans to start cutting its QE program soon, the Fed is still expecting confident economic growth. The Fed predicts that high inflation will remain for a few more months but then return to the target level. But if inflation continues to rise, the Fed will act more decisively.

Trading recommendations

Support levels: 1.1704, 1.1620
Resistance levels: 1.1772, 1.1802, 1.1835, 1.1894, 1.1934, 1.1969

From the technical point of view, the general trend of the EUR/USD currency pair is bullish, but it is very close to its end. Yesterday, the price even broke through the level below but failed to consolidate. The MACD indicator shows a divergence. Under such market conditions, buy deals can be considered from the priority change level. It is best to look for sell trades throughout the day, from the resistance zone near the moving average or after the breakdown of priority change level.

Alternative scenario: if the price breaks down through the 1.1704 support level and fixes below, the mid-term uptrend will likely be broken.

News feed for 2021.09.23:

• German Manufacturing PMI (m/m) at 10:30 (GMT+3);
• German Service PMI (m/m) at 10:30 (GMT+3);
• Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+3);
• Eurozone Service PMI (m/m) at 11:00 (GMT+3);
• US Initial Jobless Claims (w/w) at 15:30 (GMT+3);
• US Manufacturing PMI (m/m) at 16:45 (GMT+3);
• US Service PMI (m/m) at 16:45 (GMT+3).

The GBP/USD currency pair

Technical indicators of the currency pair:

Prev Open: 1.3656
Prev Close: 1.3616
% chg. over the last day: -0.29%

The dollar index strengthened after the Fed meeting, which caused major currency pairs to fall against the US dollar. The British pound decreased by 0.29% yesterday. Today, the Bank of England holds a meeting where the monetary policy statement and the interest rate decision will be published. No surprises are expected, most likely, everything will remain as it is, but volatility will be higher.

Trading recommendations

Support levels: 1.3629, 1.3614, 1.3525
Resistance levels: 1.3701, 1.3769, 1.3812, 1.3886, 1.3935, 1.4002

On the hourly time frame, the GBP/USD trend is bearish. The MACD indicator shows a divergence. Under such market conditions, it is better to look for sell trades from the resistance levels near the moving average line. Buy deals should be considered only intraday and only with short targets from the buyers' initiative zone.

Alternative scenario: if the price breaks out through the 1.3812 resistance level and consolidates above, the bullish scenario will likely resume.

News feed for 2021.09.23:

• UK Manufacturing PMI (m/m) at 11:30 (GMT+3);
• UK Service PMI (m/m) at 11:30 (GMT+3);
• UK BoE Interest Rate Decision at 14:00 (GMT+3);
• UK BoE Monetary Policy Statement at 14:00 (GMT+3).

The USD/JPY currency pair

Technical indicators of the currency pair:

Prev Open: 109.20
Prev Close: 109.80
% chg. over the last day: +0.55%

The USD/JPY currency pair sharply jumped yesterday amid a rise in the dollar index. Today is the bank holiday in Japan, so the volatility of currency pairs with the Japanese yen will be lower than usual.

Trading recommendations

Support levels: 109.52, 109.28, 108.65
Resistance levels: 109.88, 110.09, 110.40, 110.66, 110.95

The main trend of the USD/JPY currency pair is bearish. Due to the fact that the Bank of Japan did not cut its easing program, the Japanese Yen lost some of its positions. The MACD indicator has become positive, with no signs of a reversal. Under such market conditions, traders should look for sell positions from the resistance level. Only intraday buy positions from the support levels should be considered, where there is an initiative of buyers.

Alternative scenario: if the price rises above 110.09, the uptrend is likely to resume.

The USD/CAD currency pair

Technical indicators of the currency pair:

Prev Open: 1.2812
Prev Close: 1.2774
% chg. over the last day: -0.29%

The Canadian dollar is a commodity currency, so the USD/CAD currency pair is highly dependent on the dynamics of the dollar index and oil prices. Both the dollar index and oil sharply increased yesterday, but oil quotes were more influential. As a result, the Canadian dollar gained some strength.

Trading recommendations

Support levels: 1.2726, 1.2646, 1.2583, 1.2518, 1.2425
Resistance levels: 1.2812, 1.2891, 1.2951

From the technical point of view, the situation is uncertain, but there is a slight dominance of upward movement. The MACD indicator is inactive. The MACD indicator has become inactive too. Under such market conditions, it is better to trade within the local trend, which is obviously bullish. It is best to look for buy trades from the support levels near the moving average. There are no optimal entry points for sell positions now.

Alternative scenario: if the price breaks down through the 1.2646 support level and fixes below, the uptrend will likely be broken.

News feed for 2021.09.23:

• Canada Retail Sales (m/m) at 15:30 (GMT+3).

UK PMI Manufacturing dropped from 60.3 to 56.3 in September, below expectation of 59.0, a 7-month low. PMI Services dropped from 55.0 to 54.6, below expectation of 55.0, a 7-month low. PMI Composite dropped from 54.8 to 54.1, also a 7-month low.

Chris Williamson, Chief Business Economist at IHS Markit, said:

"The September PMI data will add to worries that the UK economy is heading towards a bout of 'stagflation', with growth continuing to trend lower while prices surge ever higher.

"While there are clear signs that demand is cooling since peaking in the second quarter, the survey also points to business activity being increasingly constrained by shortages of materials and labour, most notably in the manufacturing sector but also in some services firms. ...

"Shortages are meanwhile driving up prices at unprecedented rates as firms pass on higher supplier charges and increases in staff pay...

"Business expectations for the year ahead are meanwhile down to their lowest since January, with concerns over both supply and demand amid the ongoing pandemic casting a shadow over prospects for the economy as we move into the autumn."

Full release here.