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Since we've been watching markets, prognosticators haven't stopped warning about the risks in China. Needless to say, none were remotely true, but the drumbeat of predictions of an imminent collapse or slowdown in the economy for various reasons became so frequent that they're routinely drowned out. Watch out for the US CPI due next.

It's a case of the 'the boy who cried wolf' and markets have become largely desensitized to China. Or at least global markets have.

The rout in Chinese markets has grown violent and persistent. Particularly worrisome are the $305 billion in Evergrande bonds. The securities of China's second-largest property developer are trading as if bankruptcy is imminent, potentially leaving millions of Chinese home buyers and many contractors with unpaid bills and unfinished projects. A protest from 100 disgruntled investors descended on the company Monday in Shenzhen.

Evergrande's problems coincide with crackdowns at Chinese tech and media companies as President Xi pushes to reform society. Officials have touched on a push for 'common prosperity' in a possible hint at wealth distribution or the formation of a stronger social safety net.

The shifts have come at the same time as China fights to restrain prices in commodity markets, including an announcement – without mentioning size of timing – of a release of strategic oil reserves.

All this has come at a period when Chinese economic data has consistently undershot negative growth. GDP growth has been the guiding star of Chinese policy for a generation but the shift to a consumer-led economy has been difficult and officials may try to ditch those targets to save face while reframing the goals towards common prosperity and social progress.

Along with these shifts, we worry that the recent softness in equity markets reflects risks around China. It's clear that Fed policy is less of a concern, with comments from top officials failing to move the market. Does it really matter if the taper is in November or December?

For now, there's no definitive trade on China but we will be watching very closely.

Notes/Observations

• European CPI readings making difficult to believe that inflationary pressures are transitory (Spain Final Aug reading revised higher; Sweden comes in above target).
• UK labor data showing a buoyant market with the number of workers on company payrolls climbing above its pre-pandemic level.
• Focus turns to US Aug CPI reading ahead of next week FOMC rate decision.

Asia

• RBA Gov Lowe stated that Q3 GDP was likely down 'at least' 2%, could be significantly lower; Delay in taper review to Feb due to delayed recovery. Expected economy to be growing again in Q4 and recovery to continue into 2022.

Coronavirus

• China’s Fujian province went into lockdown on Mon, Sept 13th after recording 135 new Covid-19 cases in the latest outbreak.
• Australia’s Canberra regional lockdown will be extended by 4 weeks.
• UK PM Johnson to confirm in his press conference on Tuesday that people over 50 years old to be offered a Pfizer or Moderna Cocid-19 vaccine shot; children over 12 may also receive a first dose to protect against a “prolonged and unpredictable“ winter.
• UK Ministers were expected to announce booster shots for the over 50s after getting advice from the JCVI as part of their Covid winter plan.

Europe

• UK Brexit Min Frost stated that EU should take UK's warning over Northern Ireland protocol seriously; There must be a real negotiation with EU over Northern Ireland.
• France Central Bank updated economic forecasts which raised 2021 GDP growth from 5.8% to 6.3% while cutting 2022 GDP growth from 4.1% to 3.7%. Forecasted 2021 CPI at 1.8% and 2022 CPI at 1.4%.
• Norway center-left opposition forecast to win parliamentary election. Norway PM Solberg later conceded defeat in the General Election. Labour Leader Gahr stated that would seek to form a centre left govt.

Americas

• Senate Republicans threatened to indefinitely hold up the nominations of 5 top Treasury Department officials until the Biden administration blacklists Russia-owned Nord Stream 2.

Energy

• NHC: Nicholas upgraded to hurricane, expected to bring heavy rain/flooding along Texas/Louisiana Gulf Coast this week.

Speakers/Fixed income/FX/Commodities/Erratum

Equities

• Indices [Stoxx600 -0.07% at 467.36, FTSE -0.19% at 7,054.85, DAX +0.13% at 15,721.15, CAC-40 -0.49% at 6,643.96, IBEX-35 +0.14% at #, FTSE MIB +0.56% at 26,072.00, SMI +0.08% at 12,085.06 , S&P 500 Futures +0.15%].

Market Focal Points/Key Themes:

Equities

• European indices opened lower across the board but turned around to trade mixed in last hour; Dax and FTSE MIB slightly outperforming others indexes; sectors leading to the upside include industrials and technology; while sectors that are weighing on the indexes includes energy amid Hurricane Nicholas impacts some Royal Dutch Shell’s sites; on corporate front retailers Pandora and JD Sports Fashion both trade sharply higher following their upgraded outlooks; Ocado in London trades lower 3% following its trading update and disappointing Kantar data; upcoming US morning earners include FuelCell Energy, AstroNova.
• Consumer discretionary: Pandora [PNDORA.DK] +5% (targets; buyback), JD Sports Fashion [JD.UK] +6% (earnings; raises outlook), Vivendi [VIV.FR] +1% (Universal Music Group prospectus), Ocado [OCDO.UK] -3% (trading update; Kantar sales), Smart Metering Systems {SMS.UK] -12% (placement; earnings), DeLonghi [DLG.IT] -7% (placement).
• Technology: Argo Blockchain [ARB.UK] +7% (US IPO).

Speakers

• ECB's Villeroy (France) reiterated Council view that pick-up in inflation seen as transitory; ECB to remain vigilant.
• ECB’s Weidmann (Germany): central bank digital currencies (CBDC) should have limited features initially with additional functionalities added later. Success depended on trust rather than speed.
• EU Commission approved €3.0B fund for France to use to recapitalize companies impacted by pandemic.
• Russia President Putin to self-isolate due to covid found among entourage.
• Ukraine PM Shmyhal stated that govt had fulfilled all IMF benchmarks and expected to to receive $750M.
• Bank of Korea (BOK) Aug Minutes: Member noted CPI above target could last longer than forecasted. Member Joo stated that a rate hike was not a fundamental solution to address household debt issue. A member noted that was doubtful a rate change could cool the rise in home prices.
• IEA Monthly Oil Report: global oil demand to grow until year-end. Impact of Hurricane Ida and other oil supply outages would take a sizable chunk out of global oil production in 2021. Oil supply uptrend to resume in Oct. Cuts 2021 global oil demand growth from 5.3M bpd to 5.2M bpd while maintaining 2022 global oil demand growth at 3.2M bpd.

Currencies/Fixed Income

• European CPI readings made it difficult to believe that inflationary pressures were transitory (Spain Final Aug reading revised higher; Sweden comes in above target).
• USD saw some initial strength evaporate in quiet trading. Focus turns to US Aug CPI reading ahead of next week FOMC rate decision and clues on tapering.
• EUR/USD holding above the 1.1820 area. ECB to publish its weekly QE bond buying figures for clues on the revised slower pace of PEPP buying for the upcoming quarter.
• GBP was higher as UK labor data showed a buoyant market with the number of workers on company payrolls climbing above its pre-pandemic level. GBP/USD at 1.3875 by mid-session.
• SEK currency (Kroner) was firmer after CPI data. Analysts noted that the Riksbank could exit its extraordinary measures earlier than expected (**Note: Current forward guidance is that the Repo Rate to remain at current level in coming years, at least until Q3 2024).

Economic data

• (SE) Sweden Aug PES Unemployment Rate: 3.9%v 3.9% prior.
• (FI) Finland Aug CPI M/M: 0.2% v 0.3% prior; Y/Y: 2.2% v 1.9% prior.
• (FI) Finland July Final Retail Sales Volume Y/Y: 3.4% v 1.4% prelim.
• (FR) Bank of France Aug Industry (Business) Sentiment: 104 v 105e.
• (UK) Aug Jobless Claims Change: -58.6K v -48.9K prior; Claimant Count Rate: 5.4% v 5.6% prior.
• (UK) July Average Weekly Earnings 3M/Y: 8.3% v 8.2%e; Weekly Earnings (ex-bonus) 3M/Y: 6.8% v 6.8%e.
• (UK) July ILO Unemployment Rate: 4.6% v 4.6%e; Employment Change 3M/3M: +183K v +199Ke.
• (IN) India Aug Wholesale Prices (WPI) Y/Y: 11.4% v 10.8%e.
• (CH) Swiss Aug Producer & Import Prices M/M: 0.7% v 0.5% prior; Y/Y: 4.4% v 3.3% prior.
• (ES) Spain Aug Final CPI M/M: 0.5% v 0.4%e; Y/Y: 3.3% v 3.3%e.
• (ES) Spain Aug Final CPI EU Harmonized M/M: 0.4% v 0.4%e; Y/Y: 3.3% v 3.3%e.
• (ES) Spain Aug CPI Core M/M: +0.1% v -0.9% prior; Y/Y: 0.7% v 0.6% prior.
• (SE) Sweden Aug CPI M/M: 0.5% v 0.2%e; Y/Y: 2.1% v 1.6%e; CPI Level: 343.99 v 342.86e.
• (SE) Sweden Aug CPIF M/M: 0.5% v 0.2%e; Y/Y: 2.4% v 1.9%e.
• (SE) Sweden Aug CPIF (ex-energy) M/M: 0.3% v 0.0%e; Y/Y: 1.4% v 1.1%e.
• (NO) Norway Aug Region Output Survey (past 3 months): 1.79 v 0.44 prior; Output Survey (next 6 months): 1.65 v 1.88 prior.
• (IS) Iceland Aug International Reserves (ISK): 931B v 859B prior.

Fixed income Issuance

• (EU) European Union opened its book to sell EUR-denominated NextGeneration (INGEU) 7-year bond via syndicate; spread set at -14bps to mid-swaps ; order book above €85B.
• (HU) Hungary Debt Agency (AKK) opened its book to sell USD-denominated 10-year and 30-year bonds via syndicate.
• (CL) Chile opened its book to sell EUR-denominated 7-year social bond; guidance seen +100bps to mid-swaps.
• (NL) Netherlands Debt Agency (DSTA) sold €1.98B vs. €1.0-2.0B indicated range in 0.00% Jan 2052 DSL Bonds; Avg Yield: % v -0.027% prior.
• (ES) Spain Debt Agency (Tesoro) sold total €2.83B vs. €1.0-2.0B indicated range in 3-month and 9-month bills.
• (ID) Indonesia sold total IDR21.0T vs. IDR21.0T target in bills and bonds.
• (UK) DMO sold £3.0B in 0.375% Oct 2026 Gilts; Avg Yield: 0.429% v 0.324% prior; bid-to-cover: 2.67x v 2.11x prior; Tail: 0.2bps v 0.9bps prior.
• (IT) Italy Debt Agency (Tesoro) sold total €5.75B vs. €4.25-5.75B indicated range in 3-year, 7-year and 30-year BTP Bonds.
• Sold €2.0B vs. €1.5-2.0B indicated range in 0.00% Aug 2024 BTP; Avg Yield: -0.27% v -0.19% prior Bid-to-cover: 1.65x v 1.34x prior.
• Sold €2.0B vs. €1.5-2.0B indicated range in 0.50% July 2028 BTP; Avg Yield: 0.32% v 0.38% prior; bid-to-cover: 1.58x v 1.50x.
• Sold €1.75B vs. €1.25-1.75B indicated range in 1.70% Sept 2051 BTP bonds; Avg Yield: 1.69% v 2.06% prior; Bid-to-cover: 1.47x v 1.30x prior.

Looking Ahead

• 05:15 (CH) Switzerland to sell 3-month Bills.
• 05:25 (EU) Daily ECB Liquidity Stats.
• 05:30 (ZA) South Africa July Total Mining Production data (no est).
• 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.
• 05:30 (DE) Germany to sell €5.0B in 0.00% Sept 2023 Schatz.
• 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).
• 05:30 (ZA) South Africa to sell combined ZAR3.9B in 2030, 2032 and 2044 bonds.
• 06:00 (IL) Israel Q2 Preliminary GDP Annualized (2nd reading): No est v 15.4% advance.
• 06:00 (IL) Israel Q2 Current Account Balance: No est v $5.9B prior.
• 06:00 (US) Aug NFIB Small Business Optimism: 99.0e v 99.7 prior.
• 06:00 (FI) Finland to sell combined €1.5B in 9-month and 12-month Bills.
• 06:30 (EU) ESM to sell €1.1B in 12-month Bills.
• 06:45 (US) Daily Libor Fixing.
• 08:00 (BR) Brazil July IBGE Services Sector Volume Y/Y: 18.0%e v 21.1% prior.
• 08:00 (UK) Daily Baltic Dry Bulk Index.
• 08:30 (US) Aug CPI M/M: 0.4%e v 0.5% prior; Y/Y: 5.3%e v 5.4% prior.
• 08:30 (US) Aug CPI (ex-food/energy) M/M: 0.3%e v 0.3% prior; Y/Y: 4.2%e v 4.3% prior.
• 08:30 (US) Aug CPI Index NSA: 272.835e v 273.003 prior; CPI Core Index SA: 279.740e v 279.054 prior.
• 08:30 (US) Aug Real Avg Weekly Earnings Y/Y: No est v -0.7% prior; Real Avg Hourly Earning Y/Y: No est v -1.2% prior.
• 08:30 (CA) Canada July Manufacturing Sales M/M: -1.0%e v +2.1% prior.
• 08:55 (US) Weekly Redbook LFL Sales data.
• 09:00 (EU) Weekly ECB Forex Reserves.
• 09:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).
• 09:45 (EU) ECB weekly QE bond buying update.
• 09:45 (UK) BOE to buy £1.47B in APF Gilt purchase operation (20+ years).
• 10:00 (MX) Mexico Weekly International Reserve data.
• 10:30 (CA) Canada to sell 3-month, 6-month and 12-month Bills.
• 11:30 (IL) Israel Aug CPI M/M: 0.3%e v 0.4% prior; Y/Y: 2.2%e v 1.9% prior.
• 15:00 (AR) Argentina Aug National CPI M/M: 2.9%e v 3.0% prior; Y/Y: 52.1%e v 51.8% prior.
• 16:30 (US) Weekly API Oil Inventories.
• 18:45 (NZ) New Zealand Q2 Current Account Balance (NZD): -1.7Be v -2.9B prior; Current Account GDP Ratio: -3.3%e v -2.2% prior.
• 19:00 (KR) South Korea Aug Unemployment Rate: 3.5%e v 3.3% prior.
• 19:50 (JP) Japan July Core Machine Orders M/M: +2.5%e v -1.5% prior; Y/Y: 14.8%e v 18.6% prior.
• 20:30 (AU) Australia Sept Consumer Confidence Index: No est v 104.1 prior.
• 21:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years, 3~5 Years and 5~10 Years maturities.
• 21:30 (CN) China Aug New Home Prices M/M: No est v 0.3% prior.
• 21:30 (CN) China Aug Retail Sales Y/Y: 7.0%e v 8.5% prior; Retail Sales YTD Y/Y: 18.9%e v 20.7% prior.
• 21:30 (CN) China Aug Industrial Production Y/Y: 5.8%e v 6.4% prior; Industrial Production YTD Y/Y: 13.5%e v 14.4% prior.
• 21:30 (CN) China Aug YTD Fixed Urban Assets Y/Y: 9.0%e v 10.3% prior.
• 21:30 (KR) Bank of Korea (BOK) to sell KRW1.0T in 3-year Bonds.
• 22:00 (CN) China Aug YTD Property Investment Y/Y: 11.3%e v 12.7% prior.
• 22:00 (CN) China Aug Surveyed Jobless Rate: 5.1%e v 5.1% prior.
• 23:00 (CN) China to sell 1-year and 10-year Upsize Bonds.
• 23:00 (TH) Thailand Govt to sell combined THB20B in 2035 and 2049 Bonds.

The British Pound has edged higher by 1.53% against the Australian Dollar since September 5. The currency pair breached the 50– period simple moving average on September 9.

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

If the breakout occurs, a surge towards the 1.9100 level could be expected during the following trading sessions.

However, if the channel pattern holds, bearish traders might pressure the GBP/AUD currency exchange rate lower this week.

The GBP/CAD currency pair bounced off the lower boundary of an ascending channel pattern at 1.7300 on September 3. As a result, the British Pound has surged by 1.30% against the Canadian Dollar during this period.

Technical indicators suggest buying signals on the 4H, daily and weekly time-frame charts. Most likely, buyers could continue to drive the exchange rate higher during the following trading sessions.

However, bullish traders might encounter resistance at 1.7550 within this week's trading sessions.

EURJPY has found some positive footing at 129.61, which happens to be a level of confluence and the 50.0% Fibonacci retracement of the up leg from 125.08 until 134.12. Positive factors that may contribute to reviving upside momentum are the persistent backing of the positive structure by the 100- and 200-day simple moving averages (SMAs), together with the easing in the 50-day SMA's negative bearing.

The short-term oscillators are also suggesting a growing bullish drive. The MACD has nudged a tad above its red trigger line, while the RSI has rebounded off the 50 threshold and is improving in the bullish region. The stochastic oscillator is also promoting additional gains in the pair.

If the current price trajectory persists, buyers may face a primary resistance zone between the 38.2% Fibo of 130.66 and the 100-day SMA at 131.00. Surpassing the upper Bollinger band and the 131.00 hurdle could propel the pair towards the 23.6% Fibo at 132.00 ahead of the 132.42-132.69 barricade overhead. In the event buyers manage to acquire even more ground, they may then challenge the near 40-month region of peaks between 133.57 and 134.12.

To the downside, sellers will need to initially drive the price beneath the 50.0% Fibo of 129.61, simultaneously breaching the 50- and 200-day SMAs as well as the mid-Bollinger band, which are converging at this level. Moving down from this critical mark, sellers could then meet the 61.8% Fibo of 128.52 prior to testing the lower Bollinger band at 128.20 and the adjacent trough of 127.92. Resuming the decline, the pair may hit the 76.4% Fibo of 127.24 before the 126.09 low comes into play.

Summarizing, EURJPY is sustaining a neutral-to-bullish tone in the medium-term as the price holds above the 50.0% Fibo of 129.61 and the 200-day SMA. In the short-term picture a stronger price move could evolve with a break either below 127.92 or above 131.00.

The GBP/NZD is bullish and we might expect a continuation move up.

1.9480 is the breakout point of the bullish pattern where we might expect a continuation move. The intraday target is 1.9523 but we could probably see a swing if the daily candle closes above it. In that case the target will be 1.9660 followed by 1.9770. The GBP/NZD is showing a confluence structure at the bottom and I only see bulls.

Since September 8, the price for gold has continued to fluctuate sideways between a support zone below the 1,785.00 level and resistance above the 1,800.00 mark. On Tuesday, the price was reached by the resistance of the 100-hour simple moving average, which together with the 55-hour SMA started to push the metal down.

If the hourly simple moving averages manage to push the price through the support of the 1,785.00 zone, the metal could look for support in round price levels, as it did in August.

On the other hand, a surge above the 55 and 100-hour SMAs would most likely encounter resistance in the 1,800.00/1,805.00 zone.

Since Monday the USD/JPY pair has been fluctuating near the 110.00 mark. Despite the rate trading almost sideways it appears that the volatility of the currency exchange rate has been decreasing. Due to that reason a larger move up or down could be expected.

In the case of a potential surge, the rate would first test the resistance zone near the 110.25 level. However, the 110.25 zone acted as resistance mostly in August. In September, the rate passed the 110.25 twice and reached the 110.40 level.

Meanwhile, a decline of the pair would look for support in the 55-hour SMA, which has been acting as a support level since middle of Monday. A move below the SMA could reach for the September low levels near 109.60.

On Tuesday, the GBP/USD currency exchange rate surged and touched the 1.3880 level. The zone above this level has kept the currency pair down throughout September.

If the pair manages to break the resistance of the 1.3880 zone, the rate could reach for the resistance of the 1.3900 mark and the weekly R1 simple pivot point at 1.3910. Above these levels, the weekly R2 provides resistance at 1.3981.

On the other hand, another bounce off from the resistance zone could look for support in the 55-hour simple moving average at 1.3844. Below the SMA, two additional SMAs could act as support. Namely, the 100 and 200-hour simple moving averages on Tuesday were located near 1.3820.

On Tuesday, Dukascopy Analytics spotted a channel down pattern on the EUR/USD hourly candle chart. The pattern appears to have guided the pair down since the September 3 bounce off from the resistance of the 1.1900 level. During Tuesday's morning trading hours, the rate was testing the resistance of the pattern near 1.1830.

If the rate bounced off the resistance line, it would most likely look for support first in the 55 and 100-hour simple moving averages near 1.1815. Afterwards, the rate could find support in the weekly S1 simple pivot point. However, take into account that the pivot point failed to provide support during Monday's trading.

On the other hand, a breaking of the resistance line could result in the rate testing the combined resistance of the weekly simple pivot point and the 200-hour simple moving averages at 1.1836 and 1.1840. Above these levels, the weekly R1 simple pivot point stands at 1.1869.