There are tentative signs of support for risk assets today, with indices ticking higher. However, with the markets seeing the glass half empty, there is a broader negative bias still in play. USD recovering again will not help this.
- Main drivers: Sentiment swings again, with indices falling once more; higher bond yields driving USD gains; Reserve Bank of New Zealand 25bps rate hike as expected; Oil continues higher as energy prices push highs; US ADP data due.
- Uncertain sentiment continues: the daily swing of sentiment has turned back lower once more today after yesterday’s gains. There is still a feeling that indices are unable to build any recovery traction yet.
- Rising bond yields, rising USD: rising bond yields are coming as inflation pressures mount once more. This is helping to support USD but this tends to come with falling equity markets.
- RBNZ hikes as expected: the Reserve Bank of New Zealand has increased the OCR (interest rates) by 25 basis points to 0.50%. It has also confirmed that further removal of monetary policy stimulus is needed over time. The economy is running hot, with inflation at 3.3%, a tight labour market and soaring house prices. The interest rate hike was entirely expected by consensus and for NZD it seems to have been a case of “buy on rumour, sell on fact”.
- Oil: Oil continues to rally as energy prices climb ever higher. Natural Gas prices continue to pull higher, helping to drive the demand for oil through the energy switch.
- Central bank speakers: FOMC’s Raphael Bostic (2021 voter, hawkish) speaks at 1300GMT.
- Data watch: US ADP Employment at 1215GMT is expected to improve to 425,000 in September (from 374,000 in August). Traders will keep an eye on this as it was a good indication for Nonfarm Payrolls last month.
- Broad outlook: Equity markets fall over again and are testing key support. USD gaining across major forex pairs. The rally on precious metals commodities is faltering, although oil continues to climb.
- Forex: EUR/USD downside is growing and key support at 1.1560 is being tested. Our bearish conviction grows on a close below 1.1560 for moves towards next support at 1.1420/1.1490. GBP/USD has been performing relatively well recently, but the technical rally is faltering around 1.3650 and is now turning lower today. A close below 1.3570 re-engages downside momentum, with negative conviction growing below 1.3530 for a retest of 1.3410. USD/JPY pulling decisively higher from key support at 110.60/110.80. We prefer long positions and to buy into weakness for 112.00/112.20 to be tested.
- Commodities: The gold outlook still has some uncertainty but the rally is threatening to fall over again as resistance at $1769 is formed. A decisive move below $1745 regains downside momentum. We remain sellers into this near term recovery but wait for the initial supports to fail before looking towards $1720 and $1700 once more. Silver rebound is faltering once more around the key resistance $22.75/$23.00. A move back under $22.25 initial support opens for renewed downside momentum. For $22.00 and $21.40. Brent Crude oil intrada consolidations continue to be bought into and the price seems to be on course for testing the next key resistance at $86.95.
- Indices: There is still a negative bias, with the bulls struggling to sustain any recovery traction. S&P 500 futures are once more dipping into 4223/4295 key support area. A close below 4395 would be a concern now. Momentum remains corrective and rallies are being sold into. A recovery through 4388 is needed for sustainable recovery. DAX is the market that seems to be under the most pressure, with a decisive move below 15,000 today. Crucial support at 14,810 needs to be watched as a closing break would be bearish. FTSE 100 dropping below 7000 is a concern but is still just mid-range support.