The rising US bond yields have been a significant drag lower on Wall Street in recent sessions (and for much of 2022 so far). This has pulled NASDAQ into “correction” territory of -10% from its highs. Yields are easing back slightly today and this is allowing Wall Street to find some support. There is no tier one US data of note this week, although today still has a few snippets that traders may be interested in. For market participants, the focus remains on the direction of bond yields to be the key driver of major markets.
Away from the US, Eurozone final inflation is not expected to throw up too many surprises, whilst focus will also be on the ECB meeting minutes. The ECB is way behind the Fed and Bank of England on tightening policy but rising inflation could change this in the coming months. It will be interesting to see what ECB members think.
Main drivers: Market sentiment looking to recover; PBoC rate cut; Australian unemployment better than expected; Economic calendar: Eurozone final inflation, ECB minutes, Weekly Jobless Claims and Existing Home Sales, also Japanese core CPI late on
Sentiment rebounding: After Wall Street fell again last night, markets are looking to recover today. European indices have a little hangover from the Wall Street session, but US futures are positive at least today. USD is slipping back once more.
US bond yields slipping back: The US 10 year closed marginally lower yesterday and is slightly lower again today at 1.84% (down from yesterday’s intraday high of 1.90%). This is taking the momentum out of a near-term USD recovery. [Risk positive]
Peoples’ Bank of China cuts Loan Prime Rate: On a one-year basis, the LPR was cut by -10bps and on a five-year basis cut by -5bps. [Mildly risk supportive]
Australian unemployment lower than forecast: December employment grew by 64,800 (better than the 43,300 exp) and the unemployment rate fell much more than forecast to 4.2% (4.5% exp, 4.6% last). Investment banks are bringing forward expectations of tighter monetary policy [AUD positive]
Central Bank speak: There are no speakers scheduled for today
- Eurozone final inflation (at 1000GMT). Inflation is expected to be unrevised, with headline CPI at +5.0% and core CPI at +2.6% i
- ECB meeting accounts (at 1230GMT)
- Weekly Jobless Claims (at 1330GMT) is expected to improve slightly to 220,000 (from 230,000 last week)
- Philly Fed Manufacturing (at 1330GMT) is expected to improve to +19.8 (from +15.4) but after the sharp negative surprise from the NY Fed, this will be an interesting data point.
- Existing Home Sales (at 1500GMT) are expected to decline slightly to 6.44m in December (from 6.46m in November)
- Japan core CPI (at 2330GMT) is expected to increase to +0.6% in December (from +0.5% in November)
Broad outlook: A mild positive bias is creeping back in for the European session. Forex pairs are showing USD underperformance, but indices and commodities are mixed.
Forex: Mild USD underperformance again today, with AUD the main outperformer.
- EUR/USD is creeping higher again for a second day, up from 1.1315 support. The market is now testing 1.1360/1.1385 resistance again. Breaking back above this level re-engages the bulls.
- GBP/USD continues to hold the support at 1.3570 and the market is looking to tick higher again today after yesterday’s choppy session. A move above 1.13650/1.3660 re-engages the recovery. We look to use this weakness as a chance to buy. Resistance at 1.3750 is growing in importance.
- AUD/USD has picked up well from support around 0.7170. The outlook remains positive within an uptrend channel and ticking higher to hold above 0.7207 will bolster the improving outlook. The higher low at 0.7129 is a key support to prevent a renewal of the negative outlook. Resistance is growing at 0.7265/0.7315.
Commodities: precious metals have realigned as gold joins silver in a breakout. Holding these moves will now be key. Oil remains strong at multi-year highs.
- Gold has broken out above the resistance at $1829/$1832 but now needs to hold the move. Momentum also needs to confirm the breakout. The old resistance is now supportive between $1829/$1832. Initial resistance is now $1844 but a move to test $1848/$1877 could be seen if the breakout can be held.
- Silver is consolidating following the breakout above key resistance at $23.25/$23.45 yesterday. Technicals are increasingly positive for recovery but are a little stretched near term. The old resistance becomes a basis of support now. The next resistance is $24.80/$25.40.
- Brent Crude oil has just pulled back slightly from the $89.22 multi-year high of yesterday’s session. We continue to see near-term unwinding moves back towards the five-week uptrend as a chance to buy. The old key highs between $86/$87 are a basis of support now.
Indices: Wall Street is rebounding from another sell-off yesterday. European indices are cautious in early moves.
- S&P 500 futures have decisively broken the long-term primary uptrend channel support and despite the early rebound today, we cannot rule out further weakness to test 4491/4512. Reaction to the overhead supply now between 4572/4605 will still be key near term, however, the market needs a move above 4671 to signal a sustainable recovery.
- DAX is trending lower with a series of lower highs and finding resistance around the old 15,800/15,870 pivot area. A top pattern implies downside towards 15,300 could now be seen in the coming weeks. Initial support is at 15,623. Resistance is mounting between 15,900/15,970.
- FTSE 100 has hit another multi-year high today but pulled back. Moves are increasingly choppy on the intraday chart, but the reaction around 7513/7527 support will determine the near-term outlook. We look to see how sustainable this support is, but for now, we are still happy to buy into weakness. Resistance is at 7644.