A few question marks are surrounding the near-term continuation of the recovery. With US bond yields (US 10 year Treasury) breaking higher again and the US dollar ticking higher this morning, this may begin to see positive sentiment unwinding once more.
- Main drivers: Positive sentiment could be starting to wane; PBoC holds rates, UK CPI misses, two Fed speakers; Eurozone and Canadian inflation later.
- Positive sentiment stalling: US corporate earnings have been a key driver of positive sentiment, but US bond yields are rising again and this is something that has concerned markets previously.
- PBoC holds rates steady The People’s Bank of China holds interest rate at 3.85% as expected [risk neutral]
- UK inflation misses – both UK Headline and Core CPI miss expectations and slip. However, this will do little to shift hawkish BoE views. [Slightly GBP negative near term]
- Fed speakers point to November taper – FOMC’s Waller believes a November start for the taper and to end by mid-2022. This is not far from the current expectation. [Risk neutral]
- Central bank speakers due today: Two more from the Fed.
FOMC’s Evans (2021 voter, dove) at 1500GMT,
FOMC’s Quarles (permanent voter, mild hawk) at 1600GMT
- Economic Data:
Eurozone Final Inflation at 0900GMT expected to show no revisions to the flash inflation of two weeks ago. Headline HICP at +3.4% and core HICP at +1.9%
Canada inflation at 1230GMT expected to show core inflation increasing to +3.6% (from +3.5% in August)
Fed’s Beige Book at 1700GMT, gives more detail to the Fed’s current US economic outlook
- Broad outlook: As bond yields start rising again, this is just starting to question the positive market sentiment. USD is finding some support today.
- Forex: Dollar Index rebounded back above 93.70 yesterday and is higher again today.
EUR/USD falling back below 1.1625 support. If 1.1600 is broken it would be near-term negative.
GBP/USD falling to test 1.3770/1.3780 support area. We remain positive for the near-term recovery whilst 1.3710 support holds.
AUD/USD above 0.7475 on strong momentum and holding the break this morning despite a USD rebound. We look to buy into near-term weakness.
- Commodities: Rallying due to more positive sentiment and a weaker USD
Gold is still very uncertain near term. Holding support at $1760 has steadied the market, with $1745/$1750 key near term. Improves above $1780/$1785, but the outlook remains choppy.
Silver in strong recovery mode. Holding above $23.00/$23.18 support was important. Now looking at a test of $24.00 resistance. With strong momentum, we look to buy into near-term weakness.
Brent Crude oil near-term consolidation following a second “bearish engulfing” daily candle in 2 weeks. The bulls remain in control whilst the 8-week uptrend is intact. A test of key resistance from the 2018 high of $86.95 is still possible.
- Indices: Wall Street remains strong but the European markets are still cautious.
S&P 500 futures strong session again, moving well clear of the latest resistance around 4470. This now becomes the support for a pullback. We are buyers into weakness now.
DAX consolidating near term, but we are looking for a higher low, ideally above 15,265 and support around 15,450 is forming. A break back above 15,600 would be bullish for 15,780.
FTSE 100 still consolidating under resistance at 7246 but the bulls hold control for now. Support is developing around 7150/7200 which will strengthen the outlook. A breakout above 7246 will still be needed though.