Financial Markets Today: Quick Take – September 29, 2022 Financial Markets Today: Quick Take – September 29, 2022 Financial Markets Today: Quick Take – September 29, 2022

Financial Markets Today: Quick Take – September 29, 2022

Macro 6 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  Equity markets rallied yesterday after the Bank of England announced an emergency QE action to calm a dysfunctional long maturity gilt market, a move that smashed UK gilt yields lower and took major global sovereign yields lower as well. The market’s inference is perhaps that central bank tightening in general has been taken too far and the Bank of England is perhaps the canary in the coal mine. The US dollar also traded weaker yesterday before rebounding slightly overnight.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

US equities rose sharply after posting new intraday lows for the cycle as the Bank of England QE announcement pushed US treasury yields sharply lower, offering the hope of a pivot in the brutal cycle of rising yields. The rally encourages the technical idea that we have created a double bottom as long as these new marginal cycle lows continue to support the price action. The next area of resistance is around 12,000 in the Nasdaq 100 index.

Hong Kong’s Hang Seng (HSIU2) and China’s CSI300 (03188:xhkg)

Following the rally in global equity markets overnight, Hong Kong and mainland China stocks gained, with Hang Seng Index up by 1% and CSI300 0.3% higher. HSBC (00005:xhkg) rose 2.8% on the temporary calm of the U.K. bond market and currency.  China internet stocks and the new energy space were among the top gainers. China property developers failed to participate in the rally, with leading names falling from 1.5% to 9%. In the mainland bourses, medical equipment, healthcare, precious metal, coal mining and chemical stocks outperformed while property developers, shipping, tourism, lodging declined.  

Strong USD fades as bond yields punched lower

The sharp reversal in bond yields yesterday after yields had ground higher in a seemingly inexorable and increasingly rapid pace over the last few weeks saw the USD trading sharply lower, suggesting that the USD and yields will continue to trade in tightly correlated fashion and as important indicators for global risk sentiment. So far, the move has only reversed a portion of the greenback’s recent gains. A more notable reversal would require, for example EURUSD trading back above 0.9900, GBPUSD back above what looks an impossible 1.1250 or higher, and AUDUSD above 0.6700.

Huge sterling focus after BoE move

The initial reaction to the BoE emergency QE move (more below) was to sell sterling, as all other things equal, an easing move for a central bank in an otherwise tightening world is a negative for the currency. But perhaps as the market saw the move as the start of a possible trend that might spread elsewhere, sterling actually rose sharply later in the session on the improvement in global sentiment after the BoE’s move helped not only UK yields to sharply reverse, but other yields to do likewise, if less so. GBPUSD rose back to above 1.0900 late yesterday after trading 1.0540 earlier in the session. The gains were reversed in early European trading to below 1.0800 as of this writing. Sterling will remain extremely volatile, with EURGBP worth tracking around the pivotal 0.9000 area.

Gold (XAUUSD)

Gold rebounded reflexively as the pressure from rising yields and a rising US dollar suddenly faded yesterday. After trading near 1,615 yesterday, the price action ripped all the way back to 1,660+, short of the critical resistance zone into 1,680-1,700 that is the departure point for this latest bear market move. It is clear that global bond yields and the USD will continue to lead the way as coincident indicators.

Crude oil (CLU2 & LCOV2) prices rallied as supply conditions worsened...

... as suggested by the first drop in US crude inventories in a month. EIA data showed stockpiles fell 215k bbl last week, while West Coast gasoline stockpiles fell to their lowest level in 10 years. Disruption to supplies due to Hurricane Ian are also causing some concerns, with US president Joe Biden warning oil companies not to hike prices for the second time this week. Furthermore, the geopolitical situation has turned more fragile once again with the European Union announcing a new round of sanctions against Russia including a ban on European companies from shipping Russian oil to third countries above an internationally set price cap. Brent futures rose close to $90/barrel while WTI futures got in close sights of $82/barrel.

US treasuries (TLT, IEF)

US treasury yields fell sharply in sympathy with UK gilt yields on the surprise announcement of an emergency QE programme from the Bank of England that erased most of the enormous spike in yields there that had developed since the UK government announced its new tax cut package late last week. The price action for the 10-year US treasury benchmark settled near 3.75% after trading slightly above the 4.00% mark yesterday. The Bank of England move brings hope that other central banks may ease off the tightening accelerator. The next important yield level to the downside is the cycle top of 3.50% from June. A 7-year treasury auction yesterday

What is going on?

Bank of England announces emergency QE to counter systemic risks

The Bank of England on Wednesday announced that it would purchase long-dated UK gilts to stabilize the market in a “temporary operation”. The move forced UK yields sharply lower, reversing most of the recent spike that had developed after UK Chancellor Kwasi Kwarteng announced tax cuts late last week. The 30-year UK Gilt yield fell over 100 basis points after the announcement to below 4.0%, although it was trading 3.50% a week ago. While this may be touted as yield curve control of some sort, the BoE claimed that it is a time limited event until October 14 with the intention of restoring orderly market conditions. Pressure is building on the Truss government to reverse the planned tax cuts and shore up fiscal credibility.

Apple cancels additional iPhone 14 production capacity

Apple announced that it would not move forward with plans for additional iPhone production as the demand for the new phone was not living up to expectations. The increase would have been on the order of 6 million iPhones in the second half of this year, suggesting that the running demand for iPhones in the period is on the order of 90 million, about the same as last year. Demand for higher end new iPhone 14 has been stronger than for the entry-level models. Apple fell 1.3% yesterday after trading as much as 4.5% lower intraday. Key chipmakers were also impacted, including Taiwan Semiconductor, which fell 2.2% and Apple’s biggest iPhone assembler, Hon Hai Precision Industry, lost 2.9% amid the electronics supplier selloff, on fears demand will slow.

Fed speakers maintain optimism on US economy and markets

Fed’s Bostic suggested year-end rates of 4.25-4.50% while the market pricing is still at 4.2% suggesting more room for upward pricing. Although not a voter this or next year, he said that his baseline is a 75bps increase at November meeting and 50bps in December. Meanwhile, he remained optimistic on US economic momentum and ruled out any contagion risks from systemic global events (possibly referring to the UK crisis). Meanwhile, Bostic noted no evidence of dysfunction in the Treasury market at this point. Another Fed speaker, Charles Evans, vouched for a further move into restrictive territory, saying that the FOMC’s current target range is “not nearly restrictive enough”.

Australian inflation rose 7% in the year to July, based on new monthly CPI

At this rate it doesn’t appear CPI will peak at just shy of the 8% the RBA forecasts, given price pressures have resumed this month from the largest inflation contributors. Based on the ABS’s new monthly CPI print, some of the largest price jumps year-on-year to July were in fuel (+29.2%) and fruit & vegetables (+14.5%). The concern is that, with La Nina set to hit Australia and population growth continuing, food and housing (rent) prices will continue to rise apace. In September alone, contributors to food prices have risen markedly, as the global supply outlook has weakened amid poor crop conditions. This could tilt the RBA back toward a more hawkish stance.

China warned banks about one-way bets on the weakening of the renminbi

Yesterday as the onshore and offshore renminbi weakened below 7.20 versus the dollar, the China Foreign Exchange Market Self-Regulatory Body, attended by PBoC Vice Governor Liu Guoquiang, told banks in a meeting to “safeguard the stability of the market and prevent volatile movements in the exchange rate”, in particular not to make one-way bets on the weakening of the renminbi.

What are we watching next?

End of quarter rebalancing?

We have seen aggressive moves across markets this quarter, to say the least, which brings the question of whether significant rebalancing flows are set for the quarter end this Friday. The relative bond performance has been perhaps worse than that for equities, while in FX the focus may be on possible rebalancing after a tremendous USD upsurge in Q3.

Porsche shares to debut today (P911:xetr)

Volkswagen set the listing price for Porsche’s shares at €82.50, which would value the company at €75 billion. The shares will begin trading today for the company and this will be the largest IPO in over a decade.

Earnings calendar this week

The chief action this week is up with today’s earnings reports from H&M (this morning before market open at 0700 GMT), Nike (after US market close today at 2100 GMT), and Micron Technology (after market at 2030 GMT). The earnings from Micron the most interesting to watch as we already know H&M and Nike are seeing weak demand. Micron has exposure to the consumer electronics industry and manufactures memory chips in Asia which means that the company sits in at the intersection of many interesting trends.

  • Today: Polestar Automotive, H&M, Nike, Micron Technology, CarMax
  • Friday: Carnival (postponed from last week), Nitori

Economic calendar highlights for today (times GMT)

  • 0700 – Spain Flash Sep. CPI
  • 0745 – ECB's Centeno to speak
  • 0800-0815 – Multiple ECB speakers
  • 0900 – Eurozone Sep. Confidence surveys
  • 1130 – UK Bank of England Deputy Governor Ramsden to speak
  • 1230 – Czechia Central Bank Rate Announcement
  • 1230 – Canada Jul. GDP
  • 1230 – US Weekly Initial Jobless Claims
  • 1330 – US Fed’s Bullard (voter 2022) to speak
  • 1430 – US Weekly Natural Gas storage change
  • 0130 – China Sep. Manufacturing and Non-manufacturing PMI
  • 0145 – China Sep. Caixin Manufacturing PMI

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.