News that the European Union and the UK had agreed on a 21-month Brexit transition deal propelled sterling higher yesterday but some gains were subsequently lost as doubts crept in. Sterling faces a difficult week between today's CPI, tomorrow's Bank of England meeting, and the EU summit in Brussels on Thursday and Friday.
"Expect a weak Swiss franc and strong sterling if the pound survives the next few days," says John Hardy, Saxo's head of FX strategy.
Meanwhile, the US dollar has edged back lower ahead of tomorrow's Federal Open Market Committee meeting, with markets almost 100% certain that a rate hike will be announced. "I'm not sure what the driver is here, of course we don't know what Powell is going to say, but my general stance is that he's not going to want to be very specific on guidance. So while the market is discussing whether we'll see two, three or four hikes [this year] I think Powell won't want to be tied down to too explicit a forward guidance. The takeaway will be on intangibles – his demeanour, his stance and his answers in the Q&A," Hardy says.
In equities, meanwhile, the story of the week (and probably longer) is the technology shakedown which saw the Nasdaq 100 fall 2.2% yesterday, driven by Facebook, which is under scrutiny because of the Cambridge Analytics data misuse allegations. "Facebook shares fell 7% and the hashtag #deletefacbook is spreading rapidly on the internet. This has the potential to have a severe impact on engagement numbers," warns Peter Garnry, Saxo's head of equity strategy.
In commodities, "we're seeing a bit of a two-way market with crude oil trying to break to the upside and industrial metals looking heavy to the downside," says Ole Hansen, Saxo's head of commodity strategy. Crude’s breakout attempt is supported by high Opec compliance on tumbling Venezuelan production and Middle East security concerns (Saudi Arabia vs Iran and US sanctions return). Against it is the rising risk of a demand growth-killing trade war, weaker stocks and rising US stocks, Hansen says.
Finally today, in precious metals, the tech rout has paused the gold and silver selling we've seen the past few days in the run-up to the Fed meeting. But there's no end yet to the problems of grains and soybeans which remain troubled after their recent protracted buying spree.
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.