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Morning Brew September 23 2022
Erik Schafhauser
Senior Relationship Manager
Summary: Digesting Central Banks
Good Morning
We saw massive swings in FX yesterday, as the SNB disappointed expectations with a hike of “only” 75 Basis points and sending EURCHF from 0.9463 to 0.9711, currently 0.6900. GBPUSD traded from 1.1212 to 1.1365 and back to 1.1235.
The Bank of Japan finally had enough of the weak yen and intervened in the FX Market and pushed USDJPY from 146 to 1.4033, currently 142.17.
The USD Index holds above 110 at currently 111.38. Gold and Silver are fairly stable at 1670 and 19.55.
The consumer confidence index in the UK fell to -49 in September from -44 in August, in 80% of the cases, a recession follows if the number is below -30.
US 10 years rise to above 3.70 as the “higher for longer” reality settles in and equities suffer across the board. The US 2 Year trades at 4.25 and the German 10 year is near 2% and the Bund Future is near 10%.
The Dow lost 0.35%, the S&P 0.84%, and the Nasdaq 1.37%, the S&P 500 posted one new 52-week high and 123 new lows, our Jessica Amir comments: The Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) pressured by bond yields rising. S&P500 experiencing a rare technical breach
With a parade of central banks joining the Fed in boosting rates to curb inflation, the US 10-year yield rose to 3.7% (its highest since 2011), while the two-year rate rose for the 11th day (which its longest rally in over three decades). This upward pressure in safe-haven yields is luring investors away from investing in companies; exposed to inflation and facing earnings slowdowns (…) Of note, the S&P500 is experiencing a rare technical breach, as it trades under its 200-day moving average for over 100 sessions. The last time this occurred in the last 30 years; was in the tech bubble when the index fell 50% before hitting its trough ; and before that, the Global Financial Crisis, when the index fell 40% before hitting its trough. The technical indicators show the index is poised for more downside with the June bottom likely to be retested in the coming weeks, then the next level of support is perhaps about the psychological level 3,500, which is 9.1% lower below current levels.
For today we expect PMI releases from Spain ((9:00) France (9:15) Germany (9:30) EU (10:00) UK (10:30) US (15:45) and the Canadian retail Sales at 14:30.
Overall, traders and investors are still busy to adapting the Central Bank hike spree and there is growing worry about an escalation in Ukraine making spikes in volatility likely.
While traders are usually happy with the high volatility, investors should focus on their preferred sectors and remember to average in long term.
Transport, energy, cybersecurity and defense are among our favorites.