Morning Brew October 27 2022
Senior Relationship Manager
Summary: Volatility likely to remain high as sentiment improves.
Coming back from 3 weeks in Asia to a key market phase. The trip was really fascinating. – it was my first time in Vietnam, a country I found really amazing in it`s variety and spirit. You have a soup kitchen next to Rolls Royce dealership and the 50cc scooter parks next to the Maybach. The number of unfinished and apparently abandoned construction reminds of the Asian currency crisis.
The third week we spent in Thailand and the damage tourism suffered is scary. Many shops remain closed and derelict but it seems the spirit is great now that things are open again
Ahead of the US Mid-Term elections it seems us rates and the USD Index may have reached the high and are in for a break.
10 Year rates rose to 4.32% to fall to 4.09 and the USD Index declined from 1.15 to near 110.40 – the key question is if this is a pause or a reversal. EURUSD has risen to above parity to trade at 1.0075, GBPUSD is back above 1.16, the Yen has risen to 145.50 against the USD from almost 152 just last week. US 10-Year Treasury Yields look ripe for a correction according to our technical expert If yields close below the steep rising lower trendline a correction down to 3.64-3.56 could be seen. Support at 3.85. The Bund Future has upside potential to 142.62.
Gold and Silver are off the lows but Ole points out we need to tackle the 1735 to break the downtrend.
Nasdaq took a solid blow yesterday as poor earnings by Alphabet and Microsoft caused the shares to fall by 9.1% and 7.7%, Boeing fell by 8.8% and Meta disappointed after hours and the stock fell to 104 from 129 after hours.
Overall the sentiment in equities is better than I had feared as 75% of US Companies in this earning season exceeded expectations and a less aggressive Bank of Canada raises hope of a peak in hawkishness having been surpassed.
Key events coming up today are the German consumer Confidence at 8:00 expected at -41.9 , the ECB rate decision, the US GDP and the Core PCE expected at 2.4% and 4.5%. earrings announcements of PetroChina, Linde, T-Mobile, Apple, amazon, Mastercard, Merck,. Mc Donald’s, Honeywell, Comcast
For Creatures of habit, please remember the change in schedule: ECB Rate decision at 14:15, Press conference at 14:45. The ECB is clearly expected to hike 75 Basis Points today, 50 on December 15 and weighted 30 on Feb 2nd. The peak is currently expected at 2.82% in July 23. Any shift in these expectation will have a strong impact on the EUR, European Equities and Bonds. The second key question is if there is a change to liquidity and the banks balance sheet.
Next week will be the FOMC and the Bank of England, and the US Mid term elections will be on Nov 8.
Credit Suisse Group lost 4 billion Swiss francs in the third quarter against an expectation of only CHF 400, revenue was also below expectations.
Markets are still very volatile so remain nimble.
Physically Settled Futures:
Maize - Nov 2022 (EMAX2) will expire 28th Oct 9:00 GMT
Copper - Nov 2022 (HGX2), Rough Rice - Nov 2022 (RRX2), Mini Soybean - Nov 2022 (XKX2), Soybeans - Nov 2022 (ZSX2) will expire 28th Oct 15:00 GMT
NY Harbor ULSD - Nov 2022 (HOX2) will expire 31st Oct 15:00 GMT
Random Length Lumber - Nov 2022 (LBX2) will expire 1st Nov 15:00 GMT
GASOLINEUSNOV22, HEATINGOILNOV22, SOYBEANSNOV22 will expire 27th Oct 15:00 GMT
CHINA50OCT22, SINGAPOREOCT22, TAIWAN95OCT22 will expire 28th Oct 2:00 GMT
OILUKDEC22 will expire 31st Oct 16:00 GMT
Latest Market Insights
Q4 Outlook 2022: Winter is coming
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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.
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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.
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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.