Financial Markets Today: Quick Take – September 2, 2022 Financial Markets Today: Quick Take – September 2, 2022 Financial Markets Today: Quick Take – September 2, 2022

Financial Markets Today: Quick Take – September 2, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Equity markets rebounded yesterday after major US indices tested important support and as we await today’s US August jobs report. Given the focus on a fresh rise in treasury yields, strong payrolls and earnings data may prove negative for risk sentiment if US treasury yields threaten higher. In FX, the USD is poised for more gains if yields run higher, having already broken to new multi-decade highs against the Japanese yen ahead of today’s report.


What is our trading focus?

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

S&P 500 futures climbed back from the abyss yesterday after a much lower low ending the session higher, but already this morning negative sentiment is extending again. S&P 500 futures are trading around the 3,964 level this morning with the US jobs reports being the key data point with the market closely watching hourly earnings for clues to how strong the dynamics are in nominal wages.

Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg)

Hong Kong and mainland China stocks declined, Hang Seng Index -0.9%, CSI300 -0.4%. Chinese developers and auto names were among the top losers, China Overseas Land & Investment (00688:xhkg) -2.1%, China Resources Land (01109:xhkg) -3.2%. Leading China auto stocks fell 1.5% to 4.5%.  A bunch of bad news from yesterday continued to depress sentiment. Taiwan shot down a civilian drone, believed to have come from mainland China, near its frontline island, Kinmen. Further, the announcement of lockdown over Chengdu, a city of 17 million residents and the largest city being locked down since Shanghai, stirred up concerns about the economic costs of China’s strict pandemic control policies.   Shenzhen also extended the city’s pandemic control restrictions to three additional regions that might cause disruption to Foxconn factories and Apple’s supply chain.

USD over August jobs report today

The US dollar has edged to the strong side of the range ahead of today’s August jobs report, with a drumbeat of data this week suggesting a resilient US economy. A strong report today (Earnings could be as much a focus as the nonfarm payrolls change) could send the USD higher still, with some USD pairs still stuck in the range even as USDJPY has melted up again (see below) and GBPUSD has plunged and may challenge its lows since the mid-1980's. The EURUSD situation remains unresolved as we enter the tenth day today in a tight range between 0.9900 and 1.0100.

USDJPY breaks 140

USDJPY has soared above 140.00 for the first time in over 20 years as US yields have taken a run higher again overnight. Markets are absorbing the higher-for-longer inflation and interest rates concerns. The initial surge in China’s yuan on reports of Russia purchasing as much as USD 70bln in "friendly" currencies was also reversed in the overnight session, further supporting dollar strength. The USDJPY move came despite some modest verbal intervention yesterday. Japanese Chief Cabinet Secretary Hirokazu Matsuno had said the government is watching fluctuations in foreign exchange with a high sense of urgency and reiterated that rapid moves are undesirable. The break of the key barrier suggest that Japanese officialdom will have to mount stronger intervention signals if it wants to tame the move, particularly if US yields continue higher. Ultimately, the only “cure” in higher USDJPY risks would be a Fed shift to easing, or a BoJ move toward tightening and abandoning yield-curve-control.

Crude oil (CLV2 & LCOX2)

Crude oil prices in rebound mood following a three-day drop of almost 12 dollars that was driven by longs exiting recent established longs in response to global growth concerns, especially in lock-down China, the BBG dollar index jumping to an all-time high and EU politicians discussing a cap on Russian oil prices. OPEC+ meets on Monday to discuss supply and the latest price drop may trigger a price supportive reaction from key members such as Saudi Arabia. In addition, the prospect for additional barrels from Iran hangs in the balance after Iran said the US response was “not constructive”. Slumping refinery gasoline margins (consumer driven) and still elevated diesel margins (gas-to-fuel switch demand) highlight the current themes. The direction of the latter depends on whether Gazprom resumes flow on the Nord Stream gas pipeline from 0100 GMT Saturday.

Gold (XAUUSD) and Silver (XAGUSD)

Gold and silver have been under pressure all week from central bank inflation fighting rhetoric, surging US real yields and the Bloomberg dollar index hitting a record high, have both found a small bid in early Friday trading after gold once again found buyers (short covering) ahead of key support at $1680. Silver, meanwhile, hit a two-year low in response to a fresh China lock-down driven selloff among industrial metals, especially copper which just like silver now trades down around 24% on the year. Investment metals may struggle as long as the market believes the Fed will be successful in combatting inflation and until we see a major correction in the dollar and bond yields. In addition, silver needs to see a recovery in the outlook for China and copper prices.

US Treasuries (TLT, IEF)

US treasury yields have risen sharply over the last two days and could threaten the key 3.50% area top from mid-June (when the market rushed to absorb the anticipation of the first 75-basis point rate hike since 1994) if we see a strong August US jobs report today. Stronger US data of late has seen a steepening of the 2-10 portion of the US yield curve, which trades ahead of the data today at around –25 bps and therefore near the high of the range of the last month.

What is going on?

US ISM manufacturing, jobless claims beat expectations

Another strong report from the US economy as ISM manufacturing came in at 52.8 (exp. 52.0, prev. 52.8), and new orders and employment both rising back above 50, and into expansionary territory, to 51.3 (prev. 48.0) and 54.2 (exp. 49.0, prev. 49.9), respectively. In further relief, inflationary gauges softened more than expected to come at 52.5 from 60.0 in July, reaching the lowest level since June 2020. Jobless claims data also supported the case for further rate hikes by the Fed, printing its third straight decline to 232k coming in below expectations at 248k and last week’s 237k (which was revised down from 243k).

US chip stocks sink on the US curbing exports to China, putting chip makers on notice

Nvidia and AMD sales to China are in trouble after the US government warned them to stop exporting some AI chips to China. However, Nvidia (NVDA) managed to get a partial exception to export to US customers in China. Regardless Nvidia said in a statement, the export cut back will cost the group $400 million in revenue this quarter, as most of its revenue comes from the Asian country. This leaves Nvidia in a precarious position if the export curbs continue. Nvidia shares fell 8%, taking its shares to the lowest level since May 2021. It also marked the fourth day Nvidia traded under its 50-day moving average. As for Advanced Micro Devices (AMD) its shares didn’t fall as hard, but it lost 3%, closing under its 50-day moving average for the third day in a row. AMD didn’t fall as hard as Nvidia, as AMD did not quantify the potential material damage to the business, and said the impact is not expected to be significant.

Credit spreads are widening

The fresh rise in US treasury yields and renewed sense that the Fed will remain tighter for longer has helped to drive a widening in credit spreads again, as junk bond ETFs trade near cycle lows and one Bloomberg measure of high-yield corporate credit spreads creeps back toward 500 basis points (closed yesterday at 494 basis points after bottoming out in August at 411 bps and versus the high in early July of 584 basis points).

Asia PMIs, South Korea inflation

Manufacturing PMIs in Asia have seen a clear divergence with general strength across India and Southeast Asia as those economies continue to gain strength from improving domestic demand as reopening benefits continue to flow. On the other hand, South Korea and Taiwan PMIs were seen dipping further into the contractionary territory to come in at 47.6 and 42.7 respectively. The data raised further concerns on the uncertain macro environment and slowing global trade. Meanwhile, South Korea’s August CPI eased to 5.7% YoY and was down 0.1% MoM after six months of gains.

Iron Ore (SCOA) falls putting further pressure on BHP and Rio Tinto

The iron ore price is trading at the $95 level for the first time since July. Yesterday in Asia we saw the iron ore plunge 5% after fresh covid lockdowns were announced in China. And on Friday the iron ore place held steady at $95. The pullback spooked BHP’s investors and traders and BHP shares fell 2% today after losing 8% on Thursday in Australia, which collectively took BHP’s shares to their lowest level since July. As the covid situation in China looks increasingly dark, the technical indicators for BHP have confirmed on the weekly and monthly charts that BHP is likely to face further selling pressure.

What are we watching next?

From Powell to jobs focus

After a hawkish message by Fed Chair Powell at the Jackson Hole conference last Friday, focus shifts to the August jobs report in the US today to steer between a 50 vs. a 75-basis points rate hike at the September meeting. Last month’s robust employment gains of 528k outperformed market expectations boosted the dollar, although the gains were reversed a few days later with a soft CPI report. Both of these reports have to send out a consistent message this time to seal the deal on a 75bps rate hike at the September meeting. Consensus expectations are for gains of 298k on nonfarm payrolls for August, with a steady unemployment rate of 3.5% and slight weakness in average earnings to 0.4% MoM from 0.5% earlier. Meeting or slightly exceeding these forecasts would put the ball in the court of the CPI release, but another strong outperformance could bump up the tightening expectations. Still, our sense is that that the deliberation should now move to how long the Fed will stay at the peak rate, as well as Quantitative Tightening.

Countries mobilizing to cap energy prices – what can they achieve?

Today, G-7 finance chiefs will discuss plans to attempt to cap Russian oil prices, taking the approach of allowing imports after these were banned, but at reduced prices. Within the EU, an emergency meeting has been called for next Friday that will attempt to cap power prices, a move that might ease pressures on inflation, but if more supply of electricity is not forthcoming, would have to mean rationing of power.

Will Russia restart gas flows through the Nord Stream 1 pipeline tomorrow?

Flows through the pipeline have been suspended in recent days for purported maintenance and German sources have expressed concern that Russia is set to further slow gas flows this winter after reducing the flows through this key pipeline 80% over the last few months.

Earnings to watch

The earnings calendar is running light today and next week. The two earnings releases of importance next week are DocuSign on Thursday and Dollar Stores on Friday.

  • Today: BNP Paribas, Fortis

Next week’s earnings releases

  • Tuesday: Ashtead Group
  • Wednesday: People’s Insurance Co Group, Exor, Copart, NIO
  • Thursday: Sun Hung Kai Properties, Sekisui House, Zscaler, DocuSign
  • Friday: Dollar Stores, Kroger

Economic calendar highlights for today (times GMT)

  • 0900 – Eurozone Jul. PPI
  • 1230 – US Aug. Nonfarm Payrolls Change
  • 1230 – US Aug. Average Hourly Earnings
  • 1230 – US Aug. Unemployment Rate
  • 1400 – US Jul. Factory Orders

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/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. 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
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992