Financial Markets Today: Quick Take – September 21, 2022 Financial Markets Today: Quick Take – September 21, 2022 Financial Markets Today: Quick Take – September 21, 2022

Financial Markets Today: Quick Take – September 21, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Equity markets traded sideways ahead of today’s important FOMC meeting as the Fed is set to bring at least another 75 basis points of tightening and expectations for further tightening are at the highs for the cycle. At the longer end of the yield curve, US yields have risen to new eleven-year highs, helping the US dollar to new highs for the cycle in places, including against the Chinese yuan. The Bank of Japan meets tonight in Asia and has shown no signs of backing down from its cap on bond yields, creating enormous attention as yields have risen again elsewhere.

What is our trading focus?

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

US equities came under pressure yesterday as US yields advanced with the 10-year yield reaching as much as 3.6%. The market is split on tonight’s FOMC decision but consensus among economists is still a 75 basis point rake hike. We argued yesterday that if the Fed wants to tighten financial conditions a lot they need a surprise which argues for a 100 basis point hike. In any case, the guidance in the dot-plot and the subsequent press conference will be key for equity sentiment in the near-term. Yesterday’s low in S&P 500 futures at 3,643 is the key support level to watch on the downside and 3,800 after that.

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

Hang Seng Index gave back all its gains yesterday and more, falling over 1% ahead the U.S. FOMC meeting. Mega-cap China interest stocks declined from 1% to 3%, dragging the Hang Seng Tech Index down by over 2%.  Energy stocks outperformed coal mining names up from 1% to 2%.  COSCO Shipping Energy Transportation (01138:xhkg) soared more than 8%. Bloomberg reported that Chinese refiners are applying for quotas from the Chinese government to export as much as 16.5 million tons of fuel oil, such as gasoline and diesel.  CSI 300 fell nearly 1% and making a new low last since May this year.

USD traders mull FOMC meeting today

A minority of observers are looking for another 75-basis point move from the Fed, as discussed below, with forward guidance also playing a roll, although the market continues to price the end-2023 policy rate at below even the end-2022 rate, with the peak rate somewhere in between, despite FEd pushback. The USD has traded to new highs in places, like against all 5 of the smallest G10 currencies and is near the cycle high versus sterling, while EURUSD and USDJPY still trade slightly away from cycle extremes. The Fed will want to maintain a hawkish tone here, but as US 2-year yields have risen sharply to nearly 4%, the bar is somewhat high for a hawkish surprise. Watching the reactivity in treasury yields and risk sentiment for the impact on the US dollar – particularly how USDJPY might treat a fresh strong surge in longer US yields after the 10-year broke above the former cycle high since 2010 of 3.50% yesterday.


USDJPY could be set for considerable volatility over the next 24 hours as the Bank of Japan meets tonight in Asia’s Thursday session. The pressure for the Bank of Japan to adjust its yield-curve-control strategy has built further on the surge to new cycle highs in longer US yields yesterday above the 3.50% level. The Bank of Japan and Ministry of finance have recently pushed back rather hard on the latest blast of JPY weakness, but will likely be challenged on where and when they intend to intervene against JPY weakness if the BoJ overnight refuses to adjust its policy and if the Fed surprises hawkish at tonight’s FOMC meeting and the entire US yield curve lifts. The 145.00 area is the cycle high, with 150.00 the next obvious psychological level.


Gold trades near a two-year low but within a relatively narrow 20-dollar range ahead of today’s FOMC meeting (see below). Weeks of selling have seen speculators accumulate a net short position in COMEX futures, a relatively rare occurrence, and one that could set the stage for a surprise upside move, should the dollar and yield retrace some of their recent strong gains. Resistance however remains firm at $1680 while below $1654, last week's low, the market may target the 50% retracement of the 2018 to 2020 rally at $1618.

Crude oil (CLV2 & LCOX2)

Crude oil remains rangebound with a slight negative tilt ahead of today’s FOMC rate hike given its impact on the dollar and growth expectations. The Fed decision will be followed by other central banks from Europe to Asia which are also expected to announce growth reducing rate hikes. The long-term outlook remains price supportive with US production struggling to find a higher gear and Saudi Aramco saying lack of investments could see spare capacity being wiped out. Also focus on Russia from where seaborne exports is lower this month and where Putin is looking into his toolbox for ideas to reverse his disastrous war against Ukraine. Ahead of today’s EIA stock report the API reported builds in crude oil as well as fuel products.

Wheat sees largest gain since March on Russia tensions

Wheat futures in Chicago (+7.6%) and Paris (+4.1%) jumped on Tuesday after Russia said it intended to hold votes on annexing the three regions of Ukraine still under its control (see below). Such a move raises the risk of a full Russian mobilization and would increase tensions with Europe and the US while casting more doubts over grain supplies from the Black Sea area, especially the UN sponsored export corridor from Ukraine which recently has helped ease supply worries for wheat and sunflower oils. Also focus on today’s FOMC rate hike and its impact on the dollar. December wheat (ZWZ2) at $8.88 trades near the highest level since July but may face resistance at $9.14/bu, the 200-day moving average.

US Treasuries (TLT, IEF)

US treasury yields spilled over to new cycle highs yesterday ahead of tonight’s FOMC meeting as the market has sensed a hawkish determination from the Fed to forge ahead with rate hike and provide no sense that it set to pivot to a more neutral stance, although that would have to come at some point. The 10-year benchmark rose to a new cycle high yesterday above 3.50%, posting the highest yield since 2011.

What is going on?

Shocking August German PPI

According to the German statistics office Destatis, the PPI rose by 7.9 % month-on-month in August. This is much higher than the consensus (2.4 %). This shows that forecasting in the current macroeconomic environment is more challenging than ever. On a year-over-year basis, the increase is at 45.8 %. This is an historical record. The continued jump is explained by higher energy prices (+139% year-over-year). But not only. Actually, inflation is broad-based. Prices for intermediate goods, for capital goods and for non-durable consumer goods are much higher too. This will probably get worse in the short-term. In the eurozone, it is unlikely the peak in inflation has been reached (contrary to the situation in the United States).

Russia-Ukraine tensions heat up

Heightened geopolitical tensions regarding Russia and Ukraine where the “separatists” are to hold a referendum in Donetsk, Luhansk, Kherson and Zaporizhya on September 23rd-27th, although Ukraine and its allies have denounced the referendums as illegal, and few countries are likely to recognize the results. An update from Putin on the matter is being awaited, where there have been some suggestions that he is considering introducing martial law and full mobilisation of the Russian army - the speech has now reportedly been delayed until 06:00BST/01:00EDT Wednesday. The move threatens to escalate the conflict even further, potentially giving Putin the formal legal basis to use nuclear weapons to defend what Moscow would consider Russian territory.

Riksbank’s 100bps rate hike sets the stage for FOMC

The Swedish Riksbank surprised yesterday with a 100-basis point hike to take the rate to 1.75%. This, in addition to guidance that the Riksbank would look to continue hiking rates, took Swedish yields higher, but didn’t do much for the currency, which fell to new cycle lows versus the EUR and USD after a kneejerk jump. The decision to hike by 1% was unanimous, prompted by the highest level of CPIF inflation since 1991 and the negative implication it could have on the upcoming wage negotiation which will lock in pay growth for the next three years. However, with global tightening wave turning more hawkish that expectations after ECB’s 75bps rate hike and Riksbank’s 100bps, the stage is being set for the FOMC to deliver above expectations as well.

Schneider Electric agrees to acquire Aveva for £9.4bn

The French industrial giant is announcing this morning that it has agreed to acquire UK-based engineering and software group Aveva for £31 per share valuing the company at £9.4bn. Schneider Electric already owns 60% of Aveva and a full consolidation will bolster Schneider Electric’s ambitions in software within the engineering industry.

Rio Tinto joins BHP in saying Copper’s near-term outlook is challenged

Rio Tinto’s CEO has joined a suite of companies, including BHP, saying copper’s short-term outlook faces pressure. From supply-chain issues to 30-year high inflation and restricted demand from China, the metal is seeing less demand, and supply is outpacing supply. However, that is not expected to be the case in the longer term with Goldman Sachs predicting copper demand will exceed supply by 2025 and will push prices to twice their current levels. Copper is used in everything from buildings to automobiles, to wiring in homes and mobile phones.

Germany nationalises utility company Uniper

The German government is injecting €8bn into Uniper to avoid a collapse of the German utility taking full control of Finland-based utility Forum’s shares in Uniper.

What are we watching next?

Can the Fed surprise hawkish at FOMC or are we nearing peak tightening expectations?

The Powell Fed has kept a hawkish tone in recent communications, clearly indicating a desire to forge ahead with rate hikes. After the strong August US CPI print, a minority of observers are even looking for a 100-bp move from the Fed today, though we are more likely to get 75 basis points. This is a quarterly meeting that will bring the latest Fed forecasts for the economy and for the policy rate, a chance for the Fed to send a further message on where it sees its policy evolving for the remainder of this year and next. The forecast in the “dot plot” of Fed policy rate forecasts for the end of 2022 will receive close attention. Currently the market is looking for a policy rate of about 4.2% through the December meeting, which would mean a 75-bp hike today, another in November, followed by a 50-bp hike in December. The Fed raising the 2023 forecast to a median of 5% might make an impression as well, although the market has persistently priced the Fed to begin easing yields at some point next year, figuring that the economy will be in recession at some point next year. This meeting also brings the first batch of 2025 forecasts for the economy and Fed policy, and another way that the Fed could guide hawkish would be in raising PCE core inflation forecasts for next year and/or 2024 (last two forecasts have kept the last of these at 2.3% YoY) or surprising with its 2025 forecast.

Earnings calendar this week

This week our earnings focus is on Lennar today as US homebuilders are facing multiple headwinds from still elevated materials prices and rapidly rising interest rates impacting forward demand. Later during this week, we will watch Carnival earnings as forward outlook on cruise demand is a good indicator of the impact on consumption from tighter financial conditions.

  • Today: Lennar,, General Mills
  • Thursday: Costco Wholesale, Accenture, FactSet Research Systems, Darden Restaurants
  • Friday: Carnival

Economic calendar highlights for today (times GMT)

  • 1400 – US Aug. Existing Home Sales
  • 1430 – EIA’s Weekly Crude and Fuel Stock Report
  • 1800 – US FOMC Rate Announcement / Policy Statement
  • 1830 – US Fed Chair Powell Press Conference
  • 2100 – New Zealand Q3 Westpac Consumer Confidence
  • 2130 – Brazil Selic Rate announcement
  • 2245 – New Zealand Aug. Trade Balance
  • 2300 – New Zealand RBNZ Deputy Governor Hawkesby to speak
  • Bank of Japan meeting

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