Financial Markets Today: Quick Take – September 8, 2022 Financial Markets Today: Quick Take – September 8, 2022 Financial Markets Today: Quick Take – September 8, 2022

Financial Markets Today: Quick Take – September 8, 2022

Macro 6 minutes to read
Saxo Strategy Team

Summary:  US Treasury yields retreated sharply yesterday, bringing relief to equity markets and turning the US dollar back lower. The soaring USDJPY found resistance near 145.00, while EURUSD backed up toward parity ahead of today’s ECB meeting, which is set to deliver the largest rate hike in the central bank’s history of 75 basis points as the bank seeks to catch up with global peers in its fight against inflation. Crude oil slumped below support on demand concerns, especially in China.


What is our trading focus?

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

US equities rallied hard yesterday with S&P 500 futures surging 1.8% in what mostly looks like a technical rebound across many asset classes as positions maybe are trimmed ahead of the US CPI report on Tuesday. The obvious key level to watch in S&P 500 futures on the upside is the 4,000 level with the futures trading around the 3,988 level this morning. The 50-day moving average at 4,027 is currently colliding with the 100-day moving average making the 4,030 level a key area to test in the short-term. Apple unveiled a low-risk update to its iPhone suite introducing the iPhone 14 with a few hardware updates. The cost-of-living crisis may jeopardize Apple’s expected upgrade cycle that the market is currently expecting.

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

Despite the S&P 500 rallied by nearly 2% and the Nasdaq Golden Dragon China Index surged by 2.3% overnight in the US, Hang Seng Index (-0.4%) continued its multi-session decline since the beginning of September. In mainland China, the CSI300 had a lackluster day fluctuating between small gains and losses. The weakness in Tencent (00700.xhkg), -2.3%, dragged down the benchmark index in Hong Kong. According to filings to the stock exchange, about $7.6bn worth, or 2% of the market cap, of Tencent shares have been transferred to the exchange’s clearing and settlement system. The news stirred up speculation that Prosus, a majority shareholder holding over 28% of Tencent, is selling Tencent shares.  In June, Prosus (PRX:xams) announced that the company was going to offload its stake in Tencent to raise cash to buy back its own shares and Naspers’ (NPN:xjse) shares (Prosus’ parent) at a discount to NAV.

Strong USD tamed by treasury yields. EURUSD focus today in FX on ECB

The latest leg higher in the US dollar was driven by a sharp move higher in US Treasury yields, a move that reversed yesterday and took the US dollar back a few notches with it. An important test ahead for the broader US dollar picture today is in EURUSD as the ECB is expected to deliver a 75-bp rate hike, the largest hike in its history, in an attempt to play catchup with global peers in its inflation fight – will the move support the Euro further or does Europe’s grinding energy emergency keep a lid on EURUSD for now? The market has priced more than 50/50 probability of a 75-bp move versus a 50-bp move and would need to hike 100 basis points to really impress the market.

JPY downward spiral as global yields jump

The USDJPY spike finally found resistance at the 145.00 level yesterday as US Treasury yields reversed lower. The move higher has been aggravated by the rising tide of global yields that contrasts with the Bank of Japan policy of standing pat with its yield-curve-control (YCC) policy. Often, a weak JPY encourages hedging activity by the Japanese holders of enormous savings held abroad but hedging activity has been low this time as Japanese investors abroad have enjoyed strong returns. The cycle top in EURJPY just above 144.00 is also a focus today as the ECB is set to hike as noted above. Given the scale of JPY weakening in recent days, Japanese officials will likely be out soon with a more determined response, generating two-way volatility.

Crude oil (CLV2 & LCOX2)

Oil prices steadied in the Asian morning after steep declines in the last few days amid demand concerns especially in China where its zero Covid policy is now impacting areas and a population that accounts for around 25% of GDP. Before the slump below $90 in Brent and WTI $85 the market had briefly rallied on Putin threats that he would cut supplies to countries agreeing on a price cap for Russian oil and gas. Supply issues had little impact, even as EIA lowered its annual oil production forecast for this and next year while raising its global demand outlook amid rising gas-to-fuel switching activity, mainly in Europe. The likelihood of an Iran nuclear deal adding supply is also fading. Focus on further OPEC+ action with Brent sliding further away from $100/b. Resistance: WTI at $85.75 and Brent at $91.50.

Gold (XAUUSD)

Gold once again managed to find buyers below $1700 thereby avoiding another attempt at challenging key support around $1680, a level from where the price has bounced multiple times during the past two years. Main source of directional input continues to be provided by yields and the dollar, both of which trade softer overnight (see above and below comments). Gold’s best chance of a further bounce at this point would come from short covering from recently established short positions, but for that to happen, the price as a minimum would need to break above $1735. Focus today on today’s expected ECB rate hike and its impact on EURUSD.

US Treasuries (TLT, IEF)

US Treasury yields reversed much of the previous day’s gains yesterday and followed through a bit lower still, taking the 10-year treasury yield below 3.25% this morning. The move helped bring relief to global risk sentiment as the USD also edged lower. The persistent move higher in US longer yields from the early August base allows for a test all the way to the 3.00% yield area in that 10-year benchmark without reversing the trend. The focus to the upside is the 3.50% peak from mid-June, around the timing of the June FOMC meeting.

What is going on?

Putin supply threat lifts wheat futures

The Chicago and Paris contracts both jumped by more than 3% on Wednesday with the US traded contract reaching the highest level in nearly two months, after Putin criticized the UN-brokered Ukrainian grain export deal, saying the developing world had been “cheated” with the bulk of the shipments going to Turkey and Europe. Comments that could see Russia trying to revise its term to limit countries that can receive shipments. Paris Milling wheat, the high protein variety used for human consumption, still trades 25% below the May panic peak but any developments that reduces flow from Ukraine may add to global supply worries and lift the price further.

New dock workers strike in the United Kingdom

The UK has been facing recurring transport disruptions over the past few years. This is related to Brexit, Covid and now higher cost of living. A dockers strike at Felixstowe port (the country’s biggest container port) ended a few days ago. But a new one is looming at the port of Liverpool. The dockers trade union is calling for a strike from 19 September to 3 October (at least) after negotiations to raise salaries failed. This matters a lot. The port of Liverpool is a key hub for transatlantic sea transport. If inflation continues to rise (which is likely), expect many more strikes to come and not only in the transport industry. Social tensions will probably increase sharply in the coming months.

Apple unveils iPhone 14 models

If investors were hoping for a major product release of the most popular and iconic smartphone on the market they were left disappointed yesterday. Apple delivered a low-risk upgrade to its iPhone series with the iPhone 14 delivering some few hardware upgrades and no change to its overall design. The computer chip A15 Bionic is also staying the same. The biggest positive was probably no price increases which is quite telling, but also underscoring the cost-of-living crisis that many consumers are facing and in fact is jeopardizing the expected upgrade cycle of the iPhone.

US retail investor readings still rock-bottom

The AAII investor readings are still dire reading for the market with the spread between bullish and bearish readings hitting -35.2 in its latest data point which is worse than during the lows in 2020 and on par with the darkest hours during the Great Financial Crisis. This very negative sentiment of course could be fuel for a sharp rebound in the case Tuesday’s US inflation print turns out lower than expected.

Dovish speech from Reserve Bank of Australia chief Philip Lowe

In Australia overnight, RBA Governor Lowe delivered perhaps the first somewhat dovish speech in a long while from a non-BoJ developed market central bank, arguing that “the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises”. This lowered anticipation that the October RBA meeting will deliver another 50-bp hike after four consecutive half-point increases that have taken the policy rate to 2.35%.

Australia’s trade surplus halves as coal and iron ore exports fall from record highs

Australia’s trade surplus almost halved in July, plunging from A$17.1b to a A$8.7b surplus, when the market expected the surplus balance to fall to just A$14.5b. It comes as exports of coal and iron ore fell from their record highs, dragging down total exports by 10%. Coal export earnings fell 17% with the northern hemisphere in peak summer, while iron ore export earnings fell 15% tarnished by China’s slow down. Australian imports (covering outbound tourists) rose 5% with Aussies escaping the record cold winter to enjoy European sun.

Fed speakers, and another possible WSJ article “guiding” for the September FOMC Meeting?

Federal Reserve Vice Chair Brainard noted rates will need to rise further and policy will need to be restrictive for some time. She needs to see several months of low inflation readings to be confident inflation is moving down to 2% but how long it takes to get back to target will depend on a combination of continued easing in supply constraints, slower demand growth, and lower markups, against the backdrop of anchored expectations. The Cleveland Fed’s Mester (2022 voter) reaffirmed that she is not yet convinced about inflation peaking yet, and she also spoke on the August jobs report, where she said they are beginning to see some moderation, but labour market conditions remain strong. Elsewhere, the WSJ's Nick Timiraos wrote: "The Federal Reserve appears to be on a path to raise interest rates by another 0.75 percentage point this month in the wake of Chairman Jerome Powell’s public pledge to reduce inflation even if it increases unemployment." After a Timiraos article triggered a spike in anticipation that the June FOMC meeting would deliver 75 basis points rather than 50 bps, the market may have taken note, as money market pricing of a 75bps rate hike at the September 21 FOMC meeting has picked up from 68% on Tuesday to 81% now.

Bank of Canada hikes 75 basis points

As expected, the Bank of Canada hiked rates by 75bps bringing the rate to 3.25% and into restrictive territory, given the central bank’s estimate of neutral rate is 2-3%. The tone remained hawkish, but lacked clear guidance as it reiterated that further hikes will be necessary to bring inflation to target, implying the BoC is not done yet and will move even further into restrictive territory. While growth is slowing and housing prices are down 18% since February, short-term inflation expectations remain high, signaling a risk that elevated inflation becomes entrenched.

What are we watching next?

Japan’s Ministry of Finance, Bank of Japan and FSA to hold first three-way meeting since June

This is clearly in response to the breathtaking weakening in the Japanese yen this week. We can expect some form of more determined intervention from here and with it, more two-way volatility.

ECB interest rate hike today

The ECB will have no other choice but to send a strong signal to the market regarding its commitment to lower inflation (expect a 75-basis point interest rate hike today). We forecast the ECB will need to keep increasing rates in the coming months for at least four main reasons: 1) inflation is high and it is not just about energy prices. Core inflation stands at 4.3 % year-over-year and is likely to continue rising in the short-term; 2) inflation expectations are up sharply. In the space of only eight months, inflation expectations for 2023 have risen from 1.5 % to 4.2 %; 3) the economy is able to cope with higher interest rates (eurozone consumer credit growth is steady which seems to indicate that monetary policy is not tight enough); and 4) the low euro exchange rate is a headache (since it increases imported inflation). The ECB will need to convince the markets they are able to curb the decline of the single currency. This is not an easy task.

EU proposes five measures to curb gas demand and prices

Ahead of Friday’s emergency energy meeting, European Commision President Ursula von der Leyen proposed five radical steps to curb costs and demand: 1) Smart savings of electricity by mandatory targets to reduce peak hour demand for electricity; 2) Cap on revenues of companies producing electricity with from low-cost sources such as wind and solar with profits being re-channeled to vulnerable people and companies; 3) Solidarity contribution from fossil fuel companies; 4) Liquidity support for energy utility companies in order for them to cope with elevated market volatility; 5) Cap on Russian gas revenues on the remaining 9% Russia supplies  to Europe, down from a pre-war level around 40%

Earnings to watch

Today’s key earnings release is DocuSign which was a pandemic darling but has since been seeing growth coming down dramatically and its valuation hit by higher interest rates. Analysts expect FY23 Q2 (ending 31 July) to show revenue growth of 17.7% y/y with a significant jump in operating income which the company must deliver to avoid further downward pressure on its valuation.

  • Thursday: Sun Hung Kai Properties, Sekisui House, Zscaler, DocuSign
  • Friday: Dollar Stores, Kroger

Economic calendar highlights for today (times GMT)

  • 1100 – Mexico Aug. CPI
  • 1215 – ECB Rate Announcement
  • 1245 – ECB President Lagarde Press Conference
  • 1300 – Poland central bank governor Glapinski press conference
  • 1310 – US Fed Chair Powell to speak at a conference (includes Q&A)
  • 1430 – EIA Natural Gas Storage Change
  • 1500 – EIA's Weekly Crude Oil and Fuel Stock Report (delayed by a day)
  • 1525 – Canada Bank of Canada’s Rogers to deliver report
  • 1600 – US Fed’s Evans (voter 2023) to speak
  • 1820 – US Fed’s Kashkari (voter 2023) to speak
  • 1900 – US Jul. Consumer Credit
  • 0130 – China Aug. PPI/CPI 

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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 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 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 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 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 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-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.