USDIndex firmed to 106.82 on the Fed outlook and solid data before sliding to 106.38 at the close. Yields spiked, on top of the heavy losses Tuesday (10yr 2.51%), then yields slipped again on strong factory orders data, with an eye on non-farm payrolls set to be released on Friday which would partly determine the magnitude of Fed’s tightening. (10yr 2.7191%. US Stock supported by good earnings news, and gains accelerated after solid data, shrugging off the jump in bond yields as the Fed funds futures market repriced for a 50-50 potential for a 75 bp September rate hike. European FUTS also higher. Oil below $91, Gold holds at $1770.
Overnight: US ISM-NMI services index rise to 56.7 from a 2-year low, US factory orders beat estimates climbed 2.0%. The rise joins big declines for the ISM, Chicago PMI, Dallas Fed and Philly Fed, but gains for the Richmond Fed and Empire State, to leave an 8-month producer sentiment pull-back from robust November peaks. Surging interest rates and a flattening in real household spending as prices rise are aggravating the downtrend, though sentiment also faces support as businesses continue to restock.
- USDIndex is holding above 106 at currently 106.30.
- Equities – USA30 rose 1.29% (32.74K), USA500 rallied to 1.59% (4.15K) and USA100 surged 2.59%.
- Yields 10-year lifted 2.5 bp to 2.73% and rates are also higher in Japan and Australia. The 10-year Bund yield is down -0.5 bp at 0.863% though after another contraction in German manufacturing orders flagged recession risks for the region.
- Oil – dips to at $90.35. OPEC+ dissapointed and agreed to a “very small increase” in September output of 100k barrels per day – the smallest ouput increase in its history.
- Gold – supprted by pullback in yields at $1770.
- FX Markets – EURUSD dip to looks weak at 1.0163 and Cable is at 1.2147. USDJPY has lifted to 134.20 as recent haven flows into the yen recede. AUD and NZD regained some ground as global risk sentiment improved a little and a record Australian trade surplus underlined the natural inflows supporting the currency.
Today – The BoE expected to hike by 50 bp but with a stress on the data dependency of further tightening moves. Front loading the tightening cycle also may also make sense in light of the leadership contest, with Liz Truss, the favorite to succeed Johnson mulling a shake up of the BoE. Investors are also waiting for details on the BoE’s plans for gilt sales. Governor Bailey previously indicated that the balance sheet will shrink at a pace of GBP 50-100 bln in the first year – including redemptions.
Biggest FX Mover @ (06:30 GMT) NZDJPY (+0.99%) reverted week’s losses and it is currently at 84.47. MAs alighed higher, MACD lines rising, RSI 76. H1 ATR 0.202, Daily ATR 0.993.
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Andria Pichidi
Market Analyst
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