Daily Market Outlook, September 30th, 2021

Daily Market Outlook, September 30th, 2021 Overnight Headlines China Factory Activity Contracts First Time Since Feb. 2020 China Tells Bankers To Shore Up Property Market, Help Homebuyers Some Evergrande Bondholders Not Paid Coupon By Wed Deadline Japan's Factory Output Extends Declines On Car Production Cuts Partying For Football Final Triggers Australia Covid-19 Rise New Zealand Home-Building Approvals Rose A Third Month In August South Korea To Prepare Measures Against Household Debt In Oct US, Chinese Military Officials Hold 'Frank, In-Depth' Talks-Pentagon U.S., EU Vow Cooperation On Trade, Technology In Diplomatic First US Dollar Near One-Year High As Fed Tightening In Focus Oil Falls After U.S. Inventories Post Surprise Gain, Gold Inches Up Cotton Has Best Quarter in 10 Years as China Snaps Up US Fiber Asian Shares Mostly Gain After Mixed Session On Wall Street APAC M&A Deal Value Hits $1.25Tln In Nine Months Of 2021, A Record IPOs Slow Down Globally In Q3 After Frenetic 2021 Start Utility Stocks Halt Record-Long Rout With Market Bouncing BackThe Day Ahead This morning’s Lloyds Business Barometer showed a 10 point increase in business confidence as the reading reached its highest since April 2017. Employment prospects rose to a four and a half year high, while expectations of higher wage growth broadened. The survey also asked some special questions about the current supply challenges facing businesses. These identified the biggest impediments as supply chain disruptions and shortages of raw materials or goods, followed by staffing issues. The readings were taken in the first half of September ahead of the most recent pressures on fuel supplies and prices. With inflation concerns to the fore this week’s Eurozone inflation reports seem bound to command market attention. The September CPI data for the region is out early tomorrow but ahead of that updates for France, Germany and Italy will provide indications as to the likely outturn. All are expected to post further rises in annual inflation, which suggests that the Eurozone aggregate will rise further from last month’s decade high. The rise is primarily to do with higher energy prices and as is the case elsewhere is expected to be temporary. However, the increase will likely serve to intensify the debate at the European Central Bank at the appropriateness of its currently very loose policy stance. Eurozone unemployment data will also be released. US Q2 GDP is a third reading which is not expected to be revised. More timely will be weekly US initial jobless claims. Despite backing up modestly over the last two weeks they remain close to the pandemic low recorded earlier this month suggesting that the labour market is continuing to improve. Today sees more testimony to US Congress by Fed Chair Powell & Treasury Secretary Yellen. In Tuesday’s session testimony Powell once again suggested that asset purchase tapering was close but that the economic improvements required for an interest rate hike were much more stringent. Much of Tuesday’s discussion revolved around imminent fiscal deadlines with both Yellen and Powell urging Senators to act. However, it appears that a government shutdown has been avoided for now. Several other Fed policymakers are also scheduled to speak today. G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby) USDJPY - 112.00 530m. 111.00 785m. 110.30/50 1.68bn (1.17bn C). 109.90/110.00 1.67bn (1.26bn C). EURUSD - 1.1810/20 602m. 1.1790/1.1800 423m. 1.1760/70 655m. 1.1740/50 484m. 1.1690/1.1700 2.09bn (1.44bn P). 1.1650 794m. 1.1600/10 716m. GBPUSD - 1.3640/50 1.16bn (1.11bn P). 1.3620 599m. AUDUSD - 0.7340/50 814m. 0.7300/10 516m. 0.7200/10 746m. USDCAD - 1.2850 435m. 1.2820 401m. 1.2790/1.2800 606m. 1.2740/50 2.26bn (1.54bn C). 1.2720 450m. 1.2700 585m. 1.2670 520m. 1.2550 972m. USDCHF - 0.9150 890m. EURCHF - 1.1000 425m. 1.0900 923m. 1.0850 614m. 1.0750 400m. EURJPY - 130.40 483m. 126.50 420m. EURSEK - 10.25 610m. EURNOK - 10.26 640m. USDMXN - 20.51 596m. USDCNH - 6.44 691m.Technical & Trade ViewsEURUSD Bias: Bearish below 1.19 Bullish above Edges higher as risk appetite improves in Asia EUR/USD opened -0.73% at 1.1598 after USD rallied across the board It edged higher in Asia, as E-minis gained around 0.50% EUR/USD is trading at the session high at 1.1605/10 into the afternoon Resistance is at former support at 1.1660/65 where sellers are tipped The 10-day MA is at 1.1690 and break would ease downward pressure There isn't any significant support until the 50% of 1.0636/1.2349 at 1.1492 EUR/USD will likely remain pressured while markets remain volatileGBPUSD Bias: Bearish below 1.39 Bullish above. Bid with a softer USD and risk bid at month end +0.2% - USD softer as risk appetite bounces - E-mini S&P +0.5% - month end Trades towards the top of a 1.3425-1.3453 range with plenty of interest Britons turn more pessimistic about outlook for economy UK financial sector calls for six-month specialist staff visa Charts; momentum studies, 5, 10 & 21 daily and weekly moving averages slide 21 day Bollinger bands expand - strong bearish trending setup 1.3419 38.2% May-Jun rise proves resilient, 1.3166 38.2% 2020-21 rise below Close above 1.3617 falling 10 DMA needed to end downside biasUSDJPY Bias: Bullish above 109 Bearish below USD/JPY off some from 112.05 EBS high overnight, Asia 111.80-98 Market heavy 112.00+ still, concerns incl US debt ceiling, Biden agenda Market eyeing fresh moves higher alongside US yields into October 112.23 pre-pandemic Feb 2020 high, 114.55 Oct 2018 high targeted by specs Japanese exporters likely to return in October 112.00+ however Bidding interest eyed from @111.70, 111.63 flat hourly Ichi kijun Option expiries - today 110.00-50 $3 bln+, 111.00 $785 mln, 112.00 $530 mln Tomorrow to see $1.9 bln+ between 110.00-70, $1 bln at 111.00 strike Yield on US Treasuries off highs but consolidating, 10s above 1.50% @1.512% Nikkei -0.4% @29,430 on month-end position adjustments JPY crosses steady, EUR/JPY 129.74-88, GBP/JPY 150.21-53 AUD/JPY 80.27-59, NZD/JPY 76.78-77.01, CAD/JPY 86.69-87.85, best of lot Option expiries - EUR/JPY 128.90-129.00 E365 mln, 129.90 238, 130.40-50 514 Also GBP/JPY 149.50 GBP230 mln, AUD/JPY 80.00-25 A$335 mln todayAUDUSD Bias: Bearish below 0.75 Bullish above Sharp rebound in iron ore underpins AUD/USD rally AUD/USD opened -0.91% at 0.7174 after USD soared and key commodities wilted It was gently bid from the open, as E-minis rallied around 0.50% AUD/USD traded up to 0.7190/95 with sellers tipped around 0.7200 China PMI was mixed and there wasn't an immediate reaction... Dalian iron ore rallied 8.5% at one stage and AUD/USD moved up to 0.7205 Heading into the afternoon the AUD/USD is trading just below the 0.7205 high More selling orders tipped at former support at 0.7220/25 Resistance is at the 10-day MA at 0.7244 and break eases downward pressure The next level of support is at the 2021 low at 0.7106 Key will be whether equities can stage a sustainable rebound

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/daily-market-outlook-september-30th-2021"
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Dollar Remains Near One-Year High; Debt Ceiling Debate Eyed

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Dollar at Highest Since November as Rally Extends to Four Days

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Whatever Happens to Evergrande, Nobody Wants to Short the Yuan

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Dollar Down, but Near One-Year High as Fed Preps for Asset Tapering

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Inflation

Inflation is the rise in the general level of prices in an economy (or a sector of an economy) over a given period of time. Alternatively, it is sometimes defined as the decline in the purchasing power of each unit of money, which amounts to the same thing.

Inflation is usually measured by looking at the change in a price index that is based on the average prices of a basket of goods and services. Typically we look at the year-on-year inflation rate (eg, the change in the price index between May this year and May last year), or the annualised rate over longer periods (eg, if the price index is up by 9.3% over three years, that’s an annualised inflation rate of 3%).

When we talk about inflation in general, we are usually referring to inflation in the consumer price index (CPI). This index is a representative sample of the items a typical consumer spends their money on, such as food, fuel, clothing and entertainment. However, we might also want to know about changes in the prices that manufacturers receive for what they sell. This is measured using a producer price index (PPI), based on a basket of products ranging from raw materials to finished goods. Changes in the PPI generally precede changes in the CPI since rising or falling costs for producers (such as materials or labour costs) will ripple down the supply chain until they affect the prices that consumers pay in shops.

Calculating inflation is surprisingly complicated. The selection of items in the index, the mathematical method used to average them and adjustments to reflect changes in the quality of items over time all affect the result. Two indices may produce different rates, as is often the case with the UK’s CPI and its older retail price index (RPI). Important items such as food and fuel have volatile prices, so we may need to look at an index that excludes these to get a sense of underlying trends (known as core inflation).

from Moneyweek RSS Feed https://moneyweek.com/glossary/603923/inflation
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Boston Fed's first look at digital U.S. dollar nearly done, official says

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Revenue reserve

Many high-profile investment trusts have managed to raise their dividend every year for decades regardless of dividend cuts by companies. The main reason for this is that trusts, unlike open-ended investment funds, don’t have to distribute all the dividends they get each year. They can hold back up to 15% to build up a revenue reserve, which they can then draw on to maintain their own dividends in years when company payouts fall.

This can be useful for investors who prefer a steady income from their funds. You could do a similar thing with your own portfolio, by putting aside 10% or 15% of your dividend income to be drawn on only during market crises. However, avoiding dipping into that requires discipline, while having it out of reach inside an investment trust doesn’t present the same temptation. 

That said, it is important to understand that a revenue reserve is not a sum of money separate from the trust’s portfolio, sitting in a bank account for emergencies. It is an accounting entry: the money will be invested alongside the trust’s other assets – in stocks, bonds or something else – on which the trust will hopefully be earning income and/or capital gains. Drawing on the reserve means selling assets. Typically the amount needed would be small, but if the trust had a large revenue reserve and had to draw on it for quite a while, the portfolio would shrink by a meaningful amount, which would cut future dividend income.

Following a change to tax laws in 2012, investment trusts are also allowed to pay dividends out of realised capital gains, known as the capital reserve. A few trusts now aim to pay out a flexible proportion of their value each year, regardless of whether that comes from capital or income. Drawing on capital to maintain a fixed dividend could make sense as a one-off in a crisis, but if a trust is forced to draw on revenue or capital repeatedly, the dividend is not sustainable.

from Moneyweek RSS Feed https://moneyweek.com/glossary/603922/revenue-reserve
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BoE's Bailey sees UK economy regaining pre-pandemic level in early 2022

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Midweek Market Podcast – September 29

It was all about Yields this week as Treasuries, Equities and EM currencies tanked as the USD continued its bid on the back of the rapidly rising 5, 10 and 30-year US Treasury Bond rates.

HotForex · Midweek Market Podcast – September 29

The Market Week – September – Week 4 

If Equities took centre stage last week, then this week the entire theatre was taken over by the rally in Yields.  Stocks tanked and once again tested September lows. USD rallied to 3-mth highs and the Evergrande saga hung over Asian markets as the threat of contagion persists.  The US government could run out of cash by October 18, as Mrs. Yellen & Mr. Powell try to reassure markets.

Germany and Japan have new leaders, as Germany narrowly leaned to the left with Mr. Scholz and Japan tipped back to the right and Mr. Kishida. Still to come this week, Month and Quarter End, much more Central bank “speak” and various GDP, PMI & CPI data to add to the mix.

The number and quality of the US jobs recovery grinds on and will be central to the FED’s taper timeframe for later in the year. The weekly US unemployment claims ticked higher again last week, to 351,000, from 335,000. This week they are expected to return to 335,000 but still above pandemic lows of 312,000.

The vaccine rollouts continue to drive sentiment, and the Delta variant remains a significant concern, as the winter season in the northern hemisphere looms.  In Asia lockdowns remain in place and the vaccination rates continue to improve. However, as booster jabs start in Europe, and double vaccination levels approach 80%, low-income country vaccination rates remain very low.  

Volatility was back in the FX markets this week, with a stronger Dollar weighing on all the Majors and EM currencies, in particular. The USDIndex rallied to 10-mth highs at 93.85 from last week’s 20-day high at 93.42. EURUSD sank to 1.1655, USDJPY pushed 111.00 to July highs at 111.65. Cable was the worst of the majors as food and fuel supplies ran low on lorry driver shortages, testing 1.3500, a level not seen since January.

The US stock markets tanked on persistent Evergrande, the September effect and the fall in Treasuries. All three indices remained well below their 50-day moving averages. This week the USA500 has posted 9 days under the 50 MA and tested 4330 once again. Technology stocks were the worst performers with the USA100 at a new 21-day low as the USA30 recovered from a 65-day low.

Gold continued to decline as the USD and Yields rallied – posting new September lows at $1728 and testing the end of day lows from August. The August 9 intra-day spike lower to $1690 remains a key support area, with the 20-day moving average at $1765, a key resistance area.

USOil prices continued to soar, touching 3-year highs as demand outstrips supply and inventories continue to be drawn down. This week price peaked over $76.00 at $76.25, before a rapid re-trace on the stock market tumble tested down to $73.30 before recovering to $74.00.

The yield on the US 10-Year Treasury Note remains very much in focus and a key market mover. A very significant rally to 1.55% from 1.30% last Friday had repercussions for the Dollar, Stock markets and Commodity prices.  A more hawkish FED, and rising inflation, suggests the taper timeframe will commence in November and certainly before year-end.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Capitol Hill chaos keeps the markets jittery!

Capitol Hill chaos and a big game of chicken will keep the markets jittery. The government is on the verge of another shutdown, or at least a partial one on October 1 if there is no action imminently, while Treasury Secretary Yellen has indicated October 18 as the drop dead date on the debt limit and a default.

Equity futures are higher ahead of the open, though off their best levels. Contracts on the major indices are up 0.25% to 0.5%. The modest bounce from Tuesday’s rout comes as the yield on the 10-year Treasury note eased slightly from the multi-month highs seen yesterday. Rate-sensitive big tech shares were hammered lower in the Tuesday session, though appear to be the beneficiaries of dip buying ahead of the open. Issues remain for the market however, aside from the usual suspects of growth and Covid concerns, inflation, and high valuations, investors are now grappling with the odds of a government shutdown, and the potential for a default.

Click here to access our Economic Calendar

Andria Pichidi

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Market Spotlight: Watching GBPAUD Channel Break

GBPAUD Downside OpportunitiesWith GBP selling off across the board this week, there is plenty of interesting price action to note. One chart catching my eye in particular is GBPAUD. Price has recently broken down below the 1.8739 level and is now probing below the rising channel support, suggesting that the recent peak might be a lower high against the YTD highs. With indicators both bearish now and with the retail community around 60% long there is room for the move to develop further. While below 1.8739 bears will target 1.8461 next.Key Data to WatchWith little in the way of key data for either currency this week the focus will instead be on broader themes within the backdrop. For the UK, the rising risks around the ongoing energy crisis and supply chain issues affecting the economy will likely keep GBP pressured in the near term. For AUD, the key focus is on COVID update around lockdowns.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/market-spotlight-watching-gbpaud-channel-break"
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EURUSD H4 is at pivot, potential for bounce | 29 Sept 2021

Type: Bullish BouncePivot: 1.16634Support: 1.15974Resistance: 1.17368Preference: Price is approaching the pivot where we may potentially see a bounce towards 1st resistance, in-line with 23.6% Fibonacci retracement and 100% Fibonacci extensionAlternative Scenario: If price drops from the pivot, we may see it swing towards 1st support, in-line with 127.2% Fibonacci retracement and 200% Fibonacci extension

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/eurusd-h4-is-at-pivot-potential-for-bounce-or-29-sept-2021"
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DAX testing pivot, potential for a bounce | 29 Sept 2021

Type: Bullish UpsidePivot: 15,678Support: 15,459Resistance: 16,007Preference: DAX H4 is testing the pivot where we may potentially see a drop towards 1st support, in-line with 38.2% Fibonacci retracement and horizontal overlap support.Alternative Scenario: If price bounces above the pivot, we may see it swing towards towards 1st resistance, in-line with 100% Fibonacci retracement and 61.8% Fibonacci extension.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/dax-testing-pivot-potential-for-a-bounce-or-29-sept-2021"
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