Market Spotlight: US Bond Yields Creeping Higher

Bond Yields Moving Back Up AgainUS bond yields have been on the decline recently. Following the concerning 70% rally we saw over most of Q3, the US 1O-yr yield has since corrected by around 15%. A large part of this has been the shift in market perspective recently regarding Fed tightening expectations. Traders have become increasingly eager to call a top in the Fed’s tightening program. Last week’s softer-than-projected October US CPI release was taken as a clear sign that the Fed will opt for a smaller rate hike in December, marking the start of the Fed Pivot.Fed Pivot Not Done DealHowever, over the last couple of days, bond yields have started to creep higher again. With the latest US retail sales data coming in above forecasts, the doves’ argument that Fed rate hikes are harming the economy has lost some impact. Additionally, we’ve heard some hawkish comments from Fed members into the end of the week which have also caused some concern. Fed’s Bullard was the most hawkish this week, calling for US rates to peak around 5% - 7% in order to drive inflation back to target, well above the Fed’s own current peak-rate projections.Technical ViewsUS 10-yr YieldThe failure at the 4.248 level has seen the market breaking down below the 4.000 level, confirming a double top-lower high. With momentum studies having turned bearish, the focus is on test of the next big support zone around 3.615 – 3.492. While price holds above here, there is risk of a further push higher in the medium view. If bulls can beak back above 4.000, bears might well be in trouble.

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UK Outlook

After Kwarteng’s budget brought down the Truss government, there was much riding on the presentation of the new fiscal plans. Much was leaked in advance, and as Hunt took over from Kwarteng with the promise of a radical overhaul it was hardly a surprise that the new government is focusing on spending cuts and tax hikes to fill the “fiscal black hole” that is partly due to mounting debt financing costs. With the fiscal watchdog confirming that the U.K. is already in recession, it remains to be seen whether Hunt manages to restore confidence not just with the markets but also with the general population, which is threatening to glide into a “doom-loop”.

Hunt’s plan will lift the tax burden for all, as the personal allowance and basic and higher thresholds will be frozen until 2028. The Institute for Fiscal Studies estimates that this will drag about 3 million people into paying higher rates by 2026. At the same time the Chancellor announced that the threshold at which the top rate of income tax applies will be cut from GBP 150K to GBP 125.140. So instead of abolishing the top 45% rate, as Kwarteng planned, more taxpayers will now be subject to it.

Hunt said that he will refrain from cutting capital spending for two years, and instead unveiled more funding for investment in energy efficiency and insulation, which is hoped to reduce energy demand. There will also be some additional money for the “leveling-up” fund, which is trying to promote a more even distribution of growth and prosperity across the U.K.’s regions. On top of that, Hunt assured his commitment to the national health service and unveiled additional funding for education.

The Chancellor also confirmed that Truss’ energy support package, worth GBP 55 bln, will be maintained, and that the government will extend the energy price guarantee for an additional 12 months at an increased level of GBP 3K a year for the average households. Benefits will be lifted in line with inflation, and state pensions will also increase in line with inflation. On top of this, the Chancellor adopted recommendations from the Low Pay Commission to increase the national minimum wage. Furthermore, those on means-tested benefits, pensioners, and disability benefits will receive additional cost-of-living payments.

However, a planned cap on on social care costs will be delayed by two years. A cap on council tax increases is being lifted, foreign aid won’t rise as planned, and the NHS aside, many departments will be facing cuts. On the income side, the planned increase in the windfall tax on energy firms will be lifted to 35% and it will stay in place until 2028. Coupled with a 40% tax on profits of older renewable and nuclear energy generation, these measures should help to raise GBP 14 bln next year.

Despite the rise in the tax burden, Gilt sales in the 2022-2023 fiscal year will reach GBP 169.5 bln, which is more than initially planned, but less than what the Truss government was planning, and it is in fact below investor expectations. Much of the increase will be due to a sharp rise in debt financing costs. The Office for Budget Responsibility (OBR), the U.K.’s fiscal watchdog, said debt interest payments in cash terms will hit GBP 120.4 bln this year, or 4.8% of GDP. That compares to GBP 56.4 bln, or 2.4% of GDP in 2021. The rise in retail price inflation alone has added GBP 1 bln on average to the cost of index-linked debt, according to the OBR’s calculations.

The OBR’s economic forecasts also painted a bleak picture. GDP is not expected to reach pre-pandemic levels until the end of 2024, three years later than the fiscal watchdog expected back in March. Unemployment is set to peak at 4.9% in the third quarter of 2024 and the OBR warned that the squeeze in real incomes, coupled with rising interest rates and falling house prices, will keep a lid on consumer spending as well as investment. Against this background, the economy is set to continue to contract for more than a year, with a peak-to trough decline in GDP of around 2%.

Hunt clearly was eager to try and distance himself from Truss’ approach, and he stressed today that the government will be “asking more from those who have more”. Coupled with the commitment to the NHS, and the rise in pensions and benefits in line with inflation, this may go some way to win back lost support. At the same time, this remained an austerity budget with GBP 55 bln of tax cuts and spending cuts, and whether it will be enough to prevent the growing dissatisfaction with the conservative government among the wider population remains to be seen. Given that the U.K. is already in recession, the risk of a “doom-loop” remains, even if Hunt brought in advisers from the days of Blair’s reform drive to present a moderate and consensual approach to the country’s problems.

Trying to make everyone happy always risks not satisfying anybody, and markets also were not quite convinced today. Yields didn’t spike as much as after Kwarteng’s ill-fated budget presentation, but the 2-year rate still jumped 14 basis points today, with the curve flattening as the long end outperformed. The UK100 declined and cable also dropped.

It will take a while for markets and the BoE to digest the budget and adjust forecasts, but it unlikely to prevent the BoE from hiking rates further and pushing ahead with QT. 

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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Autumn Statement: Energy Price Guarantee extended – but will not be as generous.

Hunt will extend the Energy Price Guarantee, which was due to end in April 2023. But, the support will be significantly lower. Here’s everything you need to know.

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Stamp duty cuts will stay, but only until 2025. How much will you save?

Hunt: Stamp duty announced in the September mini-Budget will end in 2025, chancellor Hunt has revealed. What does this mean for homebuyers?

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Autumn Budget: what does it mean for your finances?

From tax threshold freezes, changes to dividend allowances and energy help – what does the Autumn Budget mean for you?

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Market Spotlight: Target Warns Of Weaker Holiday Period Demand

Target Misses Earnings AgainUS retail giant Target saw its shares plunge lower at the open yesterday as traders digested a dismal set of Q3 earnings. Target reported an EPS of $1.54, well below the $2.16 the market was looking for. Revenues were slightly higher, at $26.51 billion vs $26.40 billion forecast.  The report marks a third consecutive quarter of earnings missed for the group. However, it was Target’s dreary outlook for Q4 and the holiday season which weighed on investor sentiment most.Lower Outlook For Q4Target noted that it has seen a significant shift in consumer patterns over the course of the pandemic and the cost-of-living crisis which has followed. CEO Brian Cornell noted “In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty." On the back of these observations, Target has reduced its outlook for Q4 including the typically high demand period leading up to the holidays. The company forecasts a low single digit decline over the quarter when compared with last year.Changing Consumer HabitsNotable changes in consumer habits have been a key theme among retailers this earnings season. Target also noted that it has seen a stark increase in shoplifting this year. The group noted a more than 50% jump year-on-year so far, with company wide losses over the $400 million mark, again reflecting a consumer reaction to the cost-of-living crisis.Technical ViewsTargetThe rally in Target shares off the YTD lows has seen the stock trading up to test the 184.52 level resistance and channel top. This level saw strong selling pressure kicking in with the market turning heavily lower. Price is now bouncing off the channel lows, ahead of a test of deeper support at the 138.80 level. While the channel holds, a further rotation higher is not off the cards though bulls will need to see price quickly back above the 167.38

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S&P 500 E-mini Futures ( ES1! ), H4 Potential for Bullish Continuation

Type: Bullish ContinuationKey Levels:Resistance:4173.25Pivot:3913.25Support:3751.75Preferred Case:On the H4 chart, we have a bullish bias. Furthermore, the price is above the Ichimoku cloud , indicating that the market is bullish . If the bullish momentum continues, price may move towards the 4173.25 resistance level , which is marked by the 78.6% Fibonacci Fibonacci line.Alternative Scenario:Price may fall back down to retest the pivot line at 3913.25, which is where the 50% Fibonacci line is.Fundamentals:There are no major news

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Market Update – November 17 – “Recession is a threat”

Recession is a threat, as suggested by the inverted yield curve, and some recent earnings reports, including Target today, reflect the various headwinds hitting the economy. Geopolitical risks from Ukraine are lingering too.

• The USDIndex’s steady 106.25 after ranging from 105.34 to 107.10. (heavy data calendar saw stronger than expected retail sales, weaker than forecast industrial production, with a further big drop in the NAHB) Yields close lower with, 10-year yield down 13 bps at 3.669%, after a high of 3.84%. The 30-year was 12.5 bps lower at 3.837%. The curve inversion deepened further to -68 bps, not seen since early 1981. Stocks 
• Fed’s Waller: “more comfortable considering stepping down to a 50 bp hike“. But he added he will not be making that decision until he sees more data. Waller has been one of the most hawkish on the FOMC so these remarks are significant. VS Fed Daly repeated a pause in hikes is off the table for now and reiterated Chair Powell’s comment that it is not even a point of discussion currently, in a CNBC interview.
• EUR – choppy at 20-day SMA. Bloomberg source story effectively confirmed that the ECB will slow its tightening cycle and deliver a 50 bp move in December.
• JPY – holding below 140, but there is speculation that the correction in the dollar is running out of steam
• AUDUSD holds gains above 0.6700 – Australia’s unemployment rate unexpectedly declined to 3.4%, employment lifted to a record high and part time employment declined. More signs of a tight labour market that will add to inflation concerns, especially after higher than expected data on wage growth yesterday.

• Stocks –Wall Street ended in the red with weakness concentrated in the US100 and the US500 following a very poor earnings report from Target. Nikkei and ASX closed narrowly mixed. PBOC warned that inflation may go higher as demand pickes up, with Hong Kong tech stocks most hit, by comments that dented hopes of further sizeable support from the central bank and Beijing officials for the economy. GER40 and UK100 are up 0.4% and 0.1% respectively.
• USOil – Energy weighed on the USOIL prices fell -1.88% to $85.29.
• Gold – drifted to $1760 on USD strength and pick up of Treasury yields.

Today: UK Autumn Statement, US Housing Stats & Building Permits.

Biggest FX Mover @Palladium -0.90% (06:30 GMT) drifted to 2017 but rebounded this morning. MAs aligning flattened, MACD lines remain negative & RSI at 44 indicating that bearish bias holds. H1 ATR 11.64, Daily ATR 100.72. 

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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US30 – Or the return in force of the “Values”

The US30 is the second oldest stock market index in the world. It is made up of 30 Wall Street reference companies, and is mainly composed of so-called “value” stocks that have been neglected for too long in favour of “growth” stocks, which have taken advantage of the enormous liquidity flows due to the Covid crisis. These same flows led to a rise in prices (inflation) which in turn led to a rate hike by the US Central Bank causing a market pivot in favour of the stocks that make up the US30 creating a huge rebound in the price which is currently around $33,681.

The US30 has managed to break above its downtrend line (see chart above) as market participants anticipated a less hawkish monetary policy and are now expecting interest rates to slow to 0.5 basis points by December. The Fed’s monetary policy seems to be having an effect, inflation in October fell to 7.7% year-on-year, yesterday’s Producer Price Index (PPI) figures also slowed to 0.2% in October.

source: cmegroup

The decline in margins is a factor that economists and Fed members have anticipated, as supply chains have loosened, inventories have risen and demand has fallen, leading to fiercer price competition. Lael Brainard, Fed vice president said, “You would actually expect increased competitive pressure to start bringing those costs down” and then added “That’s a process you would expect at this point in the cycle. I’m certainly looking at that closely. And of course, it would contribute to disinflation.”

The question one might legitimately ask is whether the Dow, as well as the markets, have reacted in an excessive manner? A view that Fed Governor Chris Waller seems to have embraced, saying “The market seems to have gotten excited about this CPI report alone. Everyone should take a deep breath, calm down. We have a long way to go.” This is not the first time in the past year that inflation has fallen, he recalled, only to return. The rate is well above the 2% target.

Technical analysis

The US30 is currently at the $33,687 level above the cloud, its Kijun (Lv), its Tenkan (Lj) while the Lagging Span (Lb) is above the cloud as well as its countermark, clearly signifying a bullish momentum. If the price continues this movement, it could initially reach $33,890 and then $34,627, in the case of a trend reversal it could test the $33,070 support, if it breaks, it could then test $31,159.

Click here to access our Economic Calendar

Kader Djellouli

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: US & China On Better Terms at G20

Biden Offers Reassurance Over ChinaPerhaps the key takeaway from the G20 meetings so far has been the subtle scaling back of tensions between the US and China. Given the geopolitical tensions linked to the Russia-Ukraine conflict as well as the situation between China and Taiwan, this development has come at a good time and has been welcomed by markets.No “New Cold War” On the back of the first in-person meeting since Biden took office, Biden offered reassurance that he did not believe China would invade Taiwan. Speaking with reporters, "I absolutely believe there need not be a new Cold War. I have met many times with Xi Jinping and we were candid and clear with one another across the board. I do not think there is any imminent attempt on the part of China to invade Taiwan.” He went on to say: "I made it clear we want to see cross-strait issues to be peacefully resolved and so it never has to come to that. And I'm convinced that he understood what I was saying, I understood what he was saying."China on Side While there is a long history of such moments of better relations between the two superpowers failing quickly, the comments have been welcomed for now and are adding to a better risk backdrop this week. Encouragingly, it seems China is enthusiastic too with Xi saying "we need to chart the right course for the China-US relationship.” He went on to say too that "China-US relations should not be a zero-sum game in which you rise and I fall… the wide Earth is fully capable of accommodating the development and common prosperity of China and the United States".Technical ViewsUSDCNHThe sell-off in USDCNH has seen the market trading back down to test support at the 7.0425 level, with the rising trend line from YTD lows underpinning the market here also. This is a key area for the pair and a break here will be firmly bearish opening the way for a move down to 7.0425 next. Should we rally from here, however, the next level to watch will be the 7.1743 area which might prove to be the right shoulder of a developing head and shoulders pattern if it holds.

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UK inflation hits 41-year high of 11.1%

The rising costs of energy and food have pushed the figure up to its highest level since 1981.

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Daily Market Outlook, November 16, 2022

Daily Market Outlook, November 16, 2022 “Risk sentiment rocked by stray rocket hitting Poland, reports that a missile landed on the Polish border killing at least two caused a dramatic pullback in US markets, however, as it became clearer that the reported ‘missile’ was more debris from a Ukrainian defensive action markets stabilised, overnight President Biden confirmed that the missile was ‘unlikely’ to have been launched from Russia. The timely reminder of the current extreme geo-political risk has set a cautious tone to trading in Asia and Europe this morning. In the UK focus shifts to BoE Governor Bailey's appearance in front of the Monetary Policy Committee, traders will parse comments for further guidance as to the BoE’s rate path, ahead of tomorrow’s budget statement. In the US, markets await retail sales and industrial production data, with higher rates pressuring consumers it is likely that some softness in retail data persists. Yesterday’s softer producer price data was viewed as further support for the FOMC to reduce the rate of rate hikes in the US, however, Fed policymakers retain a cautious tone in their rhetoric, reminding markets that rates still have further to go even if the rate of the rises slow, further Fed speakers today are likely to underline this approach. In other news former President Trump has officially announced his intention to run for the US Presidency in 2024...”Overnight HeadlinesNATO, G7 Offer Support To Poland Over Investigation Into Blasts - RTRSBiden Says Unlikely Rocket That Hit Poland Was Fired From Russia - BBGOil Edges Lower As Missile Strike On Poland Sparks Volatility - BBGGold Firms On Fed Slowdown As Investors Assess Poland Blast - RTRSCurrencies On Edge As Traders Assess Risks From Poland - RTRSPoland Rocket Blast Caused By Missile Fired By Ukrainian Forces - RTRSPoland Set To Invoke NATO's Article 4, Raise Missile Blast With UN - RTRSPoland's Duda: No Concrete Evidence On Who Fired Border Missile - RTRSUS Stock Futures Fall As Investors Await October Retail Sales - CNBCApple Prepares To Get Made-In-US Chips In Pivot From Asia - BBGAmazon Commences Job Cuts In Alexa Unit, Cloud Gaming - CNBCChina’s PBoC Governor: Talks With Yellen ‘Very Constructive’ - BBGANZ Raise China 2023 Growth Forecast On ‘Policy Normalising’ - BBG Technical & Trade ViewsSP500 Bias: Bullish Above Bearish Below 3950TechnicalsPrimary support is 3950Primary upside objective is 4120Next pattern confirmation, acceptance above 4050Failure below 3935 opens a test of 390020 Day VWAP bullish, 5 Day VWAP bullishEURUSD Bias: Bullish Above Bearish below 1.02851.0466 Target Achieved, New Pattern EmergingTechnicalsPrimary support is 1.0285Primary upside objective is 1.0620Next pattern confirmation, acceptance above 1.05Failure below 1.0270 opens a test of 1.016520 Day VWAP bullish, 5 Day VWAP bullishToday’s New York Cut Option Expiries: 1.0200-10 (1.83BLN), 1.0225-35 (428M), 1.0250-55 (1.02BLN), 1.0350 (394M), 1.0370 (1.93BLN)GBPUSD Bias: Bullish Above Bearish below 1.17901.20 Target Achieved, New Pattern EmergingTechnicalsPrimary support is 1.1790Primary upside objective 1.2050Next pattern confirmation, acceptance above 1.1970Failure below 1.1780 opens a test of 1.171020 Day VWAP bullish, 5 Day VWAP bullishToday’s New York Cut Option Expiries: 1.1695-00 (414M), 1.1800 (319M)USDJPY Bias: Bullish above Bearish Below 141139.26 Target Achieved, New Pattern EmergingTechnicalsPrimary resistance is 141Primary downside objective is 136Next pattern confirmation, acceptance below 138Acceptance above 142 opens a test of 143.1020 Day VWAP bearish, 5 Day VWAP bearishToday's New York Cut Option Expiries: 140.00-10 (777M), 140.75 (350M), 141.00 (490M), 142.25 (200M), 142.50 (351M)AUDUSD Bias: Bullish Above Bearish below .6650.6760 Target Achieved, New Pattern EmergingTechnicalsPrimary support is .6650Primary upside objective is .6900Next pattern confirmation, acceptance above .6775Failure below .6620 opens a test of .655020 Day VWAP bullish, 5 Day VWAP bullishToday’s New York Cut Option Expiries: N/ABTCUSD Bias: Bullish Above Bearish below 16800TechnicalsPrimary support is 157700Primary upside objective is 18325Next pattern confirmation, acceptance above 17000Failure below 15500 opens a test of 1440020 Day VWAP bearish, 5 Day VWAP bearish

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The cautionary tale of FTX and the future of bitcoin

The collapse of FTX has fractured the crypto market, but bitcoin will survive the fallout, argues Dominic Frisby.

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BOE Under Pressure As UK Inflation Hits 11.1%

UK CPI Soars AgainThe latest UK economic data today makes for troubling reading. CPI was seen spiking higher to 11.1% in October, well above the 10.7% the market was looking for. Marking a full 1% jump from the prior month, this reading brings UK inflation back to its highest level in 41 years. The BOE had noted that there would be some lag in the policy adjustments it’s made this year though, today’s data will leave many questioning how long that lag will be and whether the BOE has done enough?Energy Prices Rise Despite CapLooking at the breakdown of the data, the biggest upside contributions once again came from energy prices. Gas and electricity process were seen rising 129% and 66% respectively. Notably, the increases would have been significantly higher if not for the energy cap with overall CPI projected to have been somewhere closer to 14%. Food and drink prices were seen soaring again by almost 17% y/y, their biggest increase since the late 70’s. In terms of downward contributions, transport costs slowed to 9% from 11% prior, while second hand car sales fell 3% y/y.Economic Outlook DarkeningThe near-term outlook for the UK economy on the back of the data is bleak. Data earlier this week showed unemployment creeping back up. While wages were seen rising, they’re still at a far lower pace than inflation meaning that real wages are falling further as CPI accelerates. Tomorrow’s UK budget is expected to further worsen the situation for households and businesses with spending cuts and widespread tax hikes planned.BOE In FocusThe fear now is that the BOE is going to have to tighten more aggressively at the December BOE meeting. The BOE had signalled last time around a preference to reduce the pace of tightening given the weaker state of the UK economy. However, with CPI still rising above BOE forecasts there seems to be little option. The Russia -Ukraine war is showing no signs of slowing down and with the UK government potentially removing the energy cap in April next year, the BOE needs to bring inflation down or risk price hikes becoming entrenched at elevated levels, making their task more difficult.Technical ViewsGBPUSDThe breakout above the bear trend line and above the 1.1474 level has seen the market trading up towards the 1.2195 level. With both MACD and RSI bullish, the focus is on a test of this level next while price holds above the broken trend line as support. With the retail market only around 65$ short, there is still plenty of room for the move to gather more momentum.

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