Trade ideas & Daily market report October 12th 2021
- Trading activity was curbed by a partial US holiday on Monday, but there were choppy conditions across equities and commodities.
- US bond yields were little changed and currency markets were generally subdued.
- Risk conditions were less confident on Tuesday amid unease over the impact of inflation pressures and threat of stagflation.
- Wall Street indices retreated in choppy trading and lost further ground on Tuesday.
- Asian equities lost ground amid fresh reservations surrounding the Chinese property sector.
- The dollar resisted losses and USD/JPY posted fresh 34-month highs at 113.50 before a correction.
- EUR/USD was trapped just above 1.3550 in tight ranges.
- Sterling retreated from initial highs despite higher yields with concerns over growth conditions dragging GBP/USD lower.
- The Australian dollar was boosted by short covering with net gains.
- The Canadian dollar was hit by a correction and a dip in oil prices.
- Oil prices initially strengthened and WTI hit fresh 6-year highs before correcting sharply in volatile conditions.
- Precious metals were held in tight ranges with a slight net advance for gold.
The dollar held firm in early Europe on Monday, but was unable to make further headway with EUR/USD resilient as it found support close to 1.1550. Overall currency market moves were subdued as is often the case on the Monday following a US employment report. A partial market holiday in the US also dampened activity to some extent, although there were sharper moves across other asset classes.
ECB council member Knot stated that investors need to be aware of the risks of structurally higher inflation, although he also noted that he still expected that higher inflation will be transitory and there was no major hawkish rhetoric.
Bank chief economist Lane stated that a one-off shift in wages as part of an adjustment to a transitory increase in the price level does not shift the path of underlying inflation. He also warned that it is vitally important to adopt a forceful monetary policy to avoid negative deviations from the inflation target becoming entrenched. He added that the EU is in the early stage of an energy shock and the trigger for monetary policy action isn’t there.
The overall dovish rhetoric limited the potential for Euro support in global markets with expectations that yields would remain notably low.
The dollar overall edged lower later in the session, but EUR/USD was unable to make headway and settled around 1.1560 as narrow ranges prevailed. The US currency was also unable to make further headway on Tuesday with EUR/USD settling around 1.1560 as markets monitored global risk conditions.
There were further reports on Monday that some offshore Evergrande bondholders had not received interest payments with markets still wary over the risk of an escalation in the situation, but there was no evidence of immediate defensive yen support as it continued to lose ground.
US Treasuries overall were little changed on Monday as the US holiday curbed activity and the 10-year yield held above 1.60%.
US equity futures traded lower into the New York open, but then posted significant net gains which further undermined potential yen support. The yen was also undermined by high energy prices given the Japan’s dependence on imports with concerns over the impact on domestic demand. Overall, USD/JPY posted further gains to highs around 113.35 near the European close as the yen lost ground on the major crosses.
Equities lost ground later in the US session amid fears over weaker growth and Asian markets were also on the defensive on Tuesday amid fresh concerns over implications of stresses in the Chinese property sector. USD/JPY edged lower to 113.30 from 34-month highs at 113.50 with EUR/JPY just below 131.00.
Sterling posted gains in early Europe on Monday, but failed to sustain the advance despite further expectations that the Bank of England move closer to an increase in interest rates and could take action this year. In this environment, there was a further increase in yields.
Markets were monitoring Brexit developments with Irish Foreign Minister Coveney stating that the EU wanted a deal on the Northern Ireland protocol but also stating that the EU needed concessions and that they were very close to the point where the EU says there can be no further compromises.
Underlying yield spreads continued to underpin the UK currency against the Euro, but Sterling was unable to make further headway amid concerns that higher costs would undermine UK demand. Risk conditions were also less confident given unease over the threat of domestic and global stagflation.
GBP/USD was held below 1.3650 and drifted to lows just below 1.3600 while EUR/GBP recovered from 2-month lows near 0.8470 to trade around 0.8490.
GBP/USD traded around 1.3600 on Tuesday as a less confident risk tone sapped underlying support while the latest labour-market data had little overall impact.
The Swiss franc was again resilient on Monday despite higher global yields. The Swiss currency also again out-performed the Japanese yen on the day. The franc gained some support from expectations that the ECB would maintain a very accommodative policy stance.
EUR/CHF settled around 1.0730 with USD/CHF edging lower to 0.9270. The Swiss currency held steady on Tuesday as a weaker tone surrounding risk appetite also curbed potential selling as USD/CHF settled around 0.9275.
AUD/USD + USD/CAD
The Australian dollar continued to advance on Monday with expectations that there would be further support from the strength in commodity prices. The US currency drifted lower and there was also evidence of short covering against other major currencies.
AUD/USD strengthened to 0.7370 at the European close before a retreat to below 0.7350 as risk appetite dipped.
Business confidence strengthened sharply in the latest data, but current conditions were weaker and there were fresh reservations surrounding the Chinese outlook. The Australian currency was resilient on short covering with AUD/USD close to 0.7350 on Tuesday.
The Canadian dollar was unable to extend gains on Monday despite further strength in oil prices.
There was also pressure for a correction and USD/CAD found support below 1.2450 with a recovery to 1.2480 as oil prices registered a sharp correction.
The Norwegian krone held firm on Monday with further support from strength in oil prices, but it was unable to extend gains with positive developments seen as priced in and EUR/NOK settled just below 9.90.
The krone edged lower on Tuesday amid less confident risk conditions with EUR/NOK around 9.92 and USD/NOK just above 8.58.
The Swedish krona remained trapped in narrow ranges on Monday as the currency remained out of the limelight and EUR/SEK settled around 10.12.
The pair edged higher to 10.14 on Tuesday with USD/SEK around 8.77.
Euro-zone equities were held n relatively tight ranges on Monday with strength in the commodities sector offset by reservations over underlying inflation trends and the potential impact on earnings.
Major UK stocks were also boosted by strength in the oil and mining sectors, but there were reservations over inflation trends and the threat of higher Bank of England interest rates. The FTSE 100 index posted a 0.7% advance as Sterling retreated from early highs.
The partial US holiday dampened activity on Wall Street. Markets fretted over the risk of a sustained increase in inflation and negative growth impact from high oil prices. There was selling on rallies with the S&P 500 index declining 0.7%.
US futures lost further ground on Tuesday and the Asian market tone was significantly more defensive.
Japan’s Nikkei 225 index declined 0.9% despite the weak yen with a 0.25% retreat for the Australian ASX index.
China’s Shanghai index traded 1.9% lower in late trading amid fears over the property sector with Hong Kong’s Hang Seng index 1.8% lower.
Oil prices continued to strengthen in Europe on Monday with WTI posting a fresh 6-year high above $82.0 p/b amid expectations that a global energy crunch would trigger stronger demand for crude.
There was, however, pressure for a correction after a succession of strong gains. There were also concerns that the sharp increase in energy costs would lead to a sharp dip in global growth rates.
WTI dipped below $81.00 p/b after the European close as risk appetite also deteriorated and lost further ground into the New York close.
WTI did find support close to $80.0 p/b and rallied to $80.70 on Tuesday with Brent just below $84.0 p/b.
Precious metals were unable to make headway on Monday as higher US yields and a firm dollar limited potential buying interest.
Gold settled around $1,755 per ounce with silver little changed around $22.65 per ounce.
Gold edged higher to just above $1,760 per ounce on Tuesday with silver little changed.
Cryptocurrencies were held in tighter ranges during Monday while overall sentiment remained robust.
Bitcoin dipped to test the $56,000 support area before a rebound to 6-month highs around $57,500.
Bitcoin held gains despite comments from JP Morgan’s Dimon that there would be increased regulation and that the coin was essentially worthless.
There was a limited retreat in Asia, but it held above $56,500.
Ether posted net gains, but failed to hold above $3,600 and gradually dipped below $3,500 in choppy conditions.
Major events for the day ahead: (times in BST)
10.00: Germany ZEW index
15.00: US JOLTS report
07.00 (Wed): UK monthly GDP