Trade ideas & Daily market report September 15th 2021
- US Consumer prices data overall was slightly weaker than expected, especially for the core reading.
- The data had only a limited impact on Federal Reserve policy expectations.
- US bond yields edged lower after the data.
- Risk appetite initially strengthened, but stumbled again later in the session as overall confidence in the global outlook deteriorated.
- Wall Street equities failed to hold gains and posted significant losses.
- Asian equities overall were little changed.
- The dollar briefly touched 1-week lows before recovering ground.
- EUR/USD was held below 1.1850 and dipped back to 1.1800.
- Sterling retreated sharply from best levels with GBP/USD sliding to near 1.3800 from above 1.3900, but higher inflation stemmed potential selling.
- Commodity currencies failed to hold gains and posted net losses.
- Oil prices were again supported by supply concerns to post net gains.
- Precious metals built on gains seen on the US CPI release.
The US NFIB small-business confidence index edged higher to 100.1 for August from 99.7 previously. The dollar was held in tight ranges ahead of the New York open with no major Euro-zone developments, although markets were monitoring developments surrounding the German election this weekend.
US consumer prices increased 0.3% in August after a 0.5% increase the previous month and slightly below consensus forecasts. The year-on-year rate edged lower to 5.3% from 5.4% previously and in line with consensus forecasts. The underlying increase was held to 0.1% from 0.3% previously and below market expectations of 0.3% with the year-on-year rate declining to 4.0% from 4.3%.
Energy prices increased 2.0% on the month with an annual increase of 25%. There was a monthly decline in used car prices with the annual increase declining to 31.9% while overall services excluding energy were unchanged on the month. The data bolstered the argument that overall inflation pressures would be transitory.
The dollar dipped lower after the data with increased confidence that inflation would moderate and limit the potential for a more aggressive stance from the Federal Reserve. There were no comments from Fed officials with the central bank in a blackout period ahead of next week’s policy meeting.
The dollar regained ground after the Wall Street open and EUR/USD hit resistance on approach to 1.1850 with a retreat to near 1.1800 after the European close as fragile risk conditions curbed any selling. The US currency was unable to extend the gains on Wednesday with EUR/USD holding just above the 1.1800 level.
US Treasuries strengthened after the US inflation data with the 10-year yield retreating to near 1.30%. US equity futures also posted initial gains, although selling pressure returned quickly which maintained a cautious risk tone. The yen gained significant support with USD/JPY retreating to around 109.65 at the European close.
Japan’s Reuters tankan manufacturing index dipped sharply to a 5-month low of 18 from 33 the previous month with important supply-side difficulties while the services-sector index dipped to -2 from 5 previously. The data maintained unease surrounding the near-term outlook, although companies did expect conditions to recover.
Chinese industrial production increased 5.3% in the year to August from 6.4% previously and below consensus forecasts of 5.8%. There was a very substantial miss for retail sales with the annual increase held to 2.5% from 8.5% previously and compared with expectations of 6.9%.
The data triggered a fresh round of unease over the Chinese outlook, especially with on-going concerns over the Evergrande situation with the property giant likely to miss near-term loan repayments. Chinese equity markets were, however, resilient which helped underpin risk appetite. USD/JPY was held near 109.50 as the yen maintained a solid tone with EUR/JPY around 129.40.
Sterling edged lower following the latest labour-market data, although overall selling pressure was limited and there was solid buying support on dips and the UK currency regained ground into the New York open. There was further speculation that the tight labour market would trigger a tightening of monetary policy by the Bank of England. The government confirmed that there will be a third booster vaccine rollout for those aged over 50.
Sterling strengthened after the US inflation data, but GBP/USD was unable to hold 1-month highs above the 1.3900 level. UK Cabinet Minister Frost warned that the EU needed to show flexibility in talks over implementing the Northern Ireland trading arrangement or the UK may decide to unilaterally suspend the protocol.
Sterling was already losing traction and Brexit concerns triggered a further correction, especially with a significant impact from weaker risk appetite. There was a sharp GBP/USD retreat to near 1.3850 while EUR/GBP again found support near 0.8510 and recovered to 0.8530.
The headline UK CPI inflation rate increased sharply to 3.2% from 2.0% the previous month and above expectations of 2.9% with the core rate jumping to 3.1% from 1.9%. GBP/USD edged higher to 1.3820 amid speculation that the Bank of England would move closer to tightening, although the overall reaction was muted.
EUR/CHF briefly edged above 1.0900 on Tuesday, but failed to hold the advance and there was a retreat to the 1.0860 area. The Swiss currency gained an element of support from the weaker tone surrounding risk appetite and USD/USD was again unable to hold above the 0.9200 level.
EUR/CHF found support above 1.0850, but the franc maintained a solid tone on Wednesday with the pair just above 1.0860 while USD/CHF consolidated close to 0.9200. Markets will continue to monitor National Bank rhetoric and potential intervention in the short term.
AUD/USD + USD/CAD
The Australian dollar advanced following the US inflation data with AUD/USD strengthening to near 0.7370 before fading very quickly as the US dollar recovered and equity market moved into negative territory with AUD/USD sliding to around 0.7320.
The Chinese data triggered fresh unease over the near-term outlook, but consumer confidence strengthened in the latest survey which provided some relief. AUD/USD dipped to 2-week lows near 0.7300 before finding some relief and trading around 0.7315.
USD/CAD was unable to break support near 1.2600 following the US inflation data and there was a strong rally to near 1.2680 as the US dollar rallied and Wall Street indices moved lower.
USD/CAD peaked above 1.2700 in Asia on Wednesday before a tentative retreat to 1.2690 as oil prices held a firm tone.
The Norwegian regional network survey declined to 1.65 for the third quarter from 1.88 previously, but this was still a strong reading in historic terms while there were widespread reports of capacity constraints, labour shortages and higher prices.
The krone posted solid gains ahead of the New York open before fading later in the day as risk appetite dipped.
EUR/NOK dipped to 2-month lows below 10.16 before a recovery to 10.21 on Wednesday as weaker risk conditions dampened support with USD/NOK strengthening to 8.65.
The headline Swedish CPI inflation rate increased to 2.1% for August from 1.4% previously and above consensus forecasts of 1.7%. The underlying rate increased to 2.4% from 1.7% and well above expectations of 1.9%.
The data increased speculation that the Riksbank would adopt a less dovish stance.
EUR/SEK dipped sharply to 10.13 before a recovery to 10.17 as equities retreated with USD/SEK around 8.62.
Euro-zone equities posted gains following the US inflation data and overall optimism overall economic outlook was sustained, but there was selling pressure in the luxury sector and Wall Street losses dragged bourses lower in late trading.
The German DAX index did secure a 0.15% gain, but there were losses of around 0.4% for the French and Spanish bourses.
Major UK stocks opened lower amid concerns over the Chinese economy. Although there was a rally after the US inflation data, selling pressure resumed quickly with the FTSE 100 index declining 0.5%.
Wall Street futures jumped after the CPI data, but failed to secure fresh momentum as markets fretted over the underlying growth outlook. There were also concerns over potential increases in corporate taxes with the S&P 500 index declining 0.55%.
US futures rallied on Wednesday which provided some relief, but Asian equities overall lost ground amid underlying reservations.
Japan’s Nikkei 225 index declined 0.5% amid a firm yen while the Australian ASX index declined 0.25%.
China’s Shanghai index traded 0.3% lower in late trading with Hong Kong’s Hang Seng index 1.6% lower as regulatory concerns continued to sap support.
Concerns over further disruption to Gulf of Mexico output continued to underpin oil prices during Tuesday. There were, however, reservations over Chinese demand trends.
There was choppy trading following the US inflation data with initial gains on a weaker dollar reversed as the US currency regained ground.
WTI dipped to near $70.0 p/b, but there was solid buying on dips and the API data recorded a 5.4mn barrel draw in crude inventories which boosted confidence.
WTI secured a net advance to near $71.0 p/b with Brent just above $74.0 p/b.
Precious metals strengthened after the US inflation data and, although the dollar recovered from early losses, metals secured further gains into the European close.
Gold moved back above the $1,800 per ounce level and traded just above this level on Wednesday. Silver was unable to regain the $24.0 per ounce level and retreated to near $23.70 per ounce.
Cryptocurrencies made steady progress ahead of Tuesday’s New York open and posted a further net advance following the benign US CPI data.
Bitcoin broke above the $46,000 level and peaked close to $47,000 around the European close.
Expectations of an accommodative Federal Reserve policy continued to provide net support for coins, especially with real interest rates still negative.
Bitcoin peaked near $47,500 in Asia before fading slightly.
Ether also pushed to highs around $3,450 early in Asian trading before a limited correction.
Major events for the day ahead: (times in BST)
13.30: Canada consumer prices
13.30: New York empire manufacturing index
02.30 (Thurs): Australia employment data