Daily market report October 7th 2021
- Sharp moves in gas prices had an important impact across asset classes on Wednesday as overall volatility increased.
- Risk appetite dipped sharply in European trading amid inflation fears.
- US ADP jobs data was stronger than expected which helped soothe markets to some extent.
- Risk conditions recovered strongly amid a retreat in European gas prices on Russian rhetoric with hopes for a US debt-limit deal also underpinning confidence.
- Wall Street stocks reversed losses to trade higher and Asian markets posted gains.
- The dollar retreated from intra-day highs as risk appetite improved.
- EUR/USD dipped to 14-month lows around 1.1530 before a limited recovery.
- Sterling recovered from intra-day lows as risk appetite improved with EUR/GBP testing 0.8500.
- Commodity currencies reversed losses as global equities rallied.
- Oil prices dipped from 3-year highs on an inventory build and a slide in gas prices helped trigger a correction.
- Precious metals recovered some ground with limited net gains as US yields edged lower.
- Bitcoin posted strong gains to the highest level for close to 6 months.
German factory orders declined sharply with a 7.7% slide for August after a 3.4% increase previously and much weaker than expected. Although the data is somewhat data it maintained reservations over the Euro-zone outlook. Euro-zone retail sales increased 0.3% on the month with sales unchanged over the year.
The Euro overall came under significant pressure after the European data releases and the dollar also drew fresh support. The dollar maintained a firm tone as equity markets retreated and EUR/USD dipped to new 14-month lows at 1.1530, although the dollar index traded just below 14-month highs.
The ADP data recorded an increase in private-sector payrolls of 568,000 compared with consensus forecasts of 430,000, although the previous data was revised lower to 340,000. The data overall offered some reassurance over underlying labour-market trends ahead of Friday’s jobs data. Stronger data would tend to increase net dollar support on growth grounds, although there was also a net recovery in risk appetite which curbed potential US currency demand on defensive grounds.
There was choppy trading after the New York open with a strong focus on energy prices. After an initial surge, there was a sharp reversal in gas prices which also helped underpin risk conditions and curbed dollar demand, although uncertainty remained high amid very choppy moves surrounding energy prices. EUR/USD was just above 1.1550 in early Europe on Thursday with sentiment undermined by a larger than expected 4.0% decline in German industrial production.
The yen strengthened ahead of the New York open with significant defensive demand as equity markets declined sharply. US Treasuries rallied after the New York open despite the stronger than expected ADP jobs data with bond yields edging lower. In this environment, USD/JPY dipped to the 111.30 area despite a wider advance.
Markets remained focussed on underlying inflation pressures and the potential impact on both global economies and monetary policy.
After the European close there were reports that Senate Republican head McConnell would allow a temporary extension to the debt limit which helped underpin risk appetite. Wall Street equities moved into positive territory and USD/JPY edged higher to 111.50.
Former New York Fed President Dudley expressed concerns over inflation pressures and stated that excess dovishness by the Fed increases the risk of a major policy error and the need to raise rates rapidly if inflation does not decline.
Chinese markets remained closed on Thursday, but will re-open on Friday with the financial-market developments watched closely. Geo-political developments will also be potentially important with President Xi due to make a speech on Taiwan at the weekend. Risk appetite remained firm during the Asian session amid confidence that there would be a deal to raise the debt ceiling and USD/JPY consolidated around 111.40 with caution ahead of Friday’s US jobs report.
The UK PMI construction index declined to an 8-month low of 52.6 for September from 55.2 previously and below consensus forecasts of 54.0. Although there was an element of weakening demand, there were severe supply-side difficulties with a lack of transport and materials as well as on-going staff shortages. There was further strong upward pressure on prices, although the rate of increase in purchase prices eased slightly on the month.
Sterling lost ground in early Europe as equity markets dipped sharply with a break below the 1.3600 level also triggered increased selling pressures. There was GBP/USD support below 1.3550 and Sterling was resilient on the crosses with EUR/GBP continuing to test support below 0.8500.
Overall Sterling/dollar volatilities increased to a 7-month high with markets wary over further choppy moves. France announced that its action plan for access to UK fishing grounds will be announced on October 15th, but there was little overall impact in currency markets. Sterling bounced when risk appetite recovered, although trading conditions remained notably choppy. GBP/USD traded around 1.3580 on Thursday with EUR/GBP just above 0.8500 as overall risk appetite held firm.
The Swiss franc secured fresh support in early Europe on Wednesday as a fresh slide in equity markets triggered fresh demand for the domestic currency.
EUR/CHF dipped to lows near 1.0710 before a marginal recovery while USD/CHF was unable to hold above the 0.9300 level.
The franc was broadly resilient even when equity markets recovered ground. EUR/CHF was held close to 1.10720 on Thursday and USD/CHF around 0.9275 with markets monitoring risk conditions and potential National Bank rhetoric.
AUD/USD + USD/CAD
The Australian dollar was subjected to choppy trading during Wednesday with the currency buffeted by sharp moves in energy prices and equities.
AUD/USD dipped to lows near 0.7225 amid US dollar strength and a slide in equites before a recovery to around 0.7250.
Expectations of a deal on the US debt limit helped underpin risk appetite and AUD/USD rallied to 0.7280 on Thursday with some optimism over an easing of lockdowns also in evidence.
The Canadian dollar was hampered by a slide in equities and US dollar gains with a correction n oil prices also a significant element. The Canadian currency was, however, resilient with USD/CAD settling around 1.2635 at the European close.
The Canadian dollar advanced as risk appetite improved and USD/CAD traded around 1.2575 on Thursday.
There was increased volatility in the Norwegian krone during Wednesday with sharp moves in energy prices having an important impact.
EUR/NOK rallies were held below the 10.00 level with a fresh retreat towards the European close.
EUR/NOK traded around 9.91 on Thursday with USD/NOK around 8.58.
Swedish industrial production declined 3.7% in August with a year-on-year increase held to 0.8% while industrial orders increased 2.3% over the year.
The krona overall was unable to make headway, although it avoided volatility with EUR/SEK around 10.17 as USD/SEK traded just below 8.80.
Euro-zone equities declined very sharply in early trading with a slide in German factory orders amplifying losses triggered by the deterioration in global risk appetite.
Bourses did attempt to rally from lows with the German DAX index declining 1.45% while the Eurostoxx 50 index posted a 1.3% decline.
Major UK stocks also declined sharply in early trading with a slide through the 7,000 level in the FTSE 100 index amplifying selling pressure. There was a recovery late in the session with a 1.1% decline on the day as expectations of merger flows provided underlying support.
Wall Street equities posted sharp losses in early trading as inflation fears continued to sap confidence. Hopes for a debt deal helped stabilise sentiment and there was a sharp reversal with the S&P 500 index closing 0.4% higher.
Futures held firm on Thursday and Asian bourses responded with gains as sentiment strengthened. Japan’s Nikkei 225 index advanced 0.6% with a 0.7% gain for the Australian ASX index.
Chinese markets remained closed while the Hong Kong Hang Seng index jumped 2.6% in late trading.
Oil prices held firm in early trading, but there were sharp losses later in the session. There was pressure for a correction after sharp gains while weaker risk conditions also undermined sentiment.
The slide in gas prices also dragged crude lower with gas prices declining sharply after Russia promised to increase export shipments.
EIA data recorded an inventory build of 2.3mn barrels which dampened sentiment and there was a 3.2mn barrel build in gasoline stocks.
WTI remained vulnerable to a correction and struggled to rebound when equities rallied. WTI edged higher to above $77.00 p/b on Thursday with Brent around $81.00 p/b.
Precious metals were again subjected to choppy trading during Wednesday.
Metals pulled away from lows as the dollar retreated from intra-day highs and bond yields also moved lower with gold finding support below $1,850 per ounce.
Gold settled around $1,760 per ounce on Thursday with silver close to $22.65 per ounce.
Cryptocurrencies edged lower in early Europe on Wednesday, but were broadly resilient in the face of a sharp retreat in equity markets.
Bitcoin held comfortably above the $50,000 and there was a surge in New York trading with bitcoin jumping to 26-week highs above $55,000.
As natural gas reversed early gains to trade sharply lower, there was some evidence of a switch of speculative funds into crypto assets.
Bitcoin held form on Thursday, but hit selling above $55,000 and traded just below this level on Thursday.
Ether dipped to lows below $3,350 before a strong advance to highs above $3,600 with consolidation above $3,500 on Thursday.
Major events for the day ahead: (times in BST)
13.30: US jobless claims
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