Trade ideas & Daily market report November 23rd 2021
- President Biden announced that Chair Powell would be nominated for a second term.
- There were expectations that policy would be slightly more hawkish than under Brainard.
- There was also further speculation that inflation pressures would force a faster pace of Fed tightening.
- US yields increased with 2-year rates at 20-month highs after a poor auction.
- Wall Street stocks failed to hold initial gains and posted limited losses.
- Global markets were mixed with a limited net advance for Chinese bourses.
- The dollar posted fresh gains on the day to fresh 16-month highs and USD/JPY posted a fresh 4-year high above 115.00.
- EUR/USD dipped to fresh 20-month lows around 1.1225 as Euro sentiment remained weak.
- Sterling was dominated by global moves with GBP/USD trading below 1.3400.
- Dollar strength undermined commodity currencies with significant net losses.
- Oil prices were resilient with OPEC warnings that output could be curtained curbing selling.
- Precious metals dipped sharply amid dollar strength with gold sliding to near $1,800 per ounce.
- Cryptocurrencies reversed gains and traded sharply lower after the Powell announcement before recovering.
The Euro attempted to recover some ground in early Europe on Monday, but was unable to make significant headway as underlying sentiment remained negative. There were further concerns surrounding coronavirus developments with unease surrounding the latest imposition of restrictions and fears that further measures would need to be introduced over the next few weeks. In this environment, there were further concerns that the economic recovery would be compromised.
The German Bundesbank stated that inflation was likely to be just below 6% for November and the economic recovery is likely to take a breather.
Just after the New York open, President Biden announced that he would nominate Federal Reserve Chair Powell for a second term with Brainard as Vice-Chair. Although the decision was in line with expectations, there had been significant speculation that Brainard would be nominated as Chair. Overall, there was speculation that monetary policy would be slightly more restrictive under Powell than Brainard and the dollar posted net gains after the decision, especially with speculation that underlying inflation concerns will force a faster pace of tightening. EUR/USD dipped to lows below 1.1250 as the dollar posted a fresh 16-month high.
Euro-zone consumer confidence dipped to -6.8 for November from -4.8 previously and below market expectations of -5.5.
Markets will assess the latest business confidence data due during Tuesday for evidence on underlying trends in the Euro-zone and US economies.
The dollar maintained a strong tone on Tuesday with a further advance against commodity currencies with EUR/USD close to 20-month lows of 1.1225 posted overnight.
The Chicago Fed national activity index strengthened to 0.76 for October from a revised -0.18 previously with strong employment data and a rebound in industrial production. Existing home sales edged higher to an annual rate of 6.34mn from 6.29mn previously.
The nomination of Powell for a second term as Fed Chair triggered losses in US Treasuries after Monday’s New York open and yields moved higher. The two-year yield also increased to the highest level since March 2020 with a rate above 0.55% following another poor auction result.
US equities had been concerned that a Brainard nomination would trigger tighter regulation surrounding Wall Street and the decision to nominate Powell caused some relief for equities which also tended to undermine the Japanese currency. In this environment, USD/JPY posted sharp gains to around 114.75 at the European close with the yen losing ground on the major crosses. The yen failed to recover despite a retreat in US equities.
There was further speculation that the Chinese central bank would ease monetary policy while Asian equities were again mixed. US yields continued to move higher and USD/JPY moved above the 115.00 level for the first time since March 2017. The pair traded around 115.10 at the European open with EUR/JPY around 129.30.
There were no major UK developments during Monday, but markets did fret over the risk that the UK would also have to impose restrictions to curb coronavirus infections. The UK currency was unable to make headway and GBP/USD dipped to test support below 1.3400 following the nomination of Powell for a second term as Fed Chair. Overall risk conditions were slightly less confident late in Europe as equities also edged lower.
The latest UK business confidence data will be watched closely on Tuesday with expectations that the PMI readings will weaken on the month. The Bank of England will be monitoring employment, costs and pricing indices closely within the data.
Higher US yields limited potential support for the UK currency and GBP/USD traded below the 1.3400 level on Tuesday with EUR/GBP around 0.8390.
The Swiss franc weakened at time on Monday, although the overall tone remained notably firm with losses recouped quickly.
Swiss sight deposits increased only marginally to CHF719.3bn in the latest week from CHF719.2bn the previous week which did not suggest that the National Bank had ben intervening significantly to weaken the Swiss currency. Next week’s data will be watched closely to assess whether the latest franc gains have triggered a response.
EUR/CHF was unable to challenge the 1.0500 level and settled little changed while USD/CHF peaked close to 0.9320. There was little change in underlying trends on Tuesday with USD/CHF at 7-week highs around 0.9330 while EUR/CHF remained held below the 1.0500 level.
AUD/USD + USD/CAD
The Australian dollar held steady into Monday’s European open, but failed to secure gains and then dipped sharply as the nomination of Powell for a second term as Fed Chair triggered a wider US dollar advance.
Overall, AUD/USD surrendered gains with a retreat to around 0.7230.
Australian PMI data was mixed with a stronger than expected reading for services. US dollar trends continuing to dominate and AUD/USD retreated to near 0.7210 before stabilising.
The Canadian dollar also lost ground as the US dollar posted gains with USD/CAD strengthening to just below 1.2700 amid choppy trading in oil prices.
The Canadian currency was unable to recover on Tuesday with USD/CAD trading near 7-week highs just above 1.2700
The Norwegian krone was subjected to choppy trading on Monday, but did manage to regain some ground against the vulnerable Euro.
EUR/NOK settled around 10.03 from intra-day highs above 10.08.
The pair traded around 10.06 on Tuesday with USD/NOK around 3-month highs just above 8.95.
The Swedish krona retreated in early trading, but did manage to regain ground later in the session with EUR/SEK settling just above 10.10.
The krona lost ground again on Tuesday with EUR/SEK around 10.12 amid reservations over the coronavirus outlook. USD/SEK traded just above 9.00 ahead of Thursday’s Riksbank policy decision.
Euro-zone equities remained on the defensive during Monday with further fears that European coronavirus developments would undermine the recovery and earnings outlook.
Wall Street gains provided an element of relief, but the Eurostoxx 50 index declined 0.4%, although Spanish equities posted net gains..
Although there was a significant element of caution surrounding major UK stocks on Monday, earnings reports were positive and there was fresh speculation over merger activity which provided an important boost with the FTSE 100 index gaining 0.4%.
Wall Street stocks initially welcomed the nomination of Powell for a second term as Fed Chair with the threat of increased regulation seen as lower. There were, however, underlying concerns over inflation and a faster rate of monetary tightening with losses later in the session and the S&P 500 index declined 0.3%.
Asian equites were again mixed with a 0.8% advance for the Australian ASX index. Japanese markets were closed for a holiday.
China’s Shanghai index advanced 0.2% amid some speculation over monetary easing while Hong Kong stocks lost ground again with a 1.1% decline in late trading.
During Monday, there were further expectations that the US and other major countries would release strategic reserves in an attempt to curb price increases.
There was, however, also speculation that OPEC+ could adjust its output plan if major nations do decide to release strategic reserves.
Crude was undermined by a firm US dollar with WTI retreating to just below $76.0 p/b from highs above $77.0 p/b with Brent settling around $79.0 p/b.
Precious metals were undermined by the nomination of Fed Chair Powell for a second term and came under sustained selling pressure as the dollar posted renewed gains and yields moved higher.
Gold declined sharply following the news with a slide to lows near $1,800 per ounce before a marginal recovery to $1,807 on Tuesday.
Silver also slumped to lows around $24.00 per ounce before stabilising
Cryptocurrencies were relatively stable into the New York open, but volatility then increased sharply.
There were big moves following the announcement that Chair Powell would be nominated for a second term with moves in the dollar and precious metals having an important impact.
Bitcoin spiked to highs around $59,500 before retreating sharply with a slide to around $56,500 as the dollar strengthened.
Regulatory concerns continued to sap underlying support, but bitcoin stabilised in Asia to trade above $56,500 on Tuesday.
Ether also spiked to highs above $4,300 before a slide to around $4,050 with consolidation around $4,150 on Tuesday.
Major events for the day ahead: (times in GMT)
08.30: German PMI index (flash reading)
09.30: UK PMI index (flash reading)
11.00: Bank of England MPC member Haskel speech
14.45: US PMI index (flash reading)