Trade ideas & Daily market report September 13th 2021
- US PPI data was slightly above consensus forecasts which maintained a focus on inflation trends with the key CPI data on Tuesday.
- US bond yields edged higher, although ranges were contained.
- Risk appetite dipped in US trading on Friday amid reservations over the global growth outlook.
- Wall Street posted further net losses with a fifth successive retreat for major indices.
- Futures edged higher on Monday with Asian bourses advancing in late trading.
- The dollar secured an element of fresh defensive support as risk appetite faltered.
- EUR/USD retreated and dipped below the 1.1800 level on Monday.
- Sterling failed to hold Friday’s intra-day highs amid reservations over the recovery outlook.
- Commodity currencies retreated as risk appetite dipped before regaining some ground on Monday.
- Oil prices were resilient despite fragile risk conditions, underpinned by US supply outages.
- Precious metals dipped as the US dollar regained ground and yields moved higher.
- Cryptocurrencies failed to hold gains with significant selling in Asia on Monday.
ECB council member Holzmann stated that PEPP bond purchases should end next year if economic conditions remain favourable. The overall impact was limited as it added little to the rhetoric from Thursday’s policy meeting. Narrow ranges prevailed ahead of the New York as markets looked for fresh incentives.
US producer prices increased 0.7% for August, slightly above consensus forecasts of 0.6% with a year-on-year increase of 8.3% from 7.8% previously. Core prices increased 0.6% on the month with an annual increase of 6.7% from 6.2% previously. The maintained underlying concerns over inflationary pressures, although the overall market impact was limited ahead of Tuesday’s CPI inflation report.
Cleveland Fed President Mester stated that both sides of the substantial progress test have been met and that she would prefer to begin the tapering process this year. The rhetoric had little overall impact with equity markets having a significant impact. The dollar gained fresh support later in the day as risk appetite dipped towards the European close. Commodity currencies moved lower and EUR/USD retreated to near 1.1810.
CFTC data recorded a re-building of long Euro positions to over 26,000 contracts in the latest week from around 10,500 previously.
Over the weekend, Philadelphia Fed President Harker stated that the tapering of asset purchases should start as soon as possible and hopefully this year. There should be no further commentary on monetary policy this week with the blackout period in operation ahead of next week’s policy statement.
The dollar maintained a firm tone on Monday with EUR/USD dipping below the 1.1800 level as commodity currencies also failed to regain ground.
Chinese new loans increased CNY1220bn for August from CNY1080bn previously, but slightly below consensus forecasts. There was, however, a stronger increase in total social financing of CNY2960bn from CNY1060bn previously and above market expectations. M3 money supply growth slowed to 8.2% from 8.3% previously.
There were reports that the Bank of Japan will warn of mounting risks to exports and output from supply bottlenecks.
Risk appetite held steady ahead of the New York open, but then dipped following reports that the US could pursue a trade investigation against China. After a firm opening, Wall Street equities moved significantly lower which helped underpin the Japanese currency. US bond yields edged higher with the 10-year rate around 1.34%, but USD/JPY was held below the 110.00 level as both currencies secured an element of defensive demand.
CFTC data recorded a small decline in short yen positions to 62,300 contracts from 63,100 previously, but this still indicates scope for notable position adjustment and yen buying if there is a slide in risk appetite and sustained pressure on equity markets. The yen was unable to make headway during the Asian session.
The dollar edged higher on Monday and USD/JPY traded just above the 110.00 level while EUR/JPY retreated to around 129.80 with risk conditions still relatively fragile.
Sterling edged lower following the weaker than expected GDP data, but the currency was resilient and regained ground ahead of the New York open. Overall yield trends continued to provide an element of support for the UK currency, especially with expectations that the Federal Reserve and ECB would maintain accommodative policies. GBP/USD pushed to a high near 1.3890, but then faded later in the day as risk appetite turned less favourable. EUR/GBP also recovered from fresh 3-week lows near 0.8520 to trade around 0.8540.
CFTC data recorded a renewed increase in short Sterling positions to 24,500 contracts in the latest week from just below 15,000 previously and the largest short position since the end of July 2020 which suggested that global confidence in the UK currency remained fragile.
GBP/USD drifted lower to near 1.3820 on Monday with EUR/GBP little changed around 0.8535 ahead of important UK data releases this week.
There was a slight retreat in the Swiss franc ahead of Friday’s New York open with EUR/CHF nudging above the 1.0850 level while the dollar held little changed. The franc was unable to secure fresh support despite weaker risk conditions.
Overall, EUR/CHF settled little changed around 1.0840 with USD/CHF posting slight gains to 0.9175. Over the weekend, National Bank member Zurbruegg reiterated that negative interest rates are still required to prevent a strengthening franc. USD/CHF secured limited gains to just below 0.9200 on Monday with little change for the Euro.
AUD/USD + USD/CAD
Australian dollar sentiment held steady for much of Friday, but AUD/USD was unable to consolidate a position above the 0.7400 level and there was a significant retreat later in the session as risk appetite retreated.
With a firm US dollar, AUD/USD dipped to near 0.7350.
Risk conditions remained fragile on Monday with AUD/USD trading just below 0.7350 as the US dollar held firm and iron ore prices remained vulnerable.
Canadian employment increased 90,000 for August from 94,000 previously and slightly below consensus forecasts, although the unemployment rate declined sharply to 7.1% from 7.5% and below consensus forecasts of 7.3%. Full-time jobs increased 69,000 on the month.
The Canadian dollar was able to post net gains following the data, but USD/CAD was unable to hold below the 1.2600 level and there was a sharp reversal later in the session with USD/CAD strengthening to 1.2690 as risk appetite deteriorated.
USD/CAD retreated to 1.2670 on Monday with firm oil prices limiting potential Canadian currency selling.
The Norwegian krone held firm for much of Friday, but EUR/NOK found support below the 10.20 level. The pair rallied to near 10.24 as risk appetite dipped later in the day with higher oil prices cushioning krone losses.
The Norwegian general election will be held on Monday with the oil-industry implications watched closely.
EUR/NOK traded around 10.22 in early Europe with USD/NOK around 8.67.
The Swedish krona was held in tight ranges on Friday with EUR/SEK edging higher to 10.20 as equity markets moved lower.
The pair traded just below this level on Monday with USD/SEK close to 8.65.
After a solid start on Friday, Euro-zone equities gradually lost ground amid reservations over the earnings outlook and weakness on Wall Street.
German DAX index losses were held to 0.1% amid optimism over the export outlook, although there were sharper losses elsewhere with a 1.2% retreat for the Spanish IBEX index.
Major UK stocks were hampered by the weaker than expected UK GDP data, but there were gains for the mining sector and there was further net buying on approach to 7,000 with the FTSE 100 index closing marginally higher.
Wall Street stocks moved lower on Friday with further reservations over the growth outlook undermining sentiment, especially with rally attempts failing. Significant losses in Apple undermined wider confidence with the S&P 500 index declining 0.75%, the fifth successive daily decline.
US futures resisted further losses on Monday, with Asian bourses posting significant gains in late trading despite fragile sentiment.
Japan’s Nikkei 225 index reversed losses to gain 0.2% with a 0.25% gain for the Australian ASX index.
China’s Shanghai index traded slightly higher in late trading, but Hong Kong’s Hang Seng index registered sharp losses of 2.2% amid on-going fears over increased market regulation.
Oil prices posted net gains into Friday’s open and were resilient later in the session despite a dip in risk appetite and firmer US dollar.
The slow recovery in US production from storm-related outages was a significant factor underpinning support.
There was also evidence of firm gasoline demand, but demand conditions also remained in focus.
WTI was held just below the $70.0 p/b level and retreated to near $69.50. WTI was little changed on Monday with Brent around $73.15 per ounce.
Precious metals initially held steady on Friday, but dipped lower later in the session as the dollar gained ground, US yields edged higher and equities lost support.
Gold retreated to below $1,790 per ounce while silver dipped to near $23.70 per ounce.
Precious metals remained on the defensive on Monday with gold just above $1,1790 per ounce and silver around $23.70 per ounce.
Cryptocurrencies overall were on the defensive during Friday with net losses as the dollar regained ground. Bitcoin dipped to lows near $44,000 at the New York close as overall volatility remained at elevated levels.
There was no net change in CFTC positioning for the week with a limited net short position.
Choppy trading dominated during the weekend with net gains as bitcoin moved above $46,000.
Volatility remained elevated in Asia on Monday with bitcoin peaking around $46,500 before a sharp retreat to near $44,700.
Ether also recovered from a dip below $3,400 to trade above $3,500 before fading again on Friday. A rally attempt also reversed quickly on Monday with a retreat to around $3,250.
Major events for the day ahead: (times in BST)
03.45 (Tues): RBA Governor Lowe speech