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S&P underpinned by confidence in the earnings reports with the solid labour-market data

Posted: 19th November 2021

Daily market report November 19th 2021

Market highlights.

  • Firm US data releases on Thursday failed to generate expected reactions across asset classes.
  • US bond yields edged lower despite underlying reservations over inflation trends.
  • Wall Street equities posted limited gains amid optimism over earnings data.
  • The dollar was unable to make headway and retreated further from 16-month highs.
  • EUR/USD also continued to recover from 16-month lows and nudged above 1.1350.
  • EUR/CHF again found support close to 1.0500 amid expectations of National Bank intervention to curb gains.
  • Sterling edged lower from intra-day highs, but GBP/USD again tested 1.3500 as retail sales beat expectations.
  • Commodity currencies struggled to capitalise on the weaker US dollar with a correction on the crosses.
  • Oil prices secured a net advance despite efforts to release strategic reserves.
  • Precious metals failed to benefit from a weaker dollar with a limited net retreat.
  • Scandinavian currencies retreated as the Norges Bank halted currency purchases for now.
  • Cryptocurrencies declined sharply with bitcoin at 1-month lows.

EUR/USD

The Euro edged higher ahead of Thursday’s New York open, although overall ranges were narrow with buyers still struggling to make headway.

ECB council member Holzmann stated that quantitative easing has to stop given that high inflation is likely to persist, but there were still expectations that the ECB overall would maintain a dovish policy stance which would limit underlying Euro support. Markets priced out a potential interest rate increase in 2022.

US initial jobless claims declined marginally to 268,000 in the latest week from a revised 269,000 previously and slightly above consensus expectations. Continuing claims declined to 2.08mn from 2.21mn previously, but below market expectations and the data maintained underlying confidence in the labour market.

The Philadelphia Fed manufacturing index strengthened to 39.0 for November from 23.6 previously and well above market expectations of 25.0. There was a stronger increase in new orders while shipments continued to increase at a strong rate and new orders also posted a strong gain.

There was a slight slowdown in the rate of employment growth while both prices paid and received at a stronger pace on the month. Indeed, the prices received component increased to the highest level since June 1974 which maintained concerns over inflation pressures.

New York Fed President Williams stated that inflation pressures were becoming more broadly based and future expectations are rising. He added that this is a trend that policymakers are watching closely with markets seeing a more hawkish bias from key Fed members.

The dollar overall was still unable to make significant headway and EUR/USD continued to edge higher with a move above the 1.1350 level at the European close. EUR/USD peaked around 1.1370 before edging lower on Friday, although there was wariness over potential position adjustment into the weekend.

USD/JPY

The Kansas City Fed manufacturing index retreated to 17 for November from 25 previously while pricing pressures remained strong. US Treasuries posted limited net gains on Thursday despite the firm economic data and underlying inflation concerns. Yields drifted lower which undermined potential US dollar support, although the yen was also unable to gain significant support and edged lower on the crosses.

Chicago Fed President Evans stated that he is not expecting an increase in interest rates until 2023, but he did admit that he could be wrong in this analysis. Atlanta head Bostic stated that he expects a normalisation of policy by mid-2022 with rhetoric continuing to be monitored closely.

Markets remained on alert for a President Biden announcement on his nomination for Fed Chair and whether Powell will get a second term.

There were still underlying reservations over the Chinese property sector with ratings agency S&P stating that default is still highly likely, although the overall market impact was limited. The yen was unable to gain significant traction on the major crosses and USD/JPY secured a limited net advance to around 114.35.

Sterling

There were no major UK developments during Thursday with Sterling continuing to gain net support from expectations of a December interest rate increase. GBP/USD was, however, unable to hold above the 1.3500 level which triggered a limited correction and EUR/GBP also corrected from 20-month lows near 0.8380 to regain 0.8400.

Irish foreign Minister Coveney expressed disappointment over the UK stance on the Northern Ireland protocol which also hampered the UK currency to some extent, although the currency overall held firm and there were other reports that there was scope for a compromise on the European Court of Justice.

The GfK consumer confidence recovered slightly to -14 for November from -17 previously, although consumers were less confidence in the outlook for their own personal finances. Retail sales increased 0.8% for October, slightly above consensus forecasts and the first increase since June. There was a stronger increase in core sales with GBP/USD trading around 1.3500 with EUR/GBP around 0.8415 as risk appetite held steady and rate-increase expectations continued.

Swiss franc

The Swiss franc maintained a firm tone ahead of the New York open and EUR/CHF again retreated to test the important 1.0500 area. There were further expectations that the National Bank would defend this level though intervention and the Euro crawled higher at the European close. USD/CHF posted significant losses to near 0.9250.

Expectations of long-term inflation control continued to protect the Swiss currency, especially given the track record of reserving value.

The franc was little changed on Friday with USD/CHF trading around 0.9260.

AUD/USD + USD/CAD

AUD/USD held firm in early Europe on Thursday, but gradually lost ground with AUD/USD retreating to the 0.7270 area despite a stronger EUR/USD trend.

Narrow ranges prevailed on Friday amid a lack of fresh incentives with the Australian currency trading marginally higher and AUD/USD around 0.7280.

The Canadian dollar also drifted lower with USD/CAD securing a net advance to 1.2625 despite a tentative recovery in oil prices.

The Canadian currency resisted further losses on Friday with USD/CAD edging lower to just below 1.2600.

NOK+ SEK

The Norges Bank announced that crown purchases would be cut to zero at least until the end of November which helped trigger renewed krone losses during the day.

Overall, EUR/NOK posted sharp gains with the pair trading back above the 10.00 level.

Norwegian GDP data was slightly stronger than expected with a mainland increase of 2.6% for the third quarter. The pair edged below 10.00 on Friday with USD/NOK around 8.80.

The Swedish krona also lost further ground with EUR/SEK strengthening to near 10.10 amid a cautious stance towards risk currencies.

The pair traded around 10.08 on Friday with USD/SEK around 8.88.

Equities

Euro-zone equities were unable to make further headway on Thursday with sentiment sapped by on-going reservations surrounding inflation and coronavirus developments.

Major UK stocks were again hampered by expectations of higher interest rates and there were further reservations surrounding the energy sector with the FTSE 100 index declining 0.5% despite a recovery on Wall Street.

Wall Street equities were underpinned by confidence in the earnings reports with the solid labour-market data also helping to underpin sentiment and the S&P 500 index posted a 0.4% advance.

US futures edged higher on Friday and Asian markets made headway.

Japan’s Nikkei 225 index gained 0.5% with a 0.2% advance for the Australian ASX index.

China’s Shanghai index gained 1.1%, but Hong Kong’s Hang Seng index traded 1.3% lower in late trading on poor earnings data.

Commodities

Oil prices were again hampered by actions from major global oil consumers to release strategic reserves.

There were also further reservations surrounding demand conditions.

There were, however, doubts whether actions to release reserves would have a significant overall market impact and a weaker dollar also helped underpin sentiment.

WTI rallied from lows below $76.50 p/b to trade bear $78.50 at the New York close.

January WTI traded around $79.20 p/b on Friday with Brent close to $82.0 p/b.

Precious metals were unable to draw support from a weaker dollar and slight decline in yields. Gold settled just above $1,860 per ounce with silver sliding back below $25.00 per ounce.

Gold was little changed on Friday with silver remaining below $25.00 per ounce.

Cryptocurrencies

Cryptocurrencies attempted to hold their ground in early Europe on Thursday, but failed to generate any significant support in choppy trading conditions.

There was sharp selling in US trading despite a weaker US dollar with bitcoin sliding to lows below $57,000 before regaining some ground.

There were further concerns surrounding regulation with fresh action from China and India to discourage crypto trading.

There were also concerns over position liquidation with a fresh round of selling in Asia with bitcoin dipping to 1-month lows below $56,000 before stabilising.

Ether also slumped to 3-week lows just below $4,000 before attempting to stabilise and trading above this level on Friday.

Calendar

Major events for the day ahead: (times in GMT)

13.30: Canada retail sales

 

 

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