Good morning, afternoon or evening to all ForexLive traders and welcome to the start of the new FX week!
On a Monday morning, market liquidity is very thin until it improves as more Asian centres come online.
As usual for an early Asia Monday morning, prices are liable to swing around on not too much at all, so take care out there.
The major US stock indices are closing lower for the 4th consecutive day. For the week, the majors major indices are also down sharply.
Recall from this time last week, Adam warned that this week is the worst week on the calendar seasonally for equities, over the past 50 years.It lived up to that distinction this year as well.
For the trading day:
For the trading week,
For the week, the technicals are not looking good for 2 of the 3 major indices. It is just one week and we have seen these false breaks before (see the weekly chart below) him. However, until the price can get back above and stay above, the sellers have control.Full Article
Today’s price action was probably just an extension of the FOMC trade and the growing belief that Powell is going to over-tighten the economy into a recession. But the trigger was in the bond market, specifically UK bonds. UK 5 year notes had their worst day in recorded history, down 50 basis points(!). That came after a round of spending and tax cuts in Kwateng’s budget.
Coupled with that the pound cratered. It took out 1.10 for the first time since 1985 and then promptly took out 1.09 on a cascade of selling into the London fix. You’d expect a bounce after that but the USD bid was relentless and it fell as low as 1.0840. The 1985 low is now just 300 pips away and there don’t appear to be many buyers.
Even though EUR/USD fell 150 pips to a new low the euro still managed to put a beating on GBP. The problem for eurozone politicians is that the UK budget demonstrated what will happen to them if they spend too much or energy subsidies or do to much to stimulate growth. That puts them in a horrible predicament. Meanwhile, another 1.4% decline in the euro adds to imported inflation.
At one point early in the day a strong bid for Treasuries came in. That briefly looked like it could turn the mood and 10-year yields finished lower at 3.68% after touching 3.83%. The front end was also volatile with 2s in a range of 4.11-4.27%. At some point, you’d think there would be enough of a bid for safety to weigh but the bond bulls aren’t exactly stampeding at what’s been a brutal time for risk assets.
USD/JPY remains a major preoccupation as the game of chicken with the MOF gets underway. The pair added 94 pips today to 143.28. Everyone is eyeing the 145.00 and broad dollar strength makes it more likely that we’ll get back there.
The commodity currencies suffered as well but — oddly — the declines in AUD and NZD were about double CAD. The loonie has been skidding hard so maybe it’s a catch-up trade but it’s still unusual to see on a day when oil was down 5.4%. Canadian retail sales were also weak today and I think the evidence is mouting for the BOC to pivot.Full Article
Regions of Ukraine are holding referendums on joining Russia at the moment and Ukraine has said anyone who participates will be liable for a 5 year prison sentence. The votes have been widely characterized as a sham.
In any case, the votes will be used by Russia to annex the areas. In turn, that will change Russia’s military stance in those areas as one of defending the country. That could (should?) provoke more brutal measures.
None of that is new today but the White House says it is proposed to impose additional economic costs on Russia with allies if it moves forward.
I’m not sure what’s left to sanction that won’t hurt other countries but there’s a growing risk of secondary sanctions on oil and that would be a real messy in energy.Full Article
What will stop the dollar?
A Fed pivot might but don’t hold your breath. Powell speaks in a few minutes but it’s a Fed Listens event and those are not the place for monetary policy pronouncements. We get Brainard and Bowman on a panel shortly after the top of the hour and that could offer something.
But in the big picture, US growth is the strongest and US rates will rise the highest. It also benefits from safe haven flows with JPY out of the game. Europe is in an energy crisis and several emerging markets aren’t far behind.
The euro just hit more stops on a break of 0.9700.Full Article
Here’s the latest forecast track of the storm brewing in the southern caribbean. There’s still a wide range of outcomes but almost all of them now have the storm hitting some part of Florida after crossing Cuba. The only questions are the size and magnitude.
For energy markets, this is turning into less of an event because the vast majority of production is in the central gulf and the refineries are in Texas and Louisiana on the coast.
WTI is down $4.70 to $78.79 today. It’s not like the market needed another reason to sell oil with all the growth worries.Full Article
This is the time of year when C-suites and corporate boards meet to discuss growth plans for the year ahead.
In light of the price action in financial markets, those dicussions are going to be much different than they would have been a month ago. Borrowing costs are skyrocketing and uncertainty about the economy is quickly turning into certainty there will be a recession.
Who can justify growth plans in this environment?
Certainly there are businesses out there that are doing fine and will grow but at the margin, the prospects for corporate spending are taking a big downgrade and we’re rapidly nearing (past?) the point where cost cuts and layoffs are coming.
That’s the problem with the blunt instrument of monetary policy. Additional capacity would easy supply chains and bottlenecks while adding competition. Instead, we’ll get a retrenchment in that kind of spending.
Lots of people were scratching their heads two weeks ago when the White House floated refilling the SPR at $80 per barrel. The reason they put that out there is because they need oil companies to drill. If not, there will be an undersupply of crude later. Right now it’s looking like it will hit in 2024. So Democrats may have saved the midterms but will get the payback in the 2024 general election.
Any oil company that was thinking about growth capex in 2023 has undoubtedly scaled that back now. For the Fed though, that could also boomerang. The lack of investment into all commodities will leave the market short of supplies and eventually to another price spike down the road.
For every degree central banks over-tighten now they’ll pay the price down the road.Full Article
Yesterday the Stoxx 600 edged through the June lows, today it confirmed the break. Worse yet, the national indexes are breaking those levels as well.
The DAX is at the lowest since November 2020. This is an ugly break.Full Article
Kwarteng is going to get eaten alive with tone deaf comments like these. Cutting taxes for the wealthy doesn’t tend to win you nay friends when all the tax savings get crushed by falling investments and a currency in freefall.Full Article