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Inflation Concerns Weigh On Markets

EU and US shares continued to slide yesterday, as investors remained concerned that high energy prices could lead to higher inflation and faster tightening by major central banks.

Today, participants may lock their gaze on the US CPIs for September, where another round of elevated rates could prompt investors to increase their tightening bets.

Tonight, during the Asian session Thursday, Australia’s employment report for September will be released.

US CPIs and AU Jobs Data In Focus

The US dollar traded higher or unchanged against most of the other major currencies on Tuesday and during the Asian session Wednesday.

It gained slightly against CHF, AUD, and JPY, while it underperformed against CAD and GBP. The greenback was found virtually unchanged against NZD and EUR.USD performance against major currencies.

Once again, the performance in the FX world paints a blurry picture with regards to the broader market sentiment; thus, we prefer to turn our gaze to the equity world.

All but two of the major EU indices finished their session in the red, with Wall Street sliding somewhat as well. Appetite improved during the Asian session today.

China’s Shanghai Composite and South Korea’s KOSPI traded green, while Hong Kong’s Hang Seng stayed pat. Only Japan’s Nikkei 225 was down.Major global stock indices performance.

Although EU and US equities slid less than on Monday, this still suggests that investors remain reluctant to increase their risk exposure.

We believe their concerns were discussed yesterday, the day before, and even last week with no fresh catalyst to drive the market.

Energy prices remain elevated, which heightens concerns over further acceleration in inflation, and thereby, faster tightening by central banks.

Meanwhile, Evergrande (OTC:EGRNY) missed a third round of bond payments in three weeks, which brings a potential default a step closer.

With inflation being the main driver for the markets recently, today, participants are likely to lock their gaze on the US CPI data for September.

Both the headline and core CPI rates could hold steady at 5.3% and 4.0%, respectively, well above the Fed’s objective of 2%.

The US employment report revealed a disappointing number of added jobs during September. Despite that, the Fed could start scaling back their Quantitative Easing (QE) purchases soon.

Yesterday, Fed Vice Chair Richard Clarida, Atlanta Fed President Raphael Bostic, and St. Louis Fed President James Bullard endorsed a November move.

Bullard even expressed a preference for interest rates to start rising in the spring or summer of 2022. This encouraged investors to bring forth their rate-hike bets.

The Fed funds futures now fully price in a 25 bps increase to be delivered in December next year.

US CPIs vs Core PCE YoY chart.

This suggests that market participants don’t need inflation to accelerate further to increase their tightening bets.

Even staying unchanged and not pulling back may be enough, as this will add credence to their view that the surge in consumer prices may, eventually, not be as transitory as the Fed has initially expected.

We may get more hints and clues as to how likely a November tapering may be from the minutes of the latest FOMC meeting, which come out later in the day.

Therefore, anything cementing the November tapering case could prompt USD traders to add to their long positions and stock investors to reduce their exposure.Fed funds futures market expectations on US interest rates.

During the Asian session Thursday, we get Australia’s employment report for September.

The unemployment rate could rise to 4.8% from 4.5%, while the net change in employment could show that the economy has lost 137,500 jobs after losing 146,300 in August.

At last week’s gathering, the Reserve Bank of Australia (RBA) kept its policy settings unchanged.

Officials repeated that they will continue to purchase government securities at the current pace until at least mid-February and maintained the view that interest rates are unlikely to rise before 2024.

We believe that a soft employment report may add more credence to the RBA’s dovish stance and push the Aussie somewhat lower, especially against its Canadian counterpart, which has surged due to the rally in energy prices.

Friday’s better than expected employment report is another reason to long the Loonie because it increases the probability for further tapering by the Bank of Canada (BoC) at its upcoming monetary policy gathering.Australia unemployment rate.

NASDAQ 100 – Technical Outlook

The NASDAQ 100 cash index traded lower yesterday after hitting resistance at 14800 and pulling back towards 14598.

Overall, the index continues to trade below the downside resistance line taken from the high of Sept. 7, and thus, we will consider the short-term outlook to be negative.

An apparent dip below 14598 could initially target 14435, which provided support on Oct. 4 and 6.

That said, if market participants are willing to let the index slide further, we could see a test of the 14320 level, marked by the low of June 25, or the 14210 territories, defined by the inside swing high of June 18.

We will start examining the bullish case only if we see a recovery above 15245. This could confirm the break above the downside line and may initially target the peak of Sept. 27, at 15410.

Another break above that level may encourage participants to take action to 15545, which provided resistance between Sept. 13 and 17 and acted as a support between Aug. 31 and Sept. 9.

If they are unwilling to stop there, we could see them climbing towards the index’s record highs at 15710, made on Sept. 6.

Nasdaq 100 cash index 4-hour chart technical analysis.

AUD/CAD – Technical Outlook

AUD/CAD edged south yesterday, after hitting resistance at 0.9200, to stop near the 0.9133 zones, marked by the low of Oct. 6 as well.

Overall, the pair continues to trade below the downside line drawn from the high of Sept. 9, keeping the short-term bias to the downside.

If the bears are strong enough to push the action below the 0.9133 level, we could soon see them aiming for 0.9104, marked by the lows of Friday and Monday.

Another dip, below 0.9133, would confirm a forthcoming lower low and perhaps pave the way towards 0.9065, marked by the low of May 27, 2020, the break of which could extend the fall towards the low of May 15 of that year, at 0.9024.

On the upside, we would like to see a rebound back above 0.9213 before we start examining whether the bulls have stolen the bears’ swords.

This could confirm the break above the downside line taken from the high of Sept. 9 and may allow advances towards the 0.9250 territories, marked by the high of Sept. 24.

Another break, above 0.9250, could extend the gains towards the peak of Sept. 22, at 0.9295, or the high of Sept. 20, at 0.9315.

AUD/CAD 4-hour chart technical analysis.

As For The Rest of Today’s Events

We already got the monthly UK GDP for August during the early European morning, which accelerated slightly less than expected. 

However, the industrial and manufacturing production rates came in better than their forecasts suggested. 

In any case, as yesterday, the pound barely reacted to the data, confirming our view that the currency may be more linked to developments surrounding the broader market sentiment for now.

After all, a hawkish Bank of England (BoE) may already be priced in.

We get the bloc’s industrial production for August from the Eurozone, and the forecast points to a 1.6% MoM slide after a 1.5% mom increase in July. This is likely to take the YoY rate down to +4.7% from +7.7%. 

Regarding the energy market, we have the API (American Petroleum Institute) report on crude oil inventories for last week, but as it is always the case, no forecast is available.

As for the speakers, we will hear from BoE Deputy Governor for Financial Stability Jon Cunliffe and Fed Board Governor Lael Brainard.


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