Daily Market Analysis and Forex News

If one word could be used to describe this week, the best fit would be intense.

There was so much going. We had key economic data released by major economies to updated company earnings and speeches from numerous Federal Reserve officials. On top of this, currency and commodity markets were volatile thanks to fundamental forces with the euro and oil snatching our attention. 

On Monday, I was prepared for anything after reviewing the economic calendar. The mood across markets improved following strong economic data from China with Asian and European markets ending in gains. However, lingering concerns about global growth amid signs of rising inflation weighed on US markets, resulting in a lacklustre session.

Our trade of the week was oil as we questioned whether US President Joe Biden would unleash some of the Strategic Petroleum Reserve (SPR). This move would help lower how much Americans are spending on petrol. On the charts, WTI Crude was under pressure with bulls losing momentum. The breakdown below $78 on Friday triggered a decline towards $75.

President Joe Biden and China’s Xi Jinping’s first virtual face-to-face summit hijacked the headlines on Tuesday morning. Both leaders held talks on Monday evening which raised hopes over relations improving between the two largest economies in the world. On the data front, the UK employment figures were encouraging despite the end of the furlough scheme. In the United States, retail sales surged in October as Americans started their holiday shopping early to avoid empty shelves. Sales rose 1.7% in October, topping expectations of 1.4%. While this data signalled strength in the US recovery it also fanned concerns about inflation, fuelling speculation around the Fed acting sooner than expected.

Mid-week, inflation concerns continued to weigh on the mind of investors especially after consumer prices in the UK climbed 4.2% compared to October 2020. This was the steepest year-on-year jump for inflation in nearly a decade. The pound jumped as high as 1.3472 during the session, before peaking to 1.3513 on Thursday. 

In Europe, the annual inflation rate was 4.1% in October, up from 3.4% in September. Interestingly, the Euro tumbled to a 16-month low on Wednesday amid rising concerns over Covid-19 outbreaks in Europe and the ECB signalling that it would not raise interest rates next year. An appreciating dollar enforced further pressure on the euro this week with the EURUSD hitting a fresh 16 month low on Friday.

Our mid-week technical outlook focused on G10 currencies. We used technical analysis to uncover potential setups on various currency pairs. One of the setups covered was the GBPUSD which found resistance around 1.3500. Sustained weakness below this may encourage a decline back towards 1.3410 and 1.3352.

It was another day but the same old story for markets on Thursday as inflation concerns weighed on sentiment. With markets mixed and currencies on standby, we used this opportunity to re-evaluate market trends. Our weapon of choice was multiple timeframe analysis (MTFA). This is a method of analysing long-term, medium-term, and short-term timeframes to achieve an accurate entry or exit when trading the markets. Global stocks were mixed on Friday as fresh Covid-19 restrictions in Europe fuelled fears around the global economic recovery. U.S stocks concluded the session mixed with the S&P500 gaining 0.32% this week.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

This week, investors are set to digest the October retail sales data out of some of the world’s largest economies, alongside these scheduled economic data and corporate earnings releases:

Monday, November 15

• JPY: Japan GDP
• CNH: China October retail sales, industrial production
• GBP: BOE MPC member Jonathan Haskel speech

Tuesday, November 16

• AUD: RBA Governor Philip Lowe speech, RBA meeting minutes
• EUR: Eurozone Q3 GDP
• GBP: UK September unemployment, October jobless claims
• USD: US October retail sales and industrial production
• Walmart Q3 earnings
• Home Depot Q3 earnings
• USD: Fed speak – Richmond Fed President Thomas Barkin, Kansas Fed President Esther George, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker

Wednesday, November 17

• JPY: Japan October trade
• EUR: Eurozone October CPI (final)
• GBP: UK October CPI
• Baidu Q3 earnings
• USD: Fed speak - New York Fed President John Williams, San Francisco Fed President Mary Daly
• US crude: EIA weekly US crude oil inventory report
• NVIDIA Q3 earnings
• Lowe’s Q3 earnings
• Target Q3 earnings

Thursday, November 18

• USD: US weekly initial jobless claims
• JD.com Q3 earnings
• Alibaba Q3 earnings

Friday, November 19

• JPY: Japan October CPI
• GBP: UK October retail sales, November consumer confidence
• GBP: BOE Chief Economist Huw Pill speech
• CAD: Canada September retail sales
• USD: Fed speak – San Francisco Fed President Mary Daly, Fed Vice Chairman Richard Clarida

Let's first consider the hard economic data. Markets are forecasting month-on-month retail sales growth of 1.3% for the US and 0.5% for the UK. China's October retail sales exceeded market expectations this morning, growing 4.9% year-on-year compared to the median estimate of 3.7%.

Should more of these figures come in better-than-expected, then risk sentiment could be emboldened by the fact that consumers worldwide are still able to display enough spending power to preserve the global economic recovery.

On top of that, more clues about the health of spending levels could be derived from the Q3 earnings from household names such as Walmart, JD.com and Alibaba. For the US in particular, retail giants such as Home Depot, Lowe’s, and Target are also due to release their respective financial results from this past quarter, noting that these 3 stocks are also constituents of the S&P 500.

S&P 500 to post new record high?

Note that consumer discretionary stocks have a 12.8% weightage on the S&P 500. Hence, this blue-chip index could be spurred higher if these earnings and retail sales economic data come in better-than-expected, especially if the good news can punch past the swirling concerns surrounding the heightened inflation levels in major economies.

The fear is that, as consumer prices rise, people’s purchasing power is diminished. Should consumption drop, then the global economy could lose one of its main drivers of growth. Persistently higher inflation which chokes the global economic recovery may result in a “stagflation” environment, which would be bad for risk sentiment.

Faced with such risks, stock markets could do with some healthy readings on retail sales and corporate earnings in order for the S&P 500 to post a new record high, which is a mere 0.4% away at the time of writing.

Gold supported by inflation concerns

Bullion has clearly benefitted from these fears surrounding persistently higher inflation, with spot gold trading around its highest levels since June.

Should the retail sales data show that consumption levels are indeed waning as a result of these higher inflation, that could stoke further demand for this safe haven asset which is traditionally seen as a hedge against inflation.

Bullion support is also very reliant on the notion that the Federal Reserve will continue to remain patient before raising US interest rates. Note that gold prices tend to have an inverse relationship with bond yields, which tend to feed off the US monetary policy outlook. Considering the speeches by Fed officials over the coming days, should policymakers show more and more desire to raise interest rates sooner than expected, that in turn could prompt gold to unwind some of its recent gains.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

It was another busy week jampacked with key economic data, updated company earnings from tech titans, and central bank meetings. 

Monday kicked off on a cautious as a fresh Covid-19 outbreak in China fuelled worries over slowing growth in the world’s second-largest economy. However, the mood slightly improved as investors banked on strong corporate earnings to lift risk sentiment. On the data front, the German IFO Business Climate Index fell from 98.9 to 97.7 thanks to supply bottlenecks. In regards to earnings, Facebook reported a mixed earnings result with earnings per share (EPS) beating estimates but revenues missing analyst forecasts. 

Our trade of the week was the EURJPY due to the Bank of Japan (BOJ) and European Central Bank (ECB) meetings on Thursday. Although both central banks left interest rates unchanged, there were some interesting takeaways. The BOJ cut its economic growth forecast for 2021 to 3.4% compared to the 3.8% previously expected while the ECB pushed back against rising interest rate hike expectations. Overall, it was a pretty choppy week for the EURJPY with prices swinging within a 100-pip range. The bearish close on Friday could open doors to lower levels in the new month. 

All eyes were on the tech giants on Tuesday with Alphabet, Microsoft, and Twitter due to report their earnings after the closing bell. Alphabet and Microsoft reported better than expected quarterly profit and revenue. However, Twitter’s third-quarter earnings missed analysts' forecasts but met estimates on revenue. In other news, consumer confidence in the United States rebounded in October, rising to 113.8 up from 109.8 in September. 

Mid-week,  we had industrial profits from China, Germany’s latest consumer confidence report, the UK government’s autumn budget, and the Bank of Canada rate decision. 

One of the biggest takeaways from the Autumn budget was that the UK economy was expected to return to pre-Covid levels by 2022 with annual growth set to rebound by 6.5% this year. In regards to inflation, it was seen rising to average 4% over next year, according to the Office for Budget Responsibility. Market-wise, the dollar was shaky, gold struggled to keep above $1800 while oil tumbled after data showed a larger than expected increase in U.S crude stockpiles. 

On Thursday, the BOJ and ECB left interest rates unchanged as widely expected. There was a lot of attention directed towards not only the the US Q3 GDP but earnings from tech titans Amazon and Apple. Market sentiment took a hit thanks to the disappointing growth figures from the United States. During the third quarter of 2021, the largest economy in the world grew at a 2% annualized pace – its slowest increase since the end of the 2020 recession. To add insult to injury, both Apple and Amazon had rare earnings disappointments – raising questions about labour shortages, supply squeezes, and rising inflation. 

Speaking of inflation, the core Personal Consumption Expenditure (PCE) Index which is the Fed’s favoured measure of inflation held steady at 3.6% in September. Headline inflation, including food and energy, rose at a 4.4% annual rate during the same period from 4.2% in the prior month. When factoring in how US CPI remains at a 13 year high, today's report may fuel expectations over the Fed raising interest rates sooner than expected. King dollar appreciated aggressively following the PCE report while gold tumbled, ending the week on a negative note.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Market narratives are everywhere at present with competing cross currents hitting traders from all sides. The global energy crisis, supply chain disruptions and the China Evergrande story roll on with central banks perhaps the main actors among all of this. How will they respond and which currencies and markets will be affected the most? The dollar looks well set, buoyed by energy independence and tighter Fed policy soon. Other energy exporting currencies with similarly hawkish polciymakers also look good.

Data points beaten by higher bond yields

Many seasoned traders say that the bond market leads all other markets. In that sense, the breakout in yields to new cycle highs tells us that the November Fed taper is a done deal. More than that, we saw yen capitulation at a time when there is still some uncertainty over the growth and risk outlook, which would ordinarily lead investors to seek safe havens.

Ahead of the US CPI and Fed minutes tomorrow, USD/JPY broke to new cycle highs yesterday and the highest level since December 2018 on the back of rising bond yields. The move looks decisive (on the weekly chart especially) with the next area of resistance around 114-114.50 The latter zone served as resistance on numerous occasions back in 2017 and 2018. The major is overbought on the daily RSI which means we should expect a pullback in some fashion soon. Support sits around 112.80.

Solid UK Jobs Data keeps alive BoE rate hike expectations

Money markets went into overdrive yesterday, and none more so than the sterling market. A 25 basis point hike by the Bank of England is now fully priced in for December this year, with some 8 basis points for next month. Notably, this morning’s UK employment figures did not spike higher as many feared, despite the end of the furlough scheme. And August average wage growth came in on the high side.

This means there is not much to push back on this fairly aggressive rate hike pricing. The high inflation story contrasts with multiple economic tailwinds (fuel, energy and food shortages, Brexit) that are expected to hit the UK in the coming months. The rise in GBP/USD stalled yesterday at 1.3673 and we are back into the range trading around 1.36. The July low at 1.3571 offers the next line of support while the 50-day moving average looms above at 1.3725.

US Q3 Earnings Season is upon us

We also have the small matter of the third quarter earnings season to digest too! In the current landscape of elevated equity valuations and record high profit margins, it may pay to be on our guard for a bout of upcoming profit warnings. These results will be all about increasing input costs and how they are driving margin pressures. We might also see more evidence of how physical and digital companies’ performance is diverging.

Banks are first up with results this week form JP Morgan Chase giving us a good handle of the broader (investment) banking environment, while Bank of America will show us a picture of domestic loan demand. Key will be talk on inflation and the outlook for interest rates, and how customers are being impacted.

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

After yesterday’s slightly disappointing US inflation data release, markets are in wait-and-see mode about how the Fed addresses rising price pressures. Inflation expectations are moving higher which means the world’s most important central bank may struggle to continue arguing that they are well anchored.

The dollar is consolidating yesterday’s selloff while stock markets and bond markets have breathed a collective sigh of relief that inflation didn’t accelerate even further. Value sensitive sectors like materials, industrials and financials outperformed on the day pushing the Dow and S&P500 to fresh record high closes. European bourses had hit multi-year highs yesterday but have opened up mixed so far.

Oil rebounds

It was a volatile day in oil markets with prices moving down towards $69 and then up above $71 on various headlines. The US administration heaped pressure on OPEC and its allies to boost supply to tackle rising gasoline prices. The Biden Presidency wants to see Americans “have access to affordable and reliable energy…at the pump”. Of course interestingly, concerns over rising commodity prices are also being voiced by the Chinese authorities.

The current increase by OPEC+ agreed recently of 400k barrels per day is seemingly not enough. But given the uncertainty around the spread of the Delta variant, it seems unlikely that the Saudis and the oil-producing group will want to increase production just yet. The contradictory nature of Biden policies is also being questioned as it urges greener energy while asking foreign producers to open the taps to lower pump prices.

UK Q2 GDP in line

Hot off the press, second quarter UK GDP has just been released in line with the consensus at 4.8% q/q. Growth is expected to slow again this quarter due to the Delta variant putting the brakes on the economy. But economists hope that the UK should still return to pre-pandemic levels by the end of this year.

With the hawkish noises from the Bank of England last week contrasting heavily with the continued dovish stance of the ECB, EUR/GBP has pushed to new 18-month lows. Prices are now consolidating just below the 0.8471 level and bears expect to see more downside, especially as the ECB engineers a weaker currency. A soft weekly close may start to challenge the 2019 and 2020 lows at 0.8281 and below.  

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.