Olivia

A mixed affair for markets today has seen the DAX and Nasdaq underperform. Meanwhile, the Bank of Canada has lifted rates once more, although the recent rise in variable mortgages will likely limit future hikes. Markets stabilise after recent declines “Equity markets have provided a welcome break from the incessant selling pressure that has dominated the week, although today’s mixed session has still seen the Nasdaq and DAX in the red. With the recent losses attributed to last Friday’s earnings rise, this coming Friday provides yet another inflation indicator in the form of the PPI factory pricing figure. Nonetheless, with China starting to moderate their Covid restrictions, there is a hope that the economic suffering in the West will be counteracted by a Asia-led rebound in growth. “ Bank of Canada raises rates, but look unlikely to do much more “The Bank of Canada opted to raise rates by another 50-basis points this afternoon, with the committee maintaining their pledge to drive down inflation further despite recent declines. Much like the US, we have seen Canadian CPI track lower over recent months, but the degree to which this will play out remains to be seen. From here we are likely… Read More »Mixed affair for equities as losses ease

Most currency pairs look ranged for now. Dollar Index can trade within 106-104 while Euro can remain above 1.04 with limited upside to 1.06. EURJPY can trade within 145-141 while Pound and Aussie can test 1.20 and 0.66/6650 respectively before again bouncing back to higher levels. Dollar Yen can test 138 before falling back to 135-132 while USDRUB has fallen from just below 64. USDCNY is bearish while below 7.05 and could slowly move towards 6.90/88. USDINR can rise to 82.75-83.00 before coming off from there while EURINR can test 87-88 while above 85. The US Treasury yields have fallen back again. We retain our view that the upside could be capped and there is more room to fall before a reversal is seen. The German yields have come down failing to get a strong follow-through rise. The yields are likely to fall more from here. The 10Yr and 5Yr GoI are moving up gradually. While there is room to move further up, key resistances have to be breached to become bullish and completely negate the chances of a fall-back again. The Reserve Bank of India’s monetary policy outcome is due today. Dow has declined further and any break below… Read More »Morning Briefing: Euro can remain above 1.04 with limited upside to 1.06

The US dollar steamrolled every other major currency this year, capitalizing on a perfect storm of widening interest rate differentials, safe-haven flows, and an absence of attractive alternatives. This ferocious rally could extend into next year, as most economies will likely fall into recession long before the US does. Nonetheless, the second half of the year might see a reversal in this trend. Could the yen come from behind to be the winner of 2023, in case the dollar rally comes off the boil? 

Inflation concerns remain as equities head lower, with UK the housing market coming back in focus says. US markets lead the losses “The recent pullback in global stocks has continued apace today, with tech stocks leading the decline thanks to a growing concern that inflation may be difficult to control as wages push higher. Friday’s 0.6% monthly gain for average earnings did little to help sentiment, with traders fearing that the uptick in wages will ultimately lead to price increases for businesses. The fact that we have seen the Nasdaq lead the declines does serve to highlight the growing fears that this downturn in inflation may stutter to the detriment of interest rate expectations.” UK construction growth under the microscope  “UK housebuilders are back in focus today, with the construction PMI survey collapsing to a three-month low. While both the manufacturing and service sectors have been in contraction territory of late, it has been construction which has been bucking the trend. However, the incessant rise in interest rates at the Bank of England appear to be taking a toll, with business optimism in the sector falling to a two-and-a-half-year low. Interestingly, the decline in materials seen over recent months has… Read More »US tech leads the losses as inflation concerns remain

Good Morning! Some recovery is seen in most currencies as Dollar Index bounces from 104 dragging down Euro from resistance at 1.06 as expected. EURJPY can test 145 before pausing while Pound and Aussie can test 1.20-1.1850 and 0.66/6650 respectively before again bouncing back to higher levels. Dollar Yen can test 138 before falling back to 132 while USDRUB seems to be slowly moving higher and can test 63-64 on the upside. USDCNY has bounced slightly but is bearish while below 7.05. USDINR can rise to 82.00-82.25/30 before coming off from there while EURINR can test 85 before again moving back towards 86.50 or higher eventually. The US Treasury yields have risen back sharply but have resistances ahead that can cap the upside and keep the broader trend down. The German yields will need a strong follow-through rise from here to avoid a fall back. The 10Yr and 5Yr GoI are attempting to bounce but have to rise past their key resistances in order to turn the outlook positive. Else they can fall going forward. Dow has fallen below 34000 but while above the support at 33500 bias remains bullish for a rise to our expected level. DAX too has… Read More »Morning Briefing: Dollar Index bounces from 104 dragging down Euro from resistance at 1.06

This week will prepare markets for the last key events of the year: policy meetings by the Fed, ECB and BoE on 14-15 December. It looks like the dollar's long positioning has now completely faded, and three factors – the Fed remaining hawkish, China's optimism being misplaced and energy prices rising again – could contribute to a USD re-appreciation. USD: Balanced positioning The dollar index is now trading 8% off its early November high, and it can’t be excluded that a busy couple of weeks before the festive period will continue to put some pressure on the greenback, which is incidentally seasonally weak in December. This is, however, not our base case, as we suspect instead that the dollar correction may have run its course, and several factors should allow for some re-appreciation into year-end. First, markets have speculated about a dovish pivot from the Federal Reserve after signs of slowing inflation, but our suspicion is that the Fed will maintain its hawkish narrative for longer, implicitly or explicitly protesting against the recent drop in yields. Strong jobs numbers on Friday should offer a basis for this. After all, endorsing the market’s dovish narrative may be premature and risky for the Fed whose plan should be to let markets do… Read More »FX daily: Preparation week

Key highlights EUR/USD is showing positive signs above the 1.0500 resistance. It broke a few hurdles near 1.0380 and 1.0480 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair settled above the 1.0450 zone, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). The bulls even pushed the pair above the 1.0500 resistance and the last swing high at 1.0497. The pair is now showing positive signs above the 1.0500 level. On the upside, the pair is facing resistance near the 1.0580. The next major resistance may perhaps be near 1.0620. A clear move above the 1.0620 and then 1.0650 might start another decent increase. In the stated case, EUR/USD may perhaps test 1.0700. Any more gains could set the pace for a move towards the 1.0800 resistance zone. An initial support is near the 1.0480 level. The next major support is near the 1.0440 zone. Any more losses might send the pair towards the 1.0350 support zone.

US stocks wrapped their second straight week of gains, even if stocks slipped on Friday on the back of better-than-expected US Payrolls data. The good news is bad news/ bad news is good news when it comes to economic data is back in fashion again, and we expect this to continue. What is fascinating about recent price action is that according to Deutsche Bank, out of 38 asset classes, 35 of them posted gains in November. This is an unusual move, and it could mark a key turning point for markets after a torrid 2022 for stocks and other risky asset classes. The fact that US payrolls data was stronger than expected, but the S&P 500 only fell 0.1% on Friday, is also a sign that the market has made up its mind that the Fed will be more dovish in 2023, and that this recovery rally could have legs.  A deep dive into the US labour market  US non-farm payrolls were stronger than expected for November, with payrolls rising 263,000 in the month. The unemployment rate remained steady at 3.7%, and the Bureau of Labor Statistics said that there were notable gains in employment in the leisure and hospitality… Read More »The Yen, Payrolls, and the Oil price

Europe European markets slipped back from their highs of the week, in the wake of an unexpectedly strong US labour market report for November, which saw 263k jobs added in November, and wages jumped sharply to 5.1%, although the pullback has been fairly modest in nature. The numbers have also done little to undermine what has been a strong week for the FTSE100, which has been helped by hopes of a relaxation of Covid restrictions in China, while the DAX has broadly traded sideways from last weeks close. The resilience of the US jobs numbers while welcome, has acted as a brake on market gains as investors price out the prospect of an imminent sharp slowdown in US rate hiking intentions, given it does little to alter the prospect of a 50bps rate move later this month from the Federal Reserve. It does however, make it less likely that we’ll see a rapid slowdown in the pace of rate hikes next year, a hare that was set racing by Fed chair Powell’s comments to the Brookings Institute earlier this week. Having seen such a strong jobs and wages report today, the focus will now shift to next week’s PPI report,… Read More »US payrolls beat expectations, pulls US dollar off its lows

The French economy is approaching a new period of marked slowdown in growth, a situation that is likely to weigh on the trajectory of public finances. Thus, while the government has incorporated an assumption of 1% real growth and 4.6% nominal growth in GDP, our forecasts for 2023 indicate figures of 0 and 3.6% respectively. This difference could result in a deterioration in public finances in relation to what was incorporated into the draft budget bill for 2023. Chart 1 highlights a close relationship between two differentials: the gap between the assumption for nominal growth incorporated into the draft budget bill and the actual growth achieved, and the difference between the deficit targeted in the draft budget bill and the actual deficit resulting from budget implementation (the revised draft budget bill is used for 2022). These elements suggest that a gap of 1 pp on growth would widen the public deficit by almost 10 billion euros, which in relation to GDP would result in a deficit of 5.4% of GDP at the end of budget implementation instead of 5% in the initial draft budget bill. Download The Full Eco Flash