Olivia

Equities have dropped for a second day, as a healthy set of US job numbers dashes hopes of tempering in the Fed’s hawkishness. Stocks drop back following non-farm payrolls “Those hoping for a Fed pivot have been sorely disappointed with today’s job numbers, which have confirmed that US economy continues to rumble along quite well. The latest bear market bounce has now begun to wilt as investors wearily return to expectations of at least 125bps of tightening by the end of the year, with more to come in 2023. Once more we are back to buying the dollar and selling stocks, in a continuation of the themes that have been so strong throughout the year. Even the impending commencement of earnings season offers little hope, given how weak performance here has been.” Natural gas holds steady after shaky couple of days “The spectre of a cold winter looms large over Europe, and while gas prices haven’t risen much over the past two days, and may struggle now that the dollar is rising again, they still pose a severe threat to the European economy. Demand is sure to pick up into year-end, suggesting that another rally in gas prices is just… Read More »Stocks push lower following solid US jobs report

Summary Japan's economy has been reasonably resilient so far in 2022. Growth has been moderate, although confidence surveys suggest mixed prospects for different economic sectors, consistent with only moderate growth ahead. We also expect relatively contained inflation going forward as well. While prices are elevated compared to recent history, inflation remains low by international standards. As for the currency, historically there have been two important drivers for movements in the yen: the currency's safe haven characteristcs and Japan's yield differentials with the rest of the world. In more recent times the yen's safe haven properties seem to have diminished to some extent, whereas yield differentials have remained a better indicator of potential trends in the yen. Given that yield spreads appear to be the more influential driver, trends in global monetary policy, especially those of the Federal Reserve, should be influential for the yen. The increasing divergence in monetary policy between a hawkish Federal Reserve and dovish Bank of Japan means we believe the yen still has room to weaken against the U.S. dollar in the medium term, even if the Ministry of Finance intervenes in FX markets again to support the currency. We believe that as yields continue to… Read More »What’s next for Japan and the Yen?

Outlook: Pivot talk is officially dead. Formerly dovish Minneapolis Fed Kashkari said the Fed is “quite a ways away” from pausing its rate-hike cycle. Chicago’s Evans said the rate will probably reach 4.5-4.75% by next spring. New member Cook said more hikes are needed to tame “stubbornly high inflation.” We get three more today (Williams, Kashkari and Bostic). Separately, the IMF meets next week and is sure to offer more unsolicited and unwelcome advice. The dollar is again too strong, running above 145 against the yen for the first time since 1998. This is a function of US yields rising again while Japan holds the line artificially. Everybody has rising yields. See the chart. The Swiss 10-year is over 1.3% for the first time in 11 years. Payrolls today will be the usual misery for traders. The Bloomberg version is a gain of 255,000 jobs (Reuters has 250,000), and that’s with the government shedding, so all private sector. As usual, the FX market will react to the actual vs. the expected, and if it’s a big gain, like 350,000, it’s conceivable the 100-point hike can come back again, although you’d think the traders would have learned their lesson by now.… Read More »Pivot talk is officially dead

US job growth has remained robust in September – 263K jobs gained.  The Federal Reserve is likely to ramp up its hawkish rhetoric, raising the chances of fast hikes.  Stock advances will likely remain “bear market rallies,” and the dollar's reign is set to continue. Winter is not coming – at least not to America's labor market, which remains strong, posting another impressive increase in jobs last month. An increase of 263K is just above 250K seen on the economic calendar and just under the “whisper number” which was around 280K. Leading indicators came out above expectations.  That contrasts with Fed Chair Jerome Powell's “pain” talk – to see inflation falling, the economy needs to suffer.  To put this NFP in proportion, I want to note that the US economy gained some 200,000 jobs before the pandemic, and that was considered healthy, steady growth. The economy is doing better.  A negative jobs figure is unnecessary to see the Fed “pivot” from rapid rate rises. Dollar bears and stock bulls only need an NFP of under 100K to reach the “beginning of the end” of Fed tightening – slower rate hikes. Data for September suggest that a fourth consecutive 75 bps… Read More »NFP Quick Take: No pain, no pivot, dollar bulls to continue raging, stocks to suffer

An electrifying week is coming up, featuring another crucial US inflation report and minutes of the latest Fed meeting. Both will be key pieces of the puzzle for the dollar and risk assets, as traders grapple with whether the Fed will pause its tightening cycle anytime soon. Even in case of a softer inflation print though, this type of speculation seems premature. 

EUR/USD – 0.9790 Euro's selloff yesterday from 0.9926 (Asia) and then break of Wednesday's 0.9835 low (now resistance) to 0.9789 in New York on renewed USD's strength signals decline from Tuesday's near 2-week 0.9999 high to retrace rise from September's 2-decade 0.9537 trough would head towards 0.9713 but 0.9636 should hold. On the upside, only a daily close above 0.9835 would risk stronger gain to 0.9885/95 before down. Data to be released on Friday Japan all household spending, coincident index, leading index, China market holiday. Swiss unemployment rate, Germany import prices, industrial output, retail sales, U.K. Halifax house prices, France current account, trade balance, imports, exports, Italy retail sales. U.S. non-farm payrolls, private payrolls, unemployment rate, average earnings, wholesale inventories, wholesale sales, Canada employment change and unemployment rate.

EUR/USD met with a fresh supply on Wednesday amid resurgent USD demand. Hawkish Fed expectations, rising US bond yields and risk-off lift the greenback. Geopolitical risk weighs on the euro and contributes to the sharp overnight fall. The EUR/USD pair faced rejection near the parity mark and came under renewed selling pressure on Wednesday, reversing a significant part of the previous day's positive move to a two-week high. The US dollar made a solid comeback and stalled its recent sharp pullback from a two-decade high, which, in turn, was seen as a critical factor exerting downward pressure on the major. Fed officials reiterated the US central bank's commitment to controlling inflation and reaffirmed expectations for a more aggressive policy tightening. The markets have been pricing in the possibility of another supersized 75 bps Fed rate hike move in November. This, in turn, pushed the US Treasury bond yields higher and acted as a tailwind for the buck. Furthermore, worries that rapidly rising borrowing costs will lead to a deeper global economic downturn continue to weigh on investors' sentiment. This led to a fresh leg down in the equity markets and was seen as another factor underpinning the safe-haven greenback. On… Read More »EUR/USD Forecast: Failure near parity mark warrants caution for bulls ahead of NFP on Friday

Stock investors are all asking the same question… can we trust the recent rally? The market just rallied +5.7% in two trading days. Bulls argue that the rebound could push even higher as the start of Q3 earnings season starts up next week and estimates have been taken low enough that many companies will again beat expectations. At the same time, the Fed doesn't meet again until early November so the headlines might shift more towards corporate earnings being better than expected. US employment We also just had one of the first big signs that US employment might be starting to ease. Yesterday's JOLTs report showed US nonfarm job openings fell about -10% from July to August, from 11.17 million down to 10.05 million. One of the biggest monthly pullbacks we've seen in years. For reference, job openings peaked in March of this year at around 11.85 million and have been slowly falling. There were +4 million more job openings than unemployed workers in August vs. 5.9 million in March. Bulls want to believe the signs of a slowing economy mark the beginning of the end for inflation. In fact, investors are mostly in a “bad news is good news”… Read More »Is the recent S&P 500 rally sustainable?

EUR/USD – 0.9972 Yesterday's impressive rally from 0.9807 (Asia) to as high as 0.9999 in New York due to broad-based USD's weakness on falling U.S. yields and market's risk-on sentiment suggests recent rise from September's 2-decade trough at 0.9837 remains in progress, however, overbought condition would cap price below res at 1.0050 and risk has increased for a retracement to occur. On the downside, below 0.9900 signals 1st leg of correction is possibly over and brings weakness towards 0.9853, however, reckon 0.9807 should remain intact. Data to be released on Wednesday Australia services PMI, Japan Jibun bank services PMI, New Zealand RBNA interest rate decision, China market holiday, Germany exports, imports, trade balance, current account. France industrial output, Italy S n P global services PMI, France S n P global services PMI, Germany S n P global services PMI, EU S n P global services PMI, U.K. S n P global services PMI. U.S. MBA mortgage application, ADP employment change, international trade balance, goods trade balance, S n P global services PMI, ISM non-manufacturing PMI, Canada building permits, trade balance, exports and imports.

It is a new quarter and investors went on a shopping spree – stocks rallied by more than 3% – investors expecting a FED pivot. Oil rallied by 5% as the OPEC decision looms. Treasury yields fall as some are betting that the FED will pivot! US futures are up again today as the FED pivot story continues – are you seeing a pattern yet?  Try the Baby Pumpkins Stuffed with Pumpkin/butternut Squash Risotto. BOOM!  It is the start of the 4th quarter 2022 and what a start it was….buyers taking control of the market – either that or sellers finally became exhausted – taking the pressure off…..Economic data yesterday morning showed some weakness….the ISM Manufacturing PMI fell to 50.9…just a hair above neutral and below what was expected….while the S&P Manufacturing PMI rose to 52 – slightly higher than the expectation….construction spending falling by -0.7%, new orders fell to 47.1 and total vehicle sales strong, but less than expected….the RBA (Reserve Bank of Australia) was supposed to raise rates by 0.5% and they chose to surprise the markets and raise by only 0.25%……which was interpreted as a ‘slight pivot’….because the expectation was for a 0.5% rate hike…. It was… Read More »Four Qtr rally, investors bet on a pivot