Market Summary:
- Further dovish comments from Fed members helped weigh on bond yields and contain expectations of another 25bp hike in November, with the probability sitting around 13% compared with over 27% on Friday.
- Kashkari said higher yields could leave less for the Fed to do (in terms of hiking rates), geopolitical events have “uncertain” implications for the economy and inflation is headed lower. Bostic said inflation had “improved considerably”, and that Fed policy is sufficiently restrictive to get inflation to 2%
- Separately, a NY Fed survey saw 1-year CPI expectations rise to 3.7% from 3.6% previously and the 3-year rise to 3% from 2.8%
- Wall Street rose for a fifth day although the S&P 500 met resistance at its 50-day EMA, just below 4,400
- The IMF said that global growth it ‘limping along’ and maintained their GDP target for 2023 at 3%, but cut 2024 to 2.9% from 3%. Growth forecast for the US was increased to 2.1% in 2023 and 1.5% in 2024 but cut for China and the eurozone. Global headline inflation is expected to be 6.7% in 2023 compared to 8.7% in 2022, and to ease to 5.8% in 2024.
- The US dollar index retreated for a fifth day and broke beneath last week’s bearish pinbar low, but found support above the 29 September low. Given EUR/USD is within striking distance of 1.0632 resistance and a daily bearish trendline, the downside for the USD could be reaching a near-term inflection point
- Australian business confidence slipped by 3 points to 11 in September according to NAB, although the report noted a substantial easing in cost pressures. The top 10 industries by job ad volume were all lower in September according to seek. This reinforces our view that the RBA are likely to maintain rates at 4.1% heading into 2024.
Events in focus (AEDT):
- 09:00 – FOMC Member Daly Speaks
- 10:30 – Westpac Consumer Sentiment (Oct)
- 11:30 – RBA Assist Gov Kent Speaks
- 17:00 – Germany CPI
- 17:00 – Japan’s machine tool orders
- 19:00 – China’s loan data, M2 money supply, social financing
- 23:30 – US PPI
ASX 200 at a glance:
- The ASX 200 broke convincingly above (and closed beyond) 7,000 on Tuesday as it tracked Wall Street higher on the prospects that the Fed and the RBA are indeed done with hiking rates
- All 11 sectors rose, led by Utilities and info tech
- Utilities is also the strongest sector of the past 5 and 20 days, and info tech is the strongest sector YTD
- 7,000 is a key support level for bulls to defend, and intraday dips towards that level look appealing with resistance coming in at 7100, 7134 and 7200
USD index technical analysis (daily chart):
The US dollar index retreated for a fifth consecutive day with the help of lower yields, and prices have broken beneath last week’s bearish pinbar low. However, it is now holding above the January high (just), and with EUR/USD fast approaching a key resistance area around 1.0632 and its daily bearish trendline, perhaps the dollar can find some stability over the near-term.
Whether we go on to see a deeper pullback really is in the hands of bond traders. And for that we’d likely need to see investors continue to step in and support the market and for bears to stop booking profits from their near-record levels of short exposure. And that may require more dovish remarks from Fed members, or the Middle East conflict to deescalate.
AUD/USD technical analysis (daily chart):
The Australian dollar has made a decent recovery from its 11-month low around 63c, but with the US dollar showing the potential to find support and AUD/USD having risen for five days, perhaps we should be looking for a down day. The 50-day EMA is less than a typical day’s trade away, and is now well within a previously ‘sticky’ range, hence the hunch for the rally to at least peter out.
AUD/USD technical analysis (1-hour chart):
Price action on the 1-hour chart looks less impressive as the daily would suggest, as its choppy nature suggests it could be a corrective move against the much cleaner decline from 0.65-0.63. A bearish divergence is forming on the RSI (14), and with the 50-day EMA sitting near the weekly R1 pivot point I am on the lookout for a swing high in the area in anticipation of momentum then turning lower.
I’m not looking for any oversized moves as price action has been so choppy, and sentiment is quick to change one way or another at the moment.
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