Market Summary:
- Rising bond yields and oil prices were the main attraction on Wednesday, which further suppressed sentiment for Wall Street as these rallies play nicely into the hand of ‘higher for longer’ interest rates
- Concerns over a US government shutdown continued to mount after Republicans blocked a stopgap funding bill from advancing to the Senate, further adding to negative sentiment for risk
- The US dollar retained its spot at the top as the strongest FX major currency, which saw the dollar index rise to a 10-month high, EUR/USD an 8-month low ad reach my 1.05 target and USD/CHF rise for a 12th day to a 3-month high
- The Swiss franc was helped lower by the SNB’s quarterly bulletin, which reaffirmed the end of their tightening cycle by stating that the “significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure” (even though their rates are just 1.75%.
- The surging dollar and risk-off tone also saw key support for AUD/USD finally give way with the Aussie closing to its lowest level since November. This suggests the record level of net-short bears among large speculators and asset managers are currently on the correct side of the market, and for now we can forget any chance of a short-covering rally
- A sharp decline in US crude stocks saw WTI crude oil and brent reach fresh YTD highs on Wednesday
- Spot gold closed beneath 1900 for the first time in six month, during its worst day since early June. At current prices, gold is on track for its worst week in eight months and worst month in six.
- Wall Street indices extended their three-month low, although the S&P 500, Nasdaq 100 and Dow Jones all formed small bullish hammers to suggest early signs of stability
- Australia’s weighed mean CPI rose 5.2% y/y as expected, although the headline CPI of 0.8% m/m raised concerns and remains a metric to watch, given the acceleration of oil prices. Whilst I do not personally think it will prompt the RBA to raise rates soon, some noises of that scenario were made following yesterday’s CPI report.
Events in focus (AEDT):
- 10:00 – New Zealand business confidence (ANZ)
- 11:30 – Australian retail sales
- 17:00 – Spanish CPI
- 17:00 – ECB Enria speaks
- 17:45 – ECB McCaul speaks
- 18:00 – German state CPIs
- 19:00 – European Economic Sentiment Index (ESI)
- 22:00 – German CPI
- 22:30 – US jobless claims, Q2 GDP (final), PCE prices
- 22:30 – Canada average weekly earnings
ASX 200 at a glance:
The ASX 200 continues to hold above 7,000 (looking beyond a dew points lower here and there on Wednesday). But when you consider all of the negative sentiment that has been thrown at it, it really is doing well to hold above that key level.
At this stage, the best bet the ASX has of rallying from this key support level are positive headlines from Washington that the US government shutdown could be avoided, as this could entice bond traders back from the sideline and suppress yields. And that is looking unlikely over the next 24hrs or even this week, with Republicans blocking a stopgap funding bill.
But with bears failing to break it lower amid a slew of negative headlines, perhaps a surprise bullish catalyst could shake out some bears from these lows to prompt a near-term bounce. But even then, bears may simply look to fade into resistance levels such as 7100, 7130 or 7200. And with AUD breaking lower, is that the canary in the coalmine which leads the ASX toward 6900? Either way, 7,000 is the level to watch.
AUD/USD technical analysis
We finally saw a decisive break lower on AUD/USD as it closed beneath 64c and the September low. The RSI (14) also broke its own retracement line and momentum is headed lower with prices, in line with its dominant trend. The question now is whether this triggers a bearish follow-through today in Asia or whether it seems sticks around yesterday’s lows, waiting to be told what to by US markets. 63c is an obvious target for bears over the near-term, and the September low or 64c level make area of bears to consider fading into should prices to revert higher.
