Yuan continue to decline, UK’s new PM Rishi Sunak, the market is trading range bound.
The markets were mixed yesterday. In Europe and US stocks closed the first trading day positive, but heavy selling was seen in Hong Kong and China stocks because of disappointed by the absence of policy direction from Xi Jinping and a fresh standing committee which are completed with his loyalists. Also, Rishi Sunak became the new Prime Minister after the contenders Boris and Penny pulled out of the race. This may be the last chance for the Conservative Party to demonstrate the party can still be a credible government. Thus, the markets are now focusing on Sunak’s cabinet selection.
In Asian session, the Yuan continue to decline and hit another record low level at 7.30 since 2008. Now, the Dollar index is hovering around 112.00. Most of the currencies are trading range bound. Yet, US treasuries are still on the increase. US10-year yield is trading above %4.20 and the spread between US2-10year tightens to 29bps. In addition, PMIs released in mostly under 50, with a few negative disappointments. Still, the global recession is on the agenda.
Today’s economic calendar is relatively quiet, but Germany IFO business climate is the key focus in European session. Also, US consumer confidence will take center stage later in the day, then Richmond FED manufacturing data and house price index will be released.
Daily Market Analysis 26.10.2022
The Dollar Index was sold off. Rishi Sunak become UK Prime Minister. Australia CPI jumped to %7.3 YoY in Q3.
The Dollar Index declined firmly because of US Consumer confidence decreased sharply from 107.8 to 102.50 in October. Also, the Richmond FED Manufacturing index dropped sharply to -10.0 vs previously ‘zero’. Today, DXY is hovering around 110.80level (50DMA). In addition, the weakness in economic indicators led to FOMC rate moves on CME FedWatch Tool 50bps rate hike with the %50 probabilities. Yet, for November meeting a 75bps rate hike fully priced with the probabilities of %97. As a result, US10-year Treasury yield lost more than %3.0 yesterday. Today, the US10y bond yield is trading above %4.05 vs US2Y yield at %4.42.
Besides, Rishi Sunak become the third UK Prime Minister in two months. Thus, political situation in the UK appears to have stabilized in a short time period. In addition, the inflation data from Australia released in the morning that it climbed to %7.3 YoY in Q3 vs %6.1 YoY in Q2.
For the rest of the day, we follow US new home sales and BoC interest rate decision. The BoC is expected to raise its policy rate by 75bps to %4.00 from %3.25.
DXY softens, US treasury market mood is mixed. In UK, the leader will be elected this week. Xi Jinping was elected for a record third time five-year term.
The dollar Index continue to decline because weakness economic data would provide FED to slow down the tightening pace sooner than earlier expected. In other words, hawkish FED bets expectations are on the decrease. Also, US Treasury Bond yields dropped, however, it should be noted that inflation remains FED’s biggest problem. What else, investors also cautiously awaited policy decisions from the European Central Bank and the Bank of Japan this week.
In addition, IMF Managing Director Kristalina Georgieva said that central banks should keep raising interest rates until they reach “neutral level”. In other words, she explains that interest rates have to go up until the inflation comes flat. Furthermore, IMF forecast that tightening will continue until 2024 when central banks are “seeing the impact of their actions”.
Moreover, The Bank of Canada (BoC)announced a smaller-than-expected interest rate hike yesterday. BoC raised its policy rate by 50bps to 3.75%. It has increased rates by 350 basis points since March, one of its fastest tightening cycles ever. Yet, the bank said it was getting closer to the end of its historic tightening campaign as it forecast the economy would stall over the next three quarters.
Today, European Central Bank will announce its latest monetary policy decision. ECB is expected to hike rates by 75bps with the information about Quantitative Tightening timing. Then, US GDP numbers will be released at 15:30 (GMT+3).
Daily Market Analysis 28.10.2022
DXY recovers, Japan keeps the policy rate unchanged
The dollar Index is recovering because the US Gross Domestic Product (GDP) report showed the strength of the US economy. In other words, US Economy grew %2.6 YoY in the three months to September, better than anticipated. Also, European Central Bank (ECB) announced its monetary policy decision. As widely expected, the ECB increased the rate 75bps. Yet, the sound for growth and economic developments was disappointed. Additionally, the ECB introduced changes to the Targeted Longer-Term Refinancing Operations (TLTRO) III program**.** It means ECB tighten financial conditions further.
In Asia, the Tokyo inflation data climbed to %3.5 YoY in October. Also, the Japan Central Bank (BoJ) keep the policy rate unchanged (-%0.10). Furthermore, ‘The IMF cut Asia’s economic forecasts on Friday as global monetary tightening, rising inflation blamed on the war in Ukraine, and China’s sharp slowdown dampened the region’s recovery prospects,’ said Reuters.
Today, the US Core PCE Price Index for September will be released, expected to rise to 5.2% versus 4.9% prior. A firmer print of the Fed’s preferred inflation gauge could add strength to the yields and hawkish Fed bets, which in turn will be favorable for the risk-safe assets ahead of the next week’s FOMC.
Daily Market Analysis 21.10.2022
China PMI drops, FED & BoE’s decision will be announced.
This morning, manufacturing-related data published in China. The October official services PMI falls to 48.7 vs 50.6 in September. Also, the October official manufacturing PMI drops at 49.2 (Reuters poll 50.0) vs 50.1 in September. However, the stocks are in green in Asia.
Last week, US economy grew by %2.6 in Q3. Interest rates may give way to to a further weakening in residential fixed investment, and under this outlook, Q4 growth data is likely to be somewhat weaker than the third quarter. Although the comparatively robust US growth points to the past period, the expectation of a 75bps rate hike, which can be called as a jumbo rate hike before the Fed meeting on November 2, continues. Also, ECB raises interest rates by 75bps as widely expected and the policy rate reached to %2.00 the rate. At the same time, the ECB changed the terms and conditions of the third series of TLTRO III, by adjusting the interest rates applicable from 23 November 2022, and offering banks additional voluntary early repayment dates. Additionally, BoJ kept policy rate unchanged. The Bank of Japan decided to keep the benchmark interest rate at -0.10%, in line with expectations
The key releases of the week will be the Fed’s and BoE’s interest rate decision. The US FOMC decision, which will be announced on Wednesday at 21:30, will be the most important agenda of the week. Expectations for an interest rate hike from the
Fed are to raise the funding rate of %4.00 by 75bps rate hike. Similarly, 75 basis points rate hike decision expected from BoE meeting to be held on Thursday
Daily Market Analysis 01.11.2022
PMIs will be the key data, +25bps from RBA this morning.
This morning, Australia Central Bank (RBA) increased the cash rate by 25bps from %2.65 to %2.85. This is the seventh straight rate hike and the level have not seen since April 2013. Inflation in Australia is on the increase and RBA thus forecasts the inflation rate at %8.00 this year. Also, The Caixin Manufacturing PMI released in China and the data rose to 49.2 in October previously 48.2 in September. The latest reading is above the previous one, but the impact of COVID controls lead to factory activity to shrink in China.
In addition, ECB officials continue to have a speech and they said they will take a significant interest rate hike step again in December. They also said that they continue to fight against inflation. Furthermore, ECB Governing Council Member Knot said that ‘we are still returning interest rates towards their neutral level for which we will also need the December meeting.’.
This week, two Central banks will have a meeting. FED is expected to continue with another 75bps rate hike to %3.75-%4.00. BoE also make 75bps rate hike to %3.00. The key data of the day will be the PMI Manufacturing from US, UK and Canada.
FED Policy rate decision +75bps rate hike expected, In China Covid-Zero policy will continue or not, BoJ reached the %2 inflation target.
The Dollar Index climbed 111.78 level after US Economic data yesterday. The October ISM Manufacturing PMI came in better than expected, reading at 50.2. Also, the JOLTS report indicated that the number of vacancies in U.S. unexpectedly rose by 437,000 the number of job openings increased to 10.7 million on the last business day of September.
In Asia, the market mood is mixed because an unverified social media post which claimed that Chinese authorities are preparing to exit Covid Zero. However, China’s foreign ministry spokesperson said he was unaware of such a plan. Furthermore, Bank of Japan (BoJ) Governor Haruhiko Kuroda implied at a possible adjustment in the yield curve control policy “if the achievement of our 2% inflation target comes into sight.” Additionally, Finance Minister Suzuki told the government is concerned about a slow depreciation in the yen, not just volatile moves, as it raises the cost of living through higher import bills.
In addition, today the eyes will be on FED’s policy rate decision. The investors remained cautious ahead of a key US Federal Reserve interest rate decision with markets focusing on its future tightening plans. The FED is expected to hike rate by 75bps and could bring in some volatility in the currency markets. Also, The US Treasury yields are mixed ahead of the US Federal Reserve meeting outcome. US10-year treasury yield is trading closely %4.05 and 2-year yield is above %4.52, deepening the inversion to around -47bps. For December FOMC meeting, the rate hike FedWatch is seen +75bps with the odds of %49. In other words, Fed fund futures now suggest an equal chance of a 50bps move for Dec vs. 75bps.
Daily Market Analysis 03.11.2022
Hawkish FED on the stage. BoE policy decision will be followed.
FED hiked federal funds rate to %3.75-%4.00 with a 75bps rate hike as widely expected. In other words, FED continue to hike rates aggressively. However, the statement suggested policymakers would soon slow the pace of Quantitative Tightening (QT). After the statement released, the Dollar Index sold somewhat untill FED Powell speech. Then, Powell said inflation needs to be taken down ‘decisively’. Also, he added FED is ready to change the monetary policy as needed. He referred that slowing the pace of rate hikes will become necessary at some point, but that will may take time for inflation to come down. Critically, he said that the ultimate level of rates would be higher than previously expected. Hence, the optimism in the market was gone immediately. Losses quickly reversed because Powell speak hawkish. Dollar Index climbed 112.17 level. In addition, US treasury yields jumped to the highest levels.
In Asia, the market mood is pessimistic because the discourses related to exit Covid Zero turned up false. China announced a new lockdown, this particular one, involving the area around the world’s largest iPhone factory. In addition, today the eyes will be on BoE’s policy rate decision. The BoE is expected to hike rate by 75bps and could bring in some volatility for Sterling. Also, today’s key data will be US Initial Jobless Claim and ISM services in U.S.
Daily Market Analysis 07.11.2022
Central Banks continue to hike rate. October NFP in U.S. was well above consensus.
Last week, Central Banks continued to make rate hikes. FED increased its funding rate by 75bps to the range of %3.75 - %4.00. Also, BoE raised its policy rate to %3.00 by a 75bps rate hike as widely expected. It is the first Jumbo hike since 1989. However, the BoE officials revised the UK inflation forecast for the fourth quarter to rise %11.00.
Furthermore, unemployment rate increased in the U.S. Non-farm payrolls lifted up by 261K in October more than expected 200K. The labor force participation rate was %62.2 while the unemployment rate rose from %3.50 to %3.70.
The average NFP for this year thus far is around 415K. Average hourly earnings rose by 4.7% YoY, indicating a slight slowdown from %5.00 in September. Employment gains in October were recorded in health care (53K), professional and technical services (43K) and manufacturing (32K).
Today, the dollar Index (DXY) is trading 111.10 level. UST yields were largely steady after the release with the 2y yield only slightly lower at %4.70 seen this morning. FED Fund futures now imply market expectations for the terminal rate to be around %5.1 by Jun 2023. The spread between US 2-10years is -54bps.
Daily Market Analysis 08.11.2022
The coronavirus cases in China is on the increase. US treasury yields continue to remain firm. US mid-term elections all-day.
Yesterday, the markets are generally silence. The Dollar Index is falling, but US treasury yields are rising firmly. The 10-year US treasury bond yield is trading around %4.22 and US 2-year yield is hovering at %4.72.
Additionally, there is a speculation that FED will ease the pace of quantitative tightening regardless of Powel’s hawkish speech last week. Also, the cases related to Covid in China are on the increase. Thus, the restrictive measures may be taken.
Today, the focus will be on US mid-term elections, as well as Bundesbank symposium.
Daily Market Analysis 09.11.2022
China inflation decreased more than expected. The results of Mid-term election will be followed.
In the U.S. the mid-term election results are followed closely with markets betting on Republicans to take back the House and create a gridlock in Washington. If so, Republicans looks to win back power in Congress, and stop Biden. Thus, the market is trading risk-on mood. Investors also await the October inflation report due on Thursday for hints on how much further the Federal Reserve may tighten financial conditions as it seeks to cool an overheating economy.
Additionally, this morning, China’s annual inflation decreased to %2.10 YoY in October 2022 (previously % 2.8), compared with market consensus of % 2.50. This is the lowest figure since May because a slowdown in cost of both food and non-food.
Furthermore, the Dollar Index (DXY) softens, but US treasury yields remain firm. We follow 109-113 range for the DXY. The real rate for US10-year is still around 145bps. Also, the target rate probabilities for 14 Dec FOMC meeting are increasing at %43.20. Today’s key date include US Wholesale inventories, MBA Mortgage applications.
Daily Market Analysis 10.11.2022
DXY turns back, US inflation will be released today. The results of Mid-term election will be followed. Binance backed out of its plans to acquire FTX.
The Dollar Index (DXY) is trading around 110.00 level. Investors are looking ahead to a key US inflation report while constantly following mid-term election results. The mid-term election results are expected Republicans to take back the House and create a gridlock in Washington. On the other hand, the inflation data will be closely followed. If the prints come a hotter than expected, FED may do another 75bps rate hike for December meeting. Now, the headline inflation is at %8.20 and the expectation in October %8.00. Also, the core inflation is around %6.60 which is a 40-year high.
Additionally, the cases related to Covid19 are still on the increase. Thus, the restrictions and lockdowns are enforced over again. Besides, Russia’s military has been ordered to pull out of the Ukrainian city of Kherson, the only regional capital it captured after invading in February. Also, news showed that Putin would not attend the G-20 summit.
Furthermore, Binance, the world’s biggest cryptocurrency exchange, abandon a bailout deal of its smaller rival FTX. FTX had been struggling with a surge in withdrawals that caused a “liquidity crunch”. In addition, The U.S. securities regulator is investigating crypto exchange FTX.com’s handling of customer funds amid a liquidity crunch according to Reuters.
Today, FED officials Esther and Mester speak at events. Also, Thursday’s key date includes US CPI, US initial jobless claims.
Optimism returned to the market. DXY dropped sharply after US inflation released.
The annual inflation in U.S. came %7.7 in October vs %8.2 in September. Energy cost is still increased, but a slowdown was seen in food and used cars. At the same time, medical care services and commodities pushed inflation down. In, general, the inflationary pressure continues mainly shelter and fuel oil. After the data was released, the Dollar Index (DXY) dropped sharply and is trading around 108.00 level. In other words, a cooler-than-expected US inflation report increased hopes for peak inflation and a slower pace of interest rates hikes from FED. The CME group FedWatch tool indicates that the target rate probabilities for the December meeting is 50bps rate hike with the %85 probability. US treasury yields also declined sharply since the investors updated expectations for the terminal rate lower, with the benchmark 10-year US yield decreasing toward %3.80 for the first time in over a month.
Additionally, US initial jobless claims rose to 225k in the week ending November 5. Four-week moving average of initial claims rose to 218K. Also, ECB said the Governing Council expects a “further weakening” of economic activity “in the remainder of 2022 and the beginning of 2023” in the monthly economic bulletin.
Yes, now daily analysis is a rather relevant format, because the market is as dynamic as possible.
1 Like
Risk appetite is mixed, G20 Summit is in focus.
The dollar index (DXY) is trading around 107.00 level, rising slightly from near three-month lows after that FED’s Waller warned investors against getting too optimistic over one inflation report. He also said that the central bank “still got a way to go” with interest rate hikes. Furthermore, he stated that the Fed may slow the pace of rate increases in the upcoming meetings but highlighted that markets should focus on the terminal rate which is likely still “a ways off” rather than the pace of each move. Investors are betting that the central bank would moderate the size of their rate hikes to 50 basis points from December after a series of 75 basis point moves in the past four meetings. Also, US treasury yields are recovering with the hawkish explanations by FED’s Waller. US10-year is hovering at %3.90 while US2-year is trading near at %4.42 In addition, the real rate yield narrows up to 128bps.
G20 summit will be in focus. Leaders come together in Bali, Indonesia. Eyes will be on Xi-Biden meeting. Today, the economic calendar will be silence, but some central banks’ governor have a speech. Also, the investors will be keeping an eye on earnings reports from big retailers and the state of the crypto market after one of the biggest exchange FTX filed for bankruptcy.
Japanese Economy shranked, China’s retail sales dropped. G20 Summit is in focus.
The Japanese economy became narrow in Q3 by shrinking -%1.20, missing market consensus of a %1.10 growth annually because of global inflation pressure and a slump in the Japanese Yen. Also, China’s retail sales decreased by %0.50 YoY in October, previously %2.50 gain in September. Due to the increase in Covid19 infections and restrictions led to fall in consumption.
Today, the dollar index (DXY) is trading near 107.00 level, rising slightly from near three-month lows. Furthermore, FED officials signaled that US rates could end higher than previously anticipated and as US inflation expectations picked up for the first time in four months. G20 Summit in Bali focus today and tomorrow. Today, there are lots of central bankers speaking including ECB Guindos, BoE Ville and Fed Harker and Vice Chair Barr speaking as well as Fed Williams in Panel. Guindos, Villeroy, BoE Hue Pill, Fed Harker and Vice Chair Barr speaking as well as Fed Williams in Panel. Also, US PPI will be the key data that the investors focus on.
Russian-made missile fell in Poland. FED official Barr spoke dovish.
The Dollar Index selloff is again on the agenda yesterday. US Producer Price Index (PPI) released with a rise %8.00YoY in October, previously %8.4. Lower-than-expected US PPI gave way to touch the low level 105.34. However, the news that Russian missiles crossed into Poland and killed two civilians. Thus, the risk sentiment turned immediately negative. Thereafter, Russia denied any involvement. Also, U.S. President Biden said it was ‘unlikely’ that the missile was fired from Russia, but the NATO leaders who are in Indonesia now for G20 Summit will come together to discuss the missile issue.
In addition, Eurozone ZEW Economic Sentiment increased from -59.7 to -38.7, above expectation of -55.0. Furthermore, Germany ZEW Economic Sentiment improved from -59.2 to -36.7 in November, much better than expectation of -54.1. Current Situation index rose from -72.2 to -64.5, above expectation of -67.5.
Also, RBA’s minutes 1st November meeting showed that board members consider both a 25 bps or a 50bps rate hike. There were “arguments in favor of both courses of action”, but the case for 25bps was stronger.
Today, the DXY is trading around 106.65 this morning. Yesterday, FED Michael Barr, the Federal Reserve’s top financial regulatory official, said he expects significant softening in the economy. Thus, US10-year yields are decreasing and trading near %3.81. The 2y10y inversion deepened to a low of -55bps.
US2Y10 inversion increases, ECB will discuss balance sheet reduction in December meeting.
The market seem silence today. The Dollar Index is trading around 106.40 level. Yesterday, the U.S. October retail sales came in stronger than expected at %1.30 MoM vs previously at %0.00. The data pointed to resilient consumer spending, Thus, FED’s inflation fight takes some time so the released data keep the FED on the tightening trajectory more longer.
In addition, US 10Y yield continue to decrease and was last seen at %3.71 while US 2Y is hovering around %4.37. In other words, US2Y10Y inversion deepens to -66bps. Also, Kansas FED President Esther told the Wall Street Journal that he has not his 40 years with the FED seen a time of this kind of tightening that we didn’t get some painful outcomes. On the other hand, ECB Vice President Luis de Guindos said, “we will discuss about the reduction of our balance sheet,” at December meeting.
Furthermore, UK inflation came %11.10 YoY in October. It is the highest level since 1981 based on modelled data. Core CPI was unchanged at %6.5 YoY.
Today, Eurozone CPI will be followed closely. Also, FED Jefferson will speak.
COVID cases and restrictions or lockdowns in several cities in China.
This morning, the People’s Bank of China (PBoC) hold its key lending rates unchanged at %3.65 while the five-year rate, a reference for mortgages, was maintained at %4.30. Still, the downward pressure on the yuan continue and a slowdown in economic activity due to rising COVID cases and restrictions or lockdowns in several cities is on the agenda. At the weekend, China reported the first Covid death in six months.
The dollar index continues to remain firm. Today, it was last seen at 107.30 level due to the fact Covid-related concerns in China. Also, FED officials continue to speak hawkish. Last week St. Louis FED President James Bullard said that the policy rate could reach the 5% to 7% range in order to bring down inflation according to Taylor-Rule for monetary policy. However, the investors are betting that the FED would deliver a 50-basis point rate hike in December, and a series of 25-basis point increases next year. UST2y10y inversion widens to -70bps with US10-year at 3.80% and US2-year near 4.51%
This week, the market will focus on FOMC meeting minutes, and some speaks by FED officials for signs on the size of the next interest rate hike in December. Today, Germany PPI data will be published, and ECB Holzmann is speaking today.
ew Zealand increases the interest rate 75bps and DXY softens ahead of the FED minutes.
The Dollar Index softens and was last seen around 107.05 level. Still, risk off mood seems in the market because of rising Covid-19 infections in China. Today, the Reserve Bank of New Zealand (RBNZ) raised its official cash rate (OCR) by 75bps from %3.50 to 4.25% during the November meeting, the highest level since January 2009, in line with market consensus. This was the biggest rate hike in the central bank’s history, as it continues efforts to curb high inflation ahead of a three-month break. Furthermore, the US Federal Reserve’s November meeting minutes will be published. We believe that the minutes will determine the market directions clearly. The hawkish will give way the Dollar Index to become strong.