Market Summary:
- The Nasdaq 100 suffered its worst day of the year after disappointing cloud sales from Google’s parent company Alphabet outweighed positive earnings from Microsoft and IBM. The Nasdaq fell -2.5% to its lowest level since December.
- Meta Platforms (META) earnings beat Q3 expectations after the bell to send the stock ~4% higher, although it made little impact to Nasdaq futures.
- The US dollar was the strongest major on Wednesday as US yields continued to rise after snapping a 3-day retracement from their multi-year cycle highs. The US dollar index rose for a second day to 4-day high and EUR/USD closed beneath 1.06 ahead of today’s ECB meeting.
- Australia’s hotter-than-expected CPI report has seen banks upwardly revise their forecasts for the RBA to hike by 25bp in November and December, which would take the cash rate from 4.1% to 4.6%. RBA cash rate futures now imply an 80% chance of a 25bp hike by December.
- AUD was the strongest currency in Asia on Wednesday and reached out initial 64c target, yet rising yields, a stronger US dollar and risk-off sentiment saw the Aussie fall nearly 1c and formed a prominent bearish engulfing day.
- USD/JPY broke above 150 just ahead of the New York close – a level which triggered a -280-pip selloff when crossed just three weeks ago. Prices have since puled back but it remains a clear level to watch for bouts of volatility.
- The Bank of Canada held interest rates at 5% but, whilst they acknowledged that price pressures and inflation is coming down, progress is slow. CPI is expected to remain around 3.5% before returning to target in 2025. The 1-month OIS now trades beneath the official cash rates to imply no immediate expectation of
- ECB President Lagarde ‘broke her silence’ during the ECB’s quiet period, by saying on TV “we are not done yet, we need to get inflation bac to 2% in the medium term”. It is customary that ECB members do not comment on policy seven days leading into a monetary policy decision, yet they will announce their decision later today (Thursday). Whether that means they’re not done with hiking or simply keeping rates higher for longer remains to be seen.
- Oil prices were higher on Wednesday on reports that Israel are preparing to invade Gaza. WTI crude oil recouped around a third of the prior three-day losses and closed above $85.50
- China’s equity markets failed to hold on to earlier gains made on the announcement that Xi Jinping had announced a rare budget revision to support the economy. Once again, investors seemed underwhelmed with the level of support.
Events in focus (AEDT):
- 09:00 – RBA governor Bullock and assistant governor Kent speak
- 11:30 – Australian trade data
- 13:30 – Singapore unemployment rate
- 16:00 – Singapore industrial production
- 23:15 – ECB interest rate decision, monetary policy statement
- 23:30 – US GDP preliminary, PCE prices, consumer spending, jobless claims
- 23:30 – Canada average earnings
- 23:45 – ECB press conference
- 01:15 – ECB president Lagarde speaks
ASX 200 at a glance:
- The ASX 200 did well to hold above Monday’s low on Wednesday, following strong inflation numbers and renewed bets of RBA hikes
- The ASX printed a (slightly) bearish outside day, with prominent higher and lower wicks and its small body forming a doji at the lows
- SPI 200 futures were just -0.26% lower, which is not too bad considering the weak lead from Wall Street
- Sentiment across the APAC region might be key for the ASX today
- Whilst the ASX did well to hold above its week-to-date low, if we see China’s equity markets track Wall Street lower then perhaps we may see a test of break of this week’s low on the ASX
- 6900 remains a key area of resistance for bears to defend and bulls to conquer
USD/JPY technical analysis (daily chart):
There has been very little to update on the daily chart for USD/JPY in recent days, given daily ranges have been on the miniscule size whilst prices remained anchored just beneath 150. However, we saw prices briefly trade above the key level of 150 around 20-minutes ahead of the New York close before pulling back.
Remembering that this was the key level which triggered a 286-pip selloff when it was last crossed three weeks ago – and quickly followed by calls that the BOJ had intervened – it clearly remains a level of interest.
However, if the BOJ did intervene earlier this month, why has it not occurred this time around? The BOJ have neither confirmed nor denied any such action, which is unlike their 2022 intervention when they quickly confirmed it. And the supposed 2023 intervention was around half what we saw in terms of volatility compared to 2022. For these reasons, I’m leaning towards the potential that some large funds dumped their holdings a few weeks ago.
But that is not to mean we do not see some volatility today as traders get to their desks. And there are two basic approaches here; traders continue to probe and push the market to see how far they can go above 150 (which might result in actual intervention) or attempt to offload their positions and send it lower anyway.
And whilst 1-day implied volatility provides no immediate clues for volatility, the 1-week IV has blown out as it captures next week’s BOJ meeting. In a nutshell, trade with caution around these levels, if you must trade at all.
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