Asian Open: USD Lower Despite Strong CPI and Hawkish Fed

Asian Futures:

• Australia's ASX 200 futures are up 50 points (0.69%), the cash market is currently estimated to open at 7,322.50
• Japan's Nikkei 225 futures are up 70 points (0.25%), the cash market is currently estimated to open at 28,210.28
• Hong Kong's Hang Seng futures are down 0 points (0%), the cash market is currently estimated to open at 24,962.59

UK and Europe:

• UK's FTSE 100 index rose 11.59 points (0.16%) to close at 7,141.82
• Europe'sEuro STOXX 50 index rose 28.19 points (0.7%) to close at 4,083.28
• Germany's DAX index rose 102.51 points (0.68%) to close at 15,249.38
• France's CAC 40 index rose 49.27 points (0.75%) to close at 6,597.38

Wednesday US Close:

• The Dow Jones Industrial fell -0.53 points (0%) to close at 34,377.81
• The S&P 500 index rose 13.15 points (0.31%) to close at 4,363.80
• The Nasdaq 100 index rose 112.492 points (0.77%) to close at 14,774.60

 

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Indices: Wall Street laps up lower yields

So it looks almost certain that the Fed will now taper in November, given yesterday’s CPI data and FOMC minutes. Inflation rose 0.4% in September (up from 0.3% in August and above the 0.3% expected), taking its annual rate to 5.3% (5.3% prior). Core CPI rose 0.2% in September, up from 0.1% in August, or 4% YoY. Of course, rising energy prices have been a big component of the broader inflation read, yet with core CPI also rising (which strips out food and energy prices) then rising prices are clearly a broader issue.

Bond markets reacted accordingly with the front end of the curve (2-year) rising 1.5 bps to 0.36%. Yet the long end of the curve (30-year) fell for a second day by -5.6 bps as stagflation concerns continued to weigh on sentient. Yet lower yields helped Wall Street break a 3-day losing streak with the S&P 500 printing a small bullish hammer. As this stage we continue to suspect its correction for its all-time has is now complete, so are seeking bullish setups. The Nasdaq enjoyed the lower yield environment and rose 0.77%.

 

ASX 200 Market Internals:

ASX 200: 7272.5 (-0.11%), 13 October 2021

• Real Estate (1.54%) was the strongest sector and Materials (-1.07%) was the weakest
• 9 out of the 11 sectors closed higher
• 9 out of the 11 sectors outperformed the index
• 121 (60.50%) stocks advanced, 70 (35.00%) stocks declined
• 63% of stocks closed above their 200-day average
• 40% of stocks closed above their 50-day average
• 45% of stocks closed above their 20-day average

Outperformers:

• + 13.4%-A2 Milk Company Ltd(A2M.AX)
• + 8.72%-GUD Holdings Ltd(GUD.AX)
• + 6.54%-Star Entertainment Group Ltd(SGR.AX)

Underperformers:

• ·-5.34%-Fortescue Metals Group Ltd(FMG.AX)
• ·-4.62%-Mineral Resources Ltd(MIN.AX)
• ·-4.32%-Bank of Queensland Ltd(BOQ.AX)

 

 

Forex: AU employment and China CPI up next

The dollar was broadly lower and the weakest major overnight, and lost most ground against CHF, seeing USD/CHF falling 0.8% on the day. CHF and NZD were the strongest major currencies. Outside the majors, the dollar fell around -1.15% against MZD and ZAR, and around -1% for SEK and -0.8% against NOK. The US dollar index (DXY) fell around -0.5% during its most bearish session since in 3-weeks.  This allowed EUR/USD to sit at the top of the leader board, rising 0.62% during its most bullish session in 5-months.

Australian employment data is scheduled for 11:30 AEST, followed by Chinese inflation data at 12:30 AEST both of which AUD is sensitive too. There’s not much in the way of data in the European session, although initial jobless claims and producer prices (inflationary inputs) are released at 23.:30 AEST.

AUD/USD reaffirmed support around 0.7320 and returned to Tuesday’s high. The inverted H&S target around 0.7490 remains in play. GBP/AUD is trying to form a low around the 200-day eMA and monthly S1 pivot. That said, momentum remains bearish overall so a break of Tuesday’s low assumes bearish continuation.

Commodities: Strongest day for gold in 7-months

Gold prices ripped higher by 2.1% during its most bullish day in 7-months. This puts an end to its 6-day choppy range and places momentum back in line with our bullish bias, which was forged on the back of the large bullish engulfing candle at the 1721 low and break of trend resistance on October 4^th.\

 

As much as we like the trend structure on the daily chart for bullish setups, we are mindful that 1800 is likely to cap as resistance initially. We would therefore welcome any pullback towards 1780, or the breakout level of 1770 where the monthly pivot resides to increase the potential reward to risk ratio below 1800.

Silver closed above $23 although it remains below trend resistance. A break above 23.32 invalidates the bearish channel and confirms an inverted head and shoulders pattern, which projects a target around. Copper also rallied to a 10-week high to further suggest its corrective low was seen in August at $4.00 and at its 200-day eMA.

 

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