LCG Market Analysis

Markets quiet before Jackson Hole
By Ipek Ozkardeskaya

The FX markets are quiet ahead of the Federal Reserve (Fed) Chair Janet Yellen and the European Central Bank (ECB) President Mario Draghi’s speeches in Jackson Hole due later in the day. The expectations are low.

Mario Draghi will certainly not breathe a word about the ECB’s bond purchases program, which is due to end in September. Therefore, the September 7 ECB meeting will likely be the breaking point for the hawkish speculations.

Low euro rates encourage buyers to realize profit on small moves and prevent the EURUSD from taking a clear bullish direction. Traders are expected to remain buyer above 1.17. Below this level, the EURUSD could take a chance on a short-term downside correction. Light put options trail below 1.17 at today’s expiry.
The final GDP data confirmed Germany’s 2.1% growth in the second quarter. The DAX recorded timid gains at the open. The upside potential could be limited as traders refrain from taking positions before the critical ECB decision. The European equity funds redeemed $231 million over the week to August 23 according to EPFR.


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Oil facing upside vol on Hurricane Harvey

Oil markets are face to upside volatility due to supply disruptions caused by Hurricane Harvey. According to news, the hurricane halted more than 20% of crude production in the Gulf of Mexico and 10% of US refining capacity.

Gasoline prices gap opened and hit the highest levels since January.

Heavy floods are expected to push the gasoline prices higher this week. The upside pressures could translate into higher oil prices as well.

The WTI crude could attempt to $50/barrel, although the supply to demand relation is not fully convincing for the fundamental buyers. Short-term support is at $46.95 (50-day moving average).


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Stocks fall on nuclear threat, EUR, gold rallies

Investors rushed to the safe haven assets on Tuesday after North Korea fired a ballistic missile over Japan, which fell 1’200 km from Hokkaido. Japanese PM Abe commented that it was an ‘unprecedented, grave and serious threat’.

Gold rallied to $1’322 for the first time since the US presidential election. The USDCHF hit 0.9500, the lowest level in a month.

The Japanese 10-year yield fell to the lowest level in more than four months. The USDJPY traded at a fresh August low (108.34). Data-wise, the Japanese household spending unexpectedly contracted by 0.2% year-on-year in June. The latest data is bad news for inflation and could have revived the Bank of Japan (BoJ) doves, however the safe haven inflows overshadowed the yen-bears today. The USDJPY could get caught by light put options within the 110.00/108.00 range at today’s expiry. Resistance is eyed at 109.80 (minor 23.6% retracement on July – August decline).

Asian stock markets were squeezed by geopolitical tensions. Nikkei (-0.45%) and Topix (-0.15%) were offered in Tokyo, as the Australian ASX 200 lost more than 1.00% and closed Tuesday’s session 0.72% lower as traders trimmed their short positions before the closing bell.

European markets were handed over a risk-off market. The DAX (-0.37%) and the CAC (-0.48%) opened downbeat, the euro trading above 1.20 against the US dollar reinforced sales.


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USD, stocks recover, ADP in focus
The risk sentiment is improved, although the geopolitical jitters caused by Tuesday’s North Korean missile launch continues keeping the global political agenda busy.

The yen, gold and the US Treasuries retreated. Asian stock markets gained. Nikkei (+0.74%) and Topix (+0.62%) closed the session on a positive note, the Hang Seng (+1.17%) advanced as energy companies (+2.70%) lead gains in Hong Kong.

The WTI crude continues falling as disruptions and refinery shutdowns caused by Hurricane Harvey weigh on the crude demand in the short-run. The price gap between the WTI and Brent crude widens. Gasoline is up for the seventh session. Correction in WTI is expected, however the timing is unsure. For the moment, the WTI crude is pressured toward the $45/barrel level.

The EIA will release the weekly oil inventories in the US and analysts expect 1.8 million dollar contraction last week. Higher contraction in the US stockpiles could halt the slide in oil prices.

The FTSE 100 (+0.52%) opened upbeat and advanced to 7380p after a renewed downside attempt on the 7300p level on Tuesday. All sectors gain, while gold miners are giving back a part of yesterday’s gains.


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USD soars on surprise data, risk-on
By Ipek Ozkardeskaya

Asian stock markets extended gains for the second straight day. Better-than-expected Chinese manufacturing PMI (51.7 vs 51.3 expected & 51.4 printed earlier) helped improving the investor sentiment, except in China. Hang Seng (-0.49%) and Shanghai's Composite (-0.08%) traded lower, as telecom shares sold off aggressively on individual stock news. China Mobile tanked more than 5.66% in Hong Kong. China's big banks also fell despite posting better-than-expected quarterly earnings.

Nikkei (+0.72%) and Topix (+0.61%) rose as the USDJPY cleared the 110-offers and advanced to 110.62 in Tokyo. A break above the 110.65 (major 38.2% retracement on July – August decline) would suggest a bullish reversal of the two-month trend and encourage a stronger rise toward the 111.00/111.20 area (100-day moving average).

Industrial metals advanced to the highest levels since 2014. Copper futures extended gains above $3/lb. The negative correlation is back between the US dollar and commodity prices and may have caused the double-digit gains in the metal markets during summer. Gains could be at risk if the US dollar rebounds.

The FTSE 100 is fueled by firmer commodity prices at the open.


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UK PMI surprised, US jobs in focus

The UK manufacturing PMI surprised on the upside and printed a solid 56.9 versus 55.0 expected by analysts and 55.1 printed a month earlier.

The GBPUSD advanced to 1.2947, yet the knee-jerk positive reaction remained short-lived. Tough Brexit discussion between the European and British officials continue weighing on the sentiment across the pound markets. Offers are eyed at 1.2980 (50-day moving average) and 1.3020 (50% level on August decline).

The FTSE 100 stocks started the session slightly upbeat. Energy stocks feel the pressure as oil markets failed to follow up on Thursday’s gains.

The WTI crude rallied to 100-day moving average ($47.50 at the time of writing) on Thursday, on the back of news that the US government would supply 1 million barrels from the Strategic Petroleum Reserve. Yet, the refinery shutdowns caused by Hurricane Harvey could limit the positive attempts in oil prices.

Some traders may want to take a chance on a positive correction due to the widening spread with the Brent crude. There are talks that the pipelines could start lines over the weekend. Yet, this is a risky bet given that the uncertainties persist.


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Euro anxious, safe haven assets rally

The safe haven assets are in demand as the trading week started with a renewed nuclear threat from North Korea. North Korea successfully tested a hydrogen bomb that could be loaded onto an ICBM, increasing its nuclear threat on the US.

The Swiss franc and the yen gained. The USDJPY advanced to 109.93 in Tokyo, as the Japanese monetary base expanded at a faster speed in August. The North Korean nuclear threat dented the appetite pre-110.00 mark. Nikkei (-0.93%) and Topix (-0.99%) fell due risk-off trades. Korean defense stocks rallied.

Gold gap opened above $1’330. The combination of risk-off and the broad-based USD depreciation pushed the price of an ounce to November 9 high (US election), $1’339. However, the 30-day relative strength index (75.9) indicates that the yellow metal stepped into the overbought market. A downside correction is possible and immediate offers are seen pre-$1’340/$1’345. Short-term support could be found at $1315/1317 (area including 50-100-hour moving average) and $1’307 (minor 23.6% retrace on July – September rally).


Rising anxiety among euro-buyers

The EURUSD opened in the positive territory due to the broad USD depreciation. However, there is a rising anxiety among euro buyers before the European Central Bank’s (ECB) Thursday meeting. The strong euro could result in a more cautious and more-dovish-than priced ECB verdict. The ECB is now expected to wait until October to announce the future of its asset purchases program. According to Bloomberg news, officials may not have a complete plan until December. Hence, the downside euro risks escalate. Put options could be exercised at 1.1850 at today’s expiry, call options should give support at 1.1800. Top sellers are presumed between 1.1900/1.1950.

The DAX (-0.67%) and the CAC (-0.61%) opened in the red due to the deterioration in the global risk appetite.


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US yields fade on dovish Fed talks, VIX jumps 20%


The US stocks fell on Tuesday as US traders returned from Labour Day holiday. The Dow Jones (-1.07%) was dominated by decent sales, as mining stocks (-3.27%) and financials (-2.63%) sold off aggressively. The S&P500 (-0.75%) and Nasdaq composite (-0.93%) pared a part of the daily losses but the rebound remained short of the initial slide. The VIX index jumped by more than 20% as traders needed immediate hedge for their equity holdings.

The US dollar was hit hard by dovish comments from the Federal Reserve (Fed) members. Fed’s Lael Brainard reminded that the US inflation remained steadily below the Fed’s 2% inflation target over the past five years and that the Fed should remain vigilant before raising the interest rates again, while Neel Kashkari warned that the interest rate hikes may have harmed the economy by causing slower jobs growth and low inflation.

Fed members’ speeches enhanced the already active safety rush into the US sovereigns.

The US 10-year yields nose-dived to 2.05%, lowest since November, on the combination of risk-off bond purchases and dovish Fed expectations. The probability of a December rate hike is down to 27%.


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USD sell-off accelerates, stocks down
By Ipek Ozkardeskaya

The risk-off drives capital from stocks to sovereign bonds, Swiss franc, yen and gold. The high-yielding antipodeans and the Chinese yuan also gained on the back of an aggressive sell-off in the US dollar.

An earthquake in Gulf of Mexico further dampened the mood in Asia. According to experts, the third Hurricane Irma could hit Florida on Sunday, after having devastated the Mexican coasts and cause severe damages.

The European stock markets are under the pressure of the global risk-off trades. The DAC (-0.10%) and the CAC (-0.32%) also suffer from the positive euro volatility this Friday. All sectors kicked off the session in the red in Frankfurt. The 10-year bund yield fell below 0.30% on the combination of a global flight to safety and dovish tapering message from the European Central Bank (ECB) on Thursday.

The FTSE is under the pressure of a stronger pound. The long appetite in the FTSE 100 stocks declines past the 7400p level (50-day moving average), given that nearly half of the big British companies’ earnings are denominated in foreign currencies.

The GBPUSD stretched to 1.3150. The bullish move is mostly explained by the broad-based USD debasement. Better-than-expected industrial and manufacturing production data helped. The UK’s manufacturing production expanded by 0.5% on month to July on the back of a solid rebound in car production. The trade deficit was little changed in July. Brexit uncertainties are a major drag for the UK’s trade relationship with the EU, yet the June shortfall was revised sharply down from 4.6 billion to 2.9 billion pounds, suggesting that the softness in the GDP data may have been caused by other components than the trade deficit, such as consumer spending and softness in services.

Light resistance is eyed at 1.3150 (major 76.4% retrace on Aug decline), before a second attempt to the year-to-date high of 1.3266 (Aug 2 peak). A halt in the USD sell-off could rapidly pull the carpet from under Cable’s feet and trigger a correction to the 50-day moving average (1.2996).


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Risk-on dominates, USD rebounds
By Ipek Ozkardeskaya

The US dollar rebounded at the open. The greenback gained against all G10 counterparts, except the Canadian dollar, as Hurricane Irma weakened after hitting Florida over the weekend. The actual damages caused by the hurricane could finally be less than $50bn versus $192bn estimated prior to the hit. The US insurers could take a breather on Monday.

The Dow Jones mini futures (+111.00 points), the S&P500 mini futures (+10.75 points) and the Nasdaq 100 mini futures (+32.50 points) hint at a positive weekly open in the US. Apple will release the new iPhone on Tuesday. Apple shares were hit by the global risk-off environment and traded lower for five consecutive sessions to $158.53. We could expect price volatility in Apple shares at the time of the release, as it has been the case in the past. The expectations are high. If the company fails to meet the expectations at its 10th anniversary, the disappointment could shake up the market price. According to the latest Bloomberg survey, 79% of analysts are positive, 20.9% are on hold with an average 12-month target price of $175.46. There are no sell recommendations.

Asian markets started the week risk-on as North Korea stayed quite over the weekend and contented with a celebration party for the nuclear test. There is still no consensus on the UN sanctions. China and Russia are opposed to oil embargo.

Mining stocks (-1.19%) were the losers of the day in Sydney, as the industrial metals traded in the red due to the broad-based USD rebound.

The FTSE opened on a positive note. In addition to the risk-on inflows, a softer pound could also encourage purchases in FTSE stocks. Gold miners led losses in London. Randgold Resources (-1.66%) and Fresnillo (-1.67%) were sold off as gold erased 0.87% in improved risk environment. The rest of the mining sector remains under pressure due to lower commodity prices.


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UK CPI surges, new iPhone in focus

The GBPUSD rallied after the data showed that the British consumer inflation accelerated to 2.9% year-on-year in August from 2.6% previously. This was faster than analysts’ expectations of 2.8%. The core inflation surged to 2.7% year-on-year from 2.4%.

The solid inflation read revived the Bank of England (BoE) hawks before Wednesday’s jobs data (where, the wages growth will be the key highlight) and Thursday’s BoE decision. The BoE will likely maintain the status quo, yet the Monetary Policy Committee (MPC) members’ approach will be closely monitored. Inability to contain the rising inflationary pressures will certainly keep the BoE hawks in charge of the market and allow the GBPUSD to trade to challenge 1.3267 (August 2 high, year-to-date high).

The pound appreciation weigh on the FTSE gains in London.


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Pound’s plunge could remain short-lived

Cable rebounded lower from a year-high (1.3379) after the British wages growth stagnated at 2.1% year-on-year in July, versus 2.3% expected by analysts.

The weak data revived worries that British households’ earnings growth is clearly not sufficient to compensate for the steeper rise in inflation and more importantly, the lower purchasing power didn’t translate into a lower inflation so far. The British consumer prices rose by 2.9% year-on-year in August.

Rising inflationary pressures could encourage some Monetary Policy Committee (MPC) members to vote in favour of an interest rate hike in the coming months. If the inflation rises above the 3% level, the Bank of England (BoE) Governor Mark Carney will have to write an open letter to the Chancellor to explain the significant deviation from the 2.0% mandate target.

Hence, the GBP-bulls dominate ahead of Thursday’s BoE meeting. The next important technical level is 1.3420. The pound will have pared half of the post-Brexit losses against the greenback at this level. Intra-day support is presumed at 1.3215 (50-hour moving average) and 1.3180/1.3160 (area including 100-hour moving average & minor 23.6% retrace on August 24 – September 13 rise).

The FTSE 100 stocks opened under the pressure of a stronger pound and diverged negatively from their European peers. Mining stocks erased more than 1% at the open.


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Pound rallies, light response to N. Korea

Asian traders woke up to another risk-off session as North Korea launched a new missile over Japan as a response to the recent UN sanctions. The US dollar edged higher against all G10 currencies, partly on the risk-off sentiment, partly on the stronger-than-expected US inflation that tinkled the Federal Reserve (Fed) hawks before next week’s FOMC meeting. Although the market gives 0% probability for a September rate hike, the balance sheet normalisation could be on the menu. The probability of a December rate hike rose to 43.4%, sensible higher from past weeks, but insufficient to be broadly priced in. The Fed outlook doesn’t threaten the US stocks yet, equity traders’ attention remains on the feasibility of Donald Trump’s tax reform.

The yen and gold gain on the back of safe-haven inflows. Though the flight to safety seemed more of a courtesy than a necessity; we didn’t see massive risk-off trades as it has been the case in N. Korea’s recent nuclear attempts. Nikkei (+0.52%) and Topix (+0.42%) traded higher despite a short spike in yen in the early Tokyo trading.

Australian ASX 200 (-0.76%) was pulled down by mining stocks (-1.72%).

Gold recovered to $1’334 and could extend gains toward the weekly resistance of $1’340 if the risk-off comes and goes. Rangebound trading is more plausible. Support is eyed at $1’315 (week low).


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Stocks gain pre-Fed, storm Maria looms

Equity traders kicked off the week on a positive note. Hang Seng index gained 1.24% and Australian ASX 200 advanced by 0.45% on Monday.

The FTSE 100 opened upbeat after having lost 2.75% over the two previous sessions due to the sharp appreciation in the pound. Minor upside correction is underway. However, the upside potential could be curbed by the strong currency. Resistance is eyed at 7285p (August support could turn resistance) before 7327p (200-day moving average).

Energy stocks opened 0.64% firmer in London, although the downside risks prevail as the new tropical storm Maria, which could have a similar trajectory to Hurricane Irma, is gaining strength in the Caribbean Sea.

The WTI crude traded higher for the 6th consecutive session. Yet, gains past $50 were not stable last week. Price above the 50-week moving average ($49.50) could seem relatively high for opening fresh positions for many traders who are waiting to hear concrete commitment to limit production from the OPEC and its allies. On the other hand, the EIA (Energy Information Administration) head Neil Atkinson warned that the lack of new investment in crude production could shrink the global glut and fall short of rising demand. This could raise ‘at least a possibility’ of returning to a ‘very, very high’ prices similar to a decade ago.


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US dollar, stocks rallies on hawkish Fed
By Ipek Ozkardeskaya

The US dollar is the main driver of the currency markets after the Federal Reserve (Fed) delivered a surprisingly hawkish accompanying statement on Wednesday.

Cable retreated to 1.3448 (minor 23.6% retrace on August – September rise) following the Fed decision and rebounded shortly after. The better-than-expected August retail sales data released earlier on Wednesday, kept the Bank of England (BoE) hawks in charge of the market and the GBP-bulls ready to buy the dips. The pound is among the best performers against the surging US dollar in London. The failure to clear the minor Fibonacci support suggests a recovery and consolidation into the 1.3525 (100-hour moving average).

The FTSE stocks opened slightly upbeat, yet buyers could feel uncomfortable with carrying the index above the 7300p due to the sharp appreciation in the pound.

The EURUSD plunged to 1.1860 on solid USD demand posterior to the Fed announcement on Wednesday.

In Spain, tensions are rising due to the Catalan independence referendum scheduled on October 1, however it may be too early for the uncertainties being reflected in the euro’s valuation.


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Seeking safety on N. Korea, German vote
By Ipek Ozkardeskaya

The currency markets rectify the post-Federal Reserve (Fed) price action on the US dollar. The risk appetite is fading on speculations that North Korea could test a hydrogen bomb in Pacific following the new US sanctions.

The S&P500 closed 7.64 points lower at 2’500.60 on Thursday, the Dow Jones erased 53.36 points after trading at a new record high (22’419). Wall Street financials (+0.28%) outperformed on prospects of higher interest rates. Goldman Sachs (+0.65%) and JP Morgan (+0.45%) gained, as Procter & Gamble (-1.86%) and Apple (-1.72%) lost the most in the US session.

Gold, the yen and the Swiss franc are in demand, although investors are increasingly wondering if the yen deserve to be on the risk-haven list. High-yielding antipodeans trade downward.


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USD rebounds pre-Yellen, JPY weakens

The US dollar is stronger against the majority of its G10 counterparts before the Federal Reserve (Fed) Chair Janet Yellen’s speech due later today at the National Association for Business Economics Annual Meeting, in Cleveland. Janet Yellen has delivered a decidedly hawkish speech at last week’s FOMC meeting. As long as the US recovery remains satisfactory, the Fed will continue tightening the monetary conditions in the US. Else, New York Fed’s William Dudley signaled the possibility of an additional rate hike before the end of the year, Chicago Fed’s Charles Evans and Minneapolis’ Neel Kashkari are reluctant for more rate action before seeing further signs of price and wages inflation. The overall sentiment is positive and the US dollar is in the bulls’ hands. The probability of a December rate hike stands at 63.2%.

Meanwhile, the risk-off trades dominate, capital flows into safe-haven assets as tensions between North Korea and the US continue occupying the headlines.

Gold jumped above the $1’300 mark. The technical indicators give bearish signals and the improved USD interest rates are supportive of a further slide, however the geopolitical tensions take priority over the macro fundamentals and technicals now. Sellers are expected to return once the geopolitical tensions ease. Trading above $1’300 could remain short-lived.


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USD appreciates against all G10, EM

The risk sentiment has not fully recovered following the latest North Korean crisis and the Kurdish referendum. However, investors move away from the safe-haven holdings. Money doesn’t flow into riskier assets either; the US dollar is where investors are positioned at the moment.


No appetite in risky or risk-free assets

Gold slipped below the $1’300 mark as the knee-jerk reaction to the North Korean jitters waned. The decline could extend to $1’282 (Fib 50% on July – September rise). The MACD (Moving Average Convergence Divergence) index is about to turn negative, suggesting a stronger downside momentum. Geopolitical tensions are still the major upside risk. The price rallies could be interesting opportunities for top-sellers.

The USDJPY rebounded from its daily Ichimoku cloud top (111.50) and consolidated gains above 112.20 in Tokyo. Nikkei (-0.31%) and Topix (-0.50%) edged lower despite the softer yen. PM Shinzo Abe announced a snap election on October 22nd. He is expected to consolidate his power and to boost monetary and fiscal policies to foster growth and inflation. The combination of monetary and fiscal boost is fundamentally negative for the yen. Light risk-off inflows still irrigate the JPY-market during the times of crisis. However, the proximity of North Korean threat hardly justifies the yen’s popularity as a safe harbour. The EURJPY rebounded from 131.75 and found buyers above 132.30 in Tokyo.

The G10 high-yielders are also on the back foot. The AUDUSD sold-off to 0.7849. Improved US yields and lower risk appetite keeps carry traders on the sidelines. The MACD index turned negative, suggesting that the negative momentum is gaining strength and could encourage a further slide to 0.7820 (100-day moving average & major 38.2% retracement on April – September rise). Below this level, the Aussie will step in the mid-term bearish consolidation zone against the US dollar.\


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USD gains territory, gold below $1280

US dollar strengthens across the board, the antipodeans fall, equity indices are marginally higher, as capital flies out of the bond markets.

Cable retreated to 1.3349 and is preparing to test a key Fibonacci support area, 1.3344 / 1.3320 (major 61.8% retracement on post-Bank of England (BoE) rally & major 38.2% retracement on August – September rise).
Softer pound doesn’t appear to be a sufficient reason to boost the FTSE stocks on Thursday. Real estate sector is down by 2.20%. Mining stocks are under pressure, gold miners traded under the pressure of the cheapening gold. Energy stocks (+0.13%) record timid gains, yet the limited upside appetite in the oil markets weigh on the sector sentiment.
The WTI crude failed to extend gains above $52.50 after the EIA data printed 1.8 million barrels contraction in the US stockpiles last week. The Brent crude fell more aggressively. The Brent – WTI spread is narrowing.

Euro slips below 1.1730

The EURUSD slipped below 1.1730 (minor 23.6% retrace on April – Sep rise) on Wednesday. The decline could stretch toward 1.1630 (100-day moving average). The MACD turned negative hinting at stronger daily negative momentum.


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Is Catalan referendum underpriced?

The EURUSD benefits from some profit taking after a week of losses due to a surprise German election outcome. The pair traded at 1.1801 into the European open.

Yet, the euro-bias remains on the downside as the Catalan referendum is an event risk that many traders may want to avoid before the weekly closing bell. The confusion reigns before Sunday’s election, provided that the Spanish government is trying to block the referendum claiming that it is illegal.

Interestingly, there are no signs of anxiety in the Spanish sovereign market. It could be because the market is not pricing in the risks, and/or investors were dealing with other major issues such as the German election and the European Central Bank (ECB) monetary policy, that the Catalan referendum has been given little time to reflect into the cross-asset prices.

If the referendum is hold as planned, the outcome could trigger some price volatility in the euro markets on Monday. A vote in favour of Catalan independence could weigh on the European integrity sentiment and hit the euro at next week’s open. In addition, the government’s reaction to a positive outcome is important. Protests, a heavy-handed police intervention and political uncertainty could affect the euro-appetite in the aftermath of the Sunday’s referendum. On the other hand, a no vote should give a better colour to the single currency. Give the light risk pricing across the euro markets, the rally could remain short-lived.

According to a poll directed by the Centre for Opinion Studies in June, the yes voters dropped to 41.4%. Things may have changed since then. Grexit and Brexit votes remind us that every outcome is possible.


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