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The markets experienced a risk-on sentiment as the dollar edged lower on Tuesday morning. Investors are keenly waiting for ECB president Lagarde’s address along with FOMC’s Williams and Mester. Oil markets rallied ahead of the OPEC+ meeting on Wednesday and Gold bulls bought into dollar weakness. There will be a release of US JOLTS Job Openings for August and weekly crude oil stocks in the New York session.
EURUSD traded higher by +0.55% on a weaker dollar ahead of JOLT’s Job Openings data release. The greenback was weighed down by disappointing ISM Manufacturing PMI data released on Monday and lower treasury yields on the day. The Eurozone producer prices index for August was more than anticipated at 43.3% vs 43.1% on an annualized basis and 5.0% vs 4.9% on a monthly basis. The pair claimed the 0.9900 level before reversing its gains to +0.35%. A number above 0.9900 will be key in maintaining a bullish run towards parity. However, a move lower may be capped by 0.9800 intraday support.
GBPAUD rose by +0.68% as investors embrace the UK’s decision to scrap a small part of the tax-cut plan. The AUD turned south in the aftermath of a smaller than expected rate hike by the RBA of 25bps vs 50bps anticipated. Building approvals in Australia jumped from -18.2% in July to 28.1% in August beating expectations of 5.0%. This along with positive Home Loans data failed to lift the AUD against the pound. Key levels to watch are the 1.7600 and 1.7650 on the rally and 1.7200 on the downside.
CADJPY trimmed its gains down to +0.05% after breaching the 104.55 and 106.00 7-day range. The CAD got boosted by upbeat crude oil prices as the OPEC+ is set to meet in Vienna on Wednesday to discuss an output cut which is anticipated to be the biggest in a long time. The Tokyo Core CPI remained unchanged at 2.8% in September giving minimum impact to the markets. Bulls may reclaim 107.500 if 106.00 holds as support. A move lower however may give bears 105.25 and 105.00 in the near term.
European equities edged higher in the mid-European session helped by a reverse in the tax-cut plan by the UK government along with a rise in Eurozone PPI. The FTSE 100 in the UK rose by+1.74% from 6900 intraday low and bulls are capped by 7080 and 7130. The CAC 40 in France rallied by +3.02% trading a few ticks away from 6000 psychological resistance with an intraday low residing at 5800. The DAX in German gained +3.00% rising from 12 200 and bulls are capped by 12 600.
US stock futures extended their gains on Tuesday in a broad rally as weaker ISM Manufacturing PMI data lowered expectations of an aggressive tightening by the Fed. The DJIA futures gained +1.51% from the 29450 intraday low and bullish resistance at 30 500. The S&P 500 futures were up +1.74% after breaching a 6-day high at 3740. Bulls may seek 3830 and 3900 in the near term. Nasdaq 100 futures rose by +2.03% and is a few moves away from 11550 a 7-day resistance.
Gold extended its recovery by +0.58% buoyed by dollar and treasury yields weakness on Tuesday. The yellow metal firmed up above $1700 and targets may be seen at $1720 and $1750 to the upside.
The ISM reading for the United States came in slightly weaker than expected, which prompted a move higher in the US dollar index and a move higher in the stocks at it could cause the Fed to consider that economic conditions are worsening.
Certainly, the number pointed to a slowing United States economy, however, the ISM number did not show a contraction. But it was however teetering very close to recessionary conditions.
Looking at the data, the ISM Manufacturing PMI fell to 50.9 in September of 2022, pointing to the slowest growth in factory activity since the contractions in 2020. It compares with 52.8 in August and market forecasts of 52.2.
New orders were 47.1 vs 51.3 in August and the employment unemployment index was at 48.7 vs 54.2 and contracted and production increased only slightly to 48.7 versus 54.2 expected.
Timothy R. Fiore, Chair of the ISM said “Following four straight months of panellists’ companies reporting softening new orders rates, the September index reading reflects companies adjusting to potential future lower demand. Many Business Survey Committee panellists’ companies are now managing head counts through hiring freezes and attrition to lower levels, with medium- and long-term demand more uncertain”.
The US economy also released the September Manufacturing PMI this afternoon, which was revised higher to 52.0 last month from a preliminary reading of 51.8, which was above 51.5 in August.
Still, the reading pointed to subdued operating conditions although output and new orders returned to growth. Nonetheless, firms expanded their workforce numbers at the fastest pace since March, although labour shortages continued to hamper firms’ ability to work through incoming new orders. Outstanding business rose again and at a quicker rate.
At the same time, cost pressures softened amid reports of lower prices for some inputs. Although slower than those seen earlier in the year, the rate of selling price inflation picked up slightly as firms continued to pass-through higher cost burdens to customers.
In terms of market moves sterling has been another big story today as the British currency storms higher by around 1.50 percent on the day as the US dollar index receded after the ISM release.
Big moves also took place in the UK bond market as 10-year gilt yields have popped to 3.98% from 3.91% after a Bank of England bond buyback operation highlighted some potential strains.
The Bank of England bought just £22.1 million in the operation while £1.89 billion was offered. That’s 86 x more and it may show there are still strains in the UK bond market. Earlier the UK Chancellor made amendments to his disastrous budget last week, which also eased UK market tensions.
