Daily Market Outlook, October 29, 2021

Overnight Headlines

  • Evergrande Makes Another Payment, Avoiding Default For Second Time
  • Japan's Factory Output Drops Steeply As Nation Heads To Polls
  • ANZ Expects RBA To Scrap April-2024 Yield Target Next Week
  • NAB Sees RBA Scrapping Yield Target at Tuesday's Meeting
  • Dollar Wallows Near One-Month Low As Strong Euro, Stock Rally Weigh
  • Oil Prices Set For First Weekly Drop Since Aug As Supply Concerns Ease
  • Bad Bets Trigger Waves Of Tumult In Short-Term Bond Markets
  • Ether Rises To Record High, Renewing Alt-Season Expectations
  • Asian Shares, U.S. Futures Slip After Earnings Disappointment
  • Apple And Amazon Stock Dives Set To Erase $200 Billion In Value
  • Coca-Cola Nears $8Bln Deal For Controlling Stake In BodyArmor

The Day Ahead

  • Asian equity markets are mixed this morning as market moods continue to fluctuate. Yesterday saw equities rise on Wall Street and in some European markets but futures prices point to falls today. Australian retail sales rose by a faster than expected 1.3% in September. In France, Q3 GDP rose by 3.0% up from a 1.3% gain in Q2. That is the first of several Eurozone GDP reports this morning.
  • Eurozone inflation is forecast to have continued to accelerate in October. Already released data for some of the largest countries in the region point to a rise and we look for annual headline inflation to print 3.6% (from 3.4% in September), while the consensus expectation is for an even bigger rise. That is well above the European Central Bank’s 2.0% target. At yesterday’s ECB policy update President Lagarde, while admitting that the rise inflation was greater than expected, still asserted it was likely to be temporary. We do expect ‘core’ inflation to be unchanged at 1.9%, which might provide some solace to the ECB. Nevertheless, with inflation possibly set to rise further before its next policy meeting in mid-December the Governing Council’s unity in maintaining a ‘dovish’ policy stance seems set to be tested. The first estimate for Q3 GDP growth in the Eurozone is expected to show quarterly growth of 2.0%, which would be little different to the rate seen in Q2. That would mean that the Eurozone grew more quickly than the US last quarter. Nevertheless, recent reports suggest that supply issues are also constraining output in the Eurozone, so the outlook for growth is uncertain.
  • In the UK, Bank of England money supply and credit data for September may provide some insight into recent spending trends. Mortgage approvals and lending data may show whether housing market activity has slowed as the temporary cut in stamp duty has been removed.
  • The September US consumer spending numbers that will be released today were included in yesterday’s GDP report. Expenditure clearly slowed in Q3 compared to the first half of the year but there seem to be some tentative signs that it was picking up again to the end of the quarter. The report will also contain the consumer expenditure deflator, which is the Federal Reserve’s preferred inflation measure. It is likely to show a further rise in inflation in September.
  • Government bond markets remain volatile. Shorter-dated yields in many markets continue to firm as markets price in the possibility of tighter monetary policy. Longer-dated yields have retraced some of the falls seen earlier in the week but are generally still below their levels of last Friday. In currency markets both the euro and sterling rose against the US dollar yesterday. The euro moved up in afternoon trading despite comments from ECB President Lagarde that seemed intended to reassure that Eurozone monetary policy would remain very stimulative.

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

USDJPY - 115.00 730m. 114.60/70 1.46bn (C). 113.90/114.00 1.02bn (922m C). 113.70/80 816m. 113.00 688m. 112.50 590m. 111.00 851m.

- EURUSD - 1.1820/30 434m. 1.1690/1.1700 803m. 1.1670/80 503m. 1.1650/60 1.53bn (758m P). 1.1630/40 922m. 1.1610/20 737m. 1.1590/1.1600 1.50bn (1.35bn P). 1.1570/80 435m. 1.1500/10 756m.

- NZDUSD - 0.7210 707m.

- USDCAD - 1.2450 684m. 1.2400/10 708m. 1.2370/80 677m. 1.2300/10 1.33bn (P). 1.2270/80 882m.

- EURGBP - 0.8500 446m.

- EURCHF - 1.0700 930m.

- EURNOK - 10.02 420m. 40.00 420m. 9.88 423m.

- USDCNH - 6.47 412m.

Technical & Trade Views

EURUSD Bias: Bearish below 1.17 Bullish above

  • EUR/USD backs off after trade to 1.1692 o/n
  • EUR/USD backs off some from 1.1692 high yesterday, Asia 1.1674-90 EBS
  • Trading quiet with whatever action in EUR focused on EUR/JPY
  • EUR/JPY better bid but choppy, Asia 132.46-89...
  • EUR/USD on hold below descending 55-DMA just above at 1.1700
  • Option expiries today provide some resistance, 1.1690-1.1700 E803 mln
  • More below today though, total E3.7 bln from 1.1680 to 1.1600 strikes
  • ECB Lagarde admitting inflation high trumping ECB easy policy stance?
  • Minimal action in other EUR crosses, EUR/GBP 0.8466-70, EUR/CHF 1.0642-52
  • Some option expiries today - EUR/GBP 0.8500 E445 mln, /CHF 1.0700 E930 mln

GBPUSD Bias: Bearish below 1.37 Bullish above.

  • Technicals support, but news needed to break 1.3835
  • Touch softer at the base of a 1.3789-1.3803 with steady flow
  • Sterling is often volatile on late month end rebalancing flows
  • Charts; 5, 10 & 21 day moving averages and daily momentum studies climb,
  • 21 day Bolli bands contract - neutral setup has turned net positive
  • 1.3695 21 DMA then 1.3672 38.2% of the September-October rise key supports
  • Well tested 1.3831, 50% of the 2021 fall and range top major resistance
  • 1.3670-1.3835 range should hold into next week unless the USD trends
  • London 1.3731 low and 1.3815 NY high are initial support and resistance

USDJPY Bias: Bullish above 112.50 Bearish below

  • USD/JPY off o/n lows, JPY crosses better bid at month end
  • JPY sales dominate Tokyo action at month-end, USD/JPY up some, crosses bid
  • USD/JPY bounces from 113.26 spike low yesterday, Asia 113.40 to 113.71 EBS
  • Japanese importers good buyers into Tokyo fix, action choppy since
  • Resistance/offers from @113.75, $1.8 bln option expiries today 113.75-114.00
  • Expiries today below too but smaller - 113.00 $674 mln, 113.50 $387 mln
  • US yields steady above recent lows, Treasury 10s @1.579%, NY low Wed 1.519%
  • Risk move mixed in Asia, Nikkei choppy, up after weak start, -0.1% @28,792
  • EUR/JPY buoyant in choppy trade, better bid, Asia 132.46-89
  • GBP/JPY and AUD/JPY better bid too, 156.32-95 and 85.29-77

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Resistance vulnerable as yields surge; RBA roils bonds
  • AUD/USD poised to break 0.7557-59 resistance on early RBA rate hike bets
  • Supported by surging bond yields on lack of RBA yield curve control
  • Bond yield surges to 0.75% vs 0.1% target as traders capitulate...
  • All eyes on Nov.3 RBA policy meeting as speculation grows YCC may be dropped
  • Australia Sept retail sales rebound 1.3% as lockdowns ease...
  • Daily close above 0.7557-59 opens 0.7599 July high; spt 0.7525-30, 0.7500-05