Daily Market Outlook, September 16th, 2021

Overnight Headlines

  • Australian Employment Tumbles In August As Lockdown Takes Toll
  • New Zealand’s Economy Was Humming Prior To Delta Lockdown
  • Japan Trade Balance Posts Largest Deficit Since December 2012
  • Japan Funds Buy Most Foreign Bonds In Ten Months Last Week
  • Japan PM Contender: Wants Renewable Energy, 5G To Be Focus
  • Japan Firms See Econ Recovery To Pre-Covid Level In Later FY2022
  • China Confident To Achieve Full-Year Economic Target - NDRC
  • China To Sell More Copper, Aluminium, Zinc Reserves - NDRC
  • Corporate Tax Hike, Surtax On Wealthy Advanced By House Panel
  • US Builds Bulwark Against China With UK-Australia Security Pact
  • Dollar Sluggish As Traders Bide Time Before Fed Meeting; Kiwi Jumps
  • Oil Holds Near Six-Week High With U.S. Inventories Tumbling
  • Asia Shares Slip; Most Casino Stocks Continue To Slide Amid Reg Fears
  • Didi Loses 30% Of Daily Users After Beijing Crackdown Following IPO

The Day Ahead

  • Inflation data in the UK and the US have been the main focus for markets so far this week. In particular, yesterday’s report that UK annual CPI inflation surged by even more than expected in August to 3.2% (its fastest for almost ten years) has further fuelled speculation about an early rise in UK rates. However, with US August retail sales due today and the UK numbers out early on Friday, attention in the near term is set to turn to the outlook for economic growth.
  • Retail sales fell sharply and by more than expected in both economies in July. Some of that likely reflects a switch to spending on consumer services (which are not included in UK retail sales and are only partly covered by the US measure) as restrictions have been eased. That means overall consumer spending has likely been stronger of late than suggested by the retail sales numbers. Nevertheless, that too has slowed, helping to explain why economic growth has decelerated in both economies. Against this background, a key issue is whether this is primarily because demand is faltering or because supply constraints are limiting the availability of goods and services.
  • In the US, retail sales fell by 1.1% in July. The decline was led by motor vehicle sales, which certainly, at least in part reflects, supply issues due to the unavailability of parts. However, ‘core’ sales also fell sharply in July and the recent slide in consumer confidence measures suggests that may reflect a new reluctance to spend possibly due to the recent rise in Covid cases. In addition, higher inflation may be eating into spending power. Overall it seems likely that US retail sales will have fallen again in August.
  • UK July retail sales fell by 2.5% in July the second large monthly fall within the last three months. However, that follows big rises earlier in the year and there are clear indications that spending has switched more into services. Monthly retail sales moves are often erratic but expect at least a partial rebound in August and look for a 0.8% rise. Overall, with consumer confidence holding up and amid signs of pent up demand, the outlook for UK consumer spending still looks positive, although there are some concerns that higher inflation will erode real wage growth.
  • Looking Ahead (GMT) • 07:00 BoS Cos speaks in Madrid • 08:00 Norges Bank Gov Olsen at Oslo Norway Summit • 12:00 ECB Lagarde speaks at HEC • 14:00 BoE Wilkins in Conference of Montreal panel discussion • 16:30 ECB Lagarde at Légion d'honneur (Chevalier) ceremony

G10 FX Options Expiries for 10AM New York Cut

(Hedging effect can often draw spot toward strikes pre expiry if nearby)

  • USDJPY - 110.50 475m. 110.00 501m. 110.50/60 1.69bn (1.50bn C). 110.20/30 472m. 109.90/110.00 543m.
  • 109.70/80 1.45bn (777m P). 109.40/50 826m. 109.20/30 877m. 108.30/40 497m 107.90/108.10 679m.
  • EURUSD - 1.1950/60 980m. 1.1850/60 846m. 1.1810/30 1.07bn (705m C). 1.1750 673m. 1.1720 1.31bn (774m C).
  • GBPUSD - 1.3820 458m.
  • AUDUSD - 0.7360/70 614m. 0.7310/20 533m. 0.7280/90 447m. 0.7250/60 625m.
  • USDCAD - 1.2800 588m. 1.2550/70 1.88bn (1.59bn P).
  • EURGBP - 0.8520 430m.
  • USDCHF - 0.9240 571m. 0.9020 526m.
  • EURCHF - 1.0850 551m.
  • AUDJPY - 79.50 521m.
  • USDSGD - 1.3450 400m.
  • USDZAR - 16.50 750m.
  • USDCNH - 6.50 1.19bn (797m P). 6.49 979m. 6.45 806m. 6.44 566m. 6.42 483m. 6.40 1.00bn (903m P)

Technical & Trade Views

EURUSD Bias: Bearish below 1.19 Bullish above

  • Highly likely 1.1810 – 20 options anchor EUR/USD today
  • Vol sinks, this is quietest period since pandemic turmoil in early 2020
  • Option hedging has more influence when it is quiet
  • Seems likely EUR 1 bln expiries 1.1810-20 anchor spot today
  • Prudent not to expect too much action before next week's Fed

GBPUSD Bias: Bearish below 1.39 Bullish above.

  • GBP/USD deflated by Asian equity losses, Hang Seng down 2%
  • Cable eases to 1.3822 (intra-day low), with Asian stock losses helping weigh
  • Hang Seng falls 2% to 10-month low on Evergrande contagion fears
  • USD is above GBP on the safe-haven currency ladder
  • 1.3852 was GBP/USD high in Asia (1.3852 was also Wednesday's high)
  • Support points include 1.3814 (Wednesday's pre-UK CPI data high) and 1.3800
  • 1.3815 was Wednesday's early NY low. 1.3794/97 = Wednesday/Monday lows

USDJPY Bias: Bullish above 109 Bearish below

  • USD/JPY soggy, JPY crosses too alongside US yields
  • Focus amongst JPY players still US yields and yields abroad in general
  • USD/JPY off after US yields fall back after bounce in late NY trade
  • USD/JPY 109.22-46 EBS in Asia, up early, off some since
  • Yield on US Treasury 10s from 1.321% late NY to 1.294%, now @1.296%
  • USD/JPY support, bids still eyed towards 109.00, 109.11 low yesterday
  • Stops likely sub-109.00 mixed in with bids from Japanese players
  • Tech support below 109.00 at 108.73 spike low on August 4
  • Massive nearby option expiries to help contain action, $2.2 bln 109.00-55
  • Asia cautious, more risk off, Nikkei -0.8% @30,264, E-Minis unch @4471
  • EUR/JPY 129.10-35, GBP/ 151.13-57, AUD/ 79.98-80.36, NZD/ 77.66-78.05

AUDUSD Bias: Bearish below 0.75 Bullish above

  • Downside pressure resumes as Asia remains risk averse
  • AUD/USD down 0.15% in Asia as risk mood slumps; Japan & China shares fall
  • Global growth concerns persist after China data disappointment Wednesday
  • Australian employment dived in August as lockdowns bite...
  • China iron ore futures plunge to over 9-month low undermining AUD
  • AUD/NZD drops to 16-month low of 1.0283 as New Zealand GDP upside surprise
  • Diverging RBNZ/RBA rate expectations weigh, next target at 1.0243