What is our trading focus?

• S&P 500 Index (US500.I) & NASDAQ 100 Index (USNAS100.I) – US equities sold off badly yesterday, perhaps as a sell-the-fact reaction to the FOMC meeting, which has few immediate implications for now. The selling continued overnight. The tech- and megacap heavy Nasdaq 100 is facing down the 11,000 area suddenly again, with the next layer of support below perhaps toward the psychological 10,000 level and then the major pre-COVID-19 top near 9750. The broader S&P 500 index held up better in percentage terms in yesterday’s cash session but has also sold off badly overnight and is only a bit more than a percent above the recent 3,286 low. The next focus there if the selling continues could shape up around the 200-day moving average at 3,088.

• STOXX 50 Index (EU50.I) – the index was squeezed into a very tight range and is breaking out of that range to the downside in early European trading following the price action in US equity futures reacting to the FOMC. Yesterday we wrote a research note that European equities historically performed well when the ZEW figure was above 60 and had a positive m/m reading.

• Spot Gold (XAUUSD) & Spot Silver (XAGUSD) – have seen renewed weakness after Powell, as expected so close to the US elections – announced no new measures to stimulate and support the economic recovery which he described as still being highly uncertain. The stronger dollar and weaker stocks together with Trump talking about a vaccine being ready in October took gold back to the recent lows at $1937/oz overnight. Despite the Fed’s promise of rock-bottom rates for longer than three years, the bullion market remains in a prolonged consolidation phase with the key support at $1900/oz. The minor metals of silver and platinum trade even lower today with the XAUXAG and XAUXPT ratios both higher.

• WTI Crude Oil (OILUSOCT20) & Brent Crude Oil (OILUKNOV20) – have both despite bearish calls this week from the IEA, OPEC and BP managed to claw back more than half the recent losses before a stronger dollar send prices lower during Asian hours. Storm disruptions and a bullish weekly stock report from the EIA both supported the strong rally yesterday but worries about the demand outlook linger. The OPEC+ Joint Ministerial Monitoring Committee meeting will be held today amid a weakening outlook and worries about increased production from Iraq and now also Libya.

• AUDUSD – an interesting session overnight as the Aussie failed to find support on what appeared a massively positive jobs report (as discussed below). In the background and heavily weighing against Aussie fundamentals, iron ore prices have dropped heavily over the last two trading days and are near six-week lows. Since late July, every new high in AUDUSD has brought a modest reversal, but one that didn’t really stick – we watch now for whether a large consolidation lower is afoot after this recent rally fizzled well short of the prior high north of 0.7400. The rising channel support comes in today around 0.7225 and the three-week low is just below 0.7200.

• EURJPY & EURUSD – the JPY rally carried through higher almost across the board yesterday, although because the USD bounced back solidly in the wake of last night’s FOMC meeting, USDJPY has found the price action rather sticky in the 105.00 area. EURJPY, on the other hand, broke significantly lower after crossing below the important 124.50 chart area, which opens a potential move as low as 121.00, close to the 200-day moving average. As for EURUSD, the post-FOMC rally in the USD has once again taken the pair to what has so far proved a very resilient support area near 1.1750 – a break of which could finally see a capitulation to lower support – 1.1625 or even 1.1500 – as crowded speculative longs reduce positions to reassess the situation.

• Snowflake (SNOW:xnys) – the pure play cloud computing company priced at $120, but immense demand for the shares in the secondary market pushed the open price to $245 and the shares were quickly pushed to the intraday high of $319. However, selling pressure came in and in one hour pushed the shares down to $231 before stabilising and closing at $245. While a successful IPO given the IPO price relative to the initial price range the intraday volatility is not a good start and hopefully the stock can settle down quickly.

What is going on?

• U.S. August Retail Sales disappointed and prior data revised lower suggesting that the US recovery in consumption is losing some steam. All of the US Retail Sales data series for August disappointed, with the headline number for July revised down from 1.2% month-on-month to +0.9% and August coming in at +0.6% vs. +1.0% expected. The “control group” data for August actually fell –0.1% month-on-month and July was revised down to +0.9% from +1.4%.

• Australian employment rose much more than expected in August at +111k vs. -35k expected and the August unemployment rate dropped to 6.8% from 7.5% in July. The Australian dollar failed to firm in response to this data point as a large portion of the sharp rise in jobs was attributed to self-employed workers and part-time jobs, such as those for work in food delivery services, were responsible for twice as many gains as full-time positions. Many Australian workers also remain nominally categorized as employed under the Australian JobKeeper programme, where benefits will be reduced next month.

• Boris Johnson appears willing to make Brexit Bill concessions that would require a vote before certain powers in the controversial bill are exercised. This softer stance may be behind a firming in sterling, which rallied as high as 1.3000 against the US dollar yesterday before the US dollar rallied, and EURGBP dropped below 0.9100 at one point – and if it drops much lower begins to suggest that the recent sell-off in sterling there is fully reversing course.

What we are watching next?

• The next round of US stimulus as US President Donald Trump signaled that he would like to make a deal and he and his party will need to do so very soon to make any impact on the economy and sentiment ahead of the US election on November 3rd. According to sources, Trump is thought it be amenable to a larger package than the original $650 billion proposal from his party and could agree to something of twice that amount.

• UK Bank of England meeting today brings an interesting challenge for Governor Bailey and company as they look at the wreckage of the economy so far worst hit by the coronavirus and contemplate the risks around a hard Brexit. Sterling will be sensitive to any suggestion that the UK considers a negative interest rate policy a prominent policy option and to what degree the bank frets any effect on inflation from a weaker currency after the recent sharp sterling weakness, even if that has been curtailed in recent sessions. QE adjustments are likely in coming meetings to expand asset purchases.

Economic Calendar Highlights for today (times GMT)

• 0800 – ECB Vice President Guindos to Speak
• 1100 – UK Bank of England Rate Decision
• 1230 – Canada ADP Payroll Data
• 1230 – US Weekly Initial Jobless Claims and Continuing Claims
• 1230 – US Aug. Housing Starts and Building Permits
• 1230 – US Sep. Philadelphia Fed Business Outlook
• 1430 – US Weekly Natural Gas Storage
• 2330 – Japan Aug. National CPI
• No time given – South Africa SARB Rate Announcement

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