Hello and welcome to the Key To Markets preview of the Week Ahead.
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5-day performance as of September 23rd, 2021. 20:00 GMT
In case you missed it….
November taper: The Federal Reserve said (without saying it) that they plan to begin tapering in November.
Mid-2022 Exit: Fed Chair Jerome Powell said in the FOMC press conference that tapering should end by the middle of next year (2022).
Hiking! The infamous Fed dot plot showed half of FOMC policymakers think a US rate hike will come in 2022.
MPC Votes: The BOE’s Ramsden joined Saunders calling for an early end to bond purchases, leaving the end vote 7-2 in favour of keeping UK policy steady.
Bottom fishing: EUR/USD & GBP/USD jumped off the August lows after the Fed & BOE meetings.
Trudeau wins: Canadian PM comes away with another minority government, and not much gained from the snap election this week.
Evergrande: The Chinese property group missed one coupon payment, then paid domestic bondholders but no those overseas. Getting messy.
NatGas: European natural gas prices continue to soar to record highs
Utilities belly-up: Multiple UK energy companies are going insolvent because of the high cost of gas and electricity and government-enforced consumer price caps.
Online shopping $$: FedEx is raising the fuel surcharge it applies to all shipments starting November 1st. UPS recently did the same.
Own gold but been thinking about buying Bitcoin for the first time? They call it digital gold, so Bloomberg made this neat comparison of the two.
The end of the 16-year Angela Merkel era is now days away for Germany. Germans will vote for a new Chancellor and new government on Sunday Sept 26. The surprise turn of events has been the rise of Olaf Scholz, who is now expected to put the Chancellorship under control of Germany’s SDP and not Merkel’s CDU. No fireworks are expected for markets since any coalition of parties means limited power to make major changes.
Inflation remains top of the agenda with investors awaiting some signs that it is cooling off in both Europe and the United States. The ECB has already begun its ‘recalibration’ otherwise known as tapering in response to the rising prices. They might be forced to act quicker if this week’s CPI data out of Germany and the Eurozone stays stubbornly high.
Risk of wider contagion remains. The Wall Street Journal reported last week that the Chinese government asked local officials to prepare for a ‘possible storm’ if Evergrande fails. But failure seems to be plan B. To reassure investors, the People’s Bank of China’s injected 90 billion yuan to the banking system, signalling support for markets.
The S&P 500 finally ended its long stretch without a 5% correction last week and investors bought the dip. The seasonality improves a bit as we head into October but there is one more week of September where nerves could still get frayed and open up a bigger drop in stock markets and maybe a 10% pullback comes into view. A 10% is known as a technical ‘correction’.
The situation with Evergrande means investors are back to focusing on the instability of China’s housing market and indebted financial system. Any big miss in economic data could be a trigger point for risk-off selling in China, Hong Kong and then possibly further afield as investors try to pull capital from the country.
Here you can find analysis of the major asset classes including the major forex pairs, gold, oil, and the S&P 500.
EUR/USD has rebounded strongly off the demand area created by the August 20 low and is eyeing a move up through 1.175. The broader trend is still sideways.
GBP/USD rallied back over 1.368 resistance after bottoming at the demand area created by the August low. An upside target is the supply area around 1.38.
USD/JPY found support for a third time at 109.1 and rallied strongly above 110 and a falling trendline and is again testing the top of the range at 110.4.
AUD/USD has broken a well-defined falling trendline, suggesting momentum has moved to the upside. Next resistance is neat 0.735.
USD/CAD neatly dropped back from our previously highlighted supply area and back under former resistance near 1.27, suggesting a bearish bias.
XAU/USD has broken down from a descending triangle pattern and looks on course to break back below 1750.
BRENT continues to trend higher but faces stiff resistance from the July peak at 77.
US500 bounced perfectly off its 50-day moving average but the re-test of the broken rising trendline offers a short opportunity near record highs.
Thank you very much for reading – and have a great week trading!
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