There has been an attempt to build support on indices early today after a second successive day of selling on Wall Street yesterday. However, given that there is a crucial FOMC meeting later today, markets will likely become ever more cautious as the session continues. Mixed economic data out of China and a jump in UK inflation are being factored in with AUD and GBP performing better across forex. However, the Fed meeting starts a run of announcements from major central banks and trading volatility will likely become elevated later.
- Main drivers: Markets are mixed to a slightly positive early today; China data mixed UK inflation jumps; US Senate votes to increase the debt ceiling; Fed meeting later today; Economic calendar: US Retail Sales later.
- Broad sentiment has found a degree of support: After another Wall Street sell-off yesterday European markets are slightly positive today. Indices are higher, with the USD slipping back. However, this has been a feature of the past two sessions before selling pressure as US traders come in.
- China data mixed: Industrial Production increased to 3.8% (3.6% exp) but retail sales fell to 3.9% (4.6% exp) [risk neutral]
- UK inflation jumps higher than expected: Headline CPI up to 5.1% (4.8% exp) and core CPI up to 4.0% (3.7% exp). This adds even more pressure on the BoE to increase interest rates. GBP has moved higher on this. [GBP supportive]
- US Senate votes to increase the debt ceiling: the vote scraped through 50:49 to increase the debt ceiling limit to $31.4 trillion (from $28.9 trillion). This now passes to the President to sign off [A relief for risk appetite]
- Fed meeting today: markets will likely become more cautious as the Fed meeting approaches. The FOMC is likely to accelerate the taper (possibly to -$30bn) [USD volatility later]
- Central bank speakers: the FOMC meeting announcement is at 1900GMT and then Fed Chair Powell’s press conference is at 1930GMT.
- Economic Data:
- US Retail Sales (at 1330GMT) core sales (ex-autos) are expected to grow by +1.0% MoM in November (+1.7% in October)
- Canada CPI inflation (at 1330GMT) monthly inflation is expected to increase by +0.2% in November, leaving the year on year inflation at +4.7% (+4.7% in October)
- FOMC monetary policy (at 1900GMT) no change to interest rates expected at +0.25%
- New Zealand GDP (at 2130GMT) Q3 QoQ growth expected to be -4.5% (Q2 +2.8%).
Broad outlook: another early attempt at a recovery (as we have seen in the past two sessions) but caution is likely to set in as the FOMC meeting approaches.
- Forex: USD edged higher yesterday but is giving back those gains today.
- EUR/USD remains around the middle of the consolidation range between 1.1185/1.1385. Initial support is now at 1.1253 as the market ticks higher. Initial resistance is at 1.1325 and then 1.1355.
- GBP/USD is driving higher early today and is testing resistance around 1.3275/1.3290. The risk is that this becomes a false break ahead of both the Fed and Bank of England. Closing above 1.3290 improves the outlook for recovery.
- AUD/USD is ticking higher today and holding the support at 0.7090 is crucial for the near to medium-term outlook. A test of 0.7140 initial resistance is underway, but key resistance at 0.7185 needs to be broken to turn bullish again.
- Commodities: precious metals drifting lower. Oil recovery has fallen over and is threatening to turn corrective again.
- Gold falling over under $1770 even with a broad sense of negative sentiment across markets is a concern. Pressure towards a test of $1758 support is growing Resistance is mounting between $1790/$1795. The bulls need a break above $1815.
- Silver continues to form lower highs and lower lows. Having broken below $22.00 the market remains on course to test $21.40. It is difficult to see serious recovery traction until $22.60 is breached.
- Brent Crude oil falling under $74.20 seriously questions the recovery prospects. If the market now forms another lower high between $74.20/$75.50 then a further move lower could result. A decisive move consistently below $73.20 increases negative momentum for $69.80 next support.
Indices: just when it looked as though the bulls were ready to go again, a failed breakout and a false start. Support is tentatively forming again, but any traction is unlikely now ahead of the Fed.
- S&P 500 futures breaching the pivot band 4650/4669 has deteriorated the outlook. A bull failure under 4650 would suggest pressure towards 4590/4610 and potential further correction.
- DAX with a move below 15,510 the market is increasingly corrective and look to be forming lower highs and lower lows once more. A bull failure between 15,510/15,600 would increase negative momentum for further correction. Bulls need above 15,696 to re-engage.
- FTSE 100 an unwinding correction back towards 7180/7200 continues. How the market reacts around here could determine the depth of the next move as technical indicators are increasingly pointing to a range formation.