Overnight Headlines

*USD fell against its peers, remains in a range

*US stocks moved higher, with the S&P500 bouncing off its 50-day SMA

*Oil jumped higher above $75 on a larger than expected drawdown in crude stocks

*Aussie employment tumbled, NZ economy was humming prior to lockdown

USD sold off mildly with yesterday’s risk-on mood. It remains in the range, trading around 92.50. Commodity currencies led the gains as energy prices surged. CAD rose +0.5% and NOK +0.8%. EUR/USD remains supported by the key 1.18 level. GBP drew support from the strongest CPI in nine years but is similarly rangebound. USD/JPY broke down and dropped closer to 109 support.

US equities gained with the S&P500 posting its biggest daily increase since the end of August, boosted by the energy sector. The Vix is now trading near 18 and the 10-year US bond yield has reversed about half of its post-CPI decline. Asian shares have given up earlier gains, weighed by declines in China and Hong Kong. US futures are flat

Market Thoughts – USD directionless

We get US weekly jobless claims data and retail sales this afternoon. The former is expected to grind to a new pandemic low. August retail sales may show another fall for a second month with analysts forecasting a print of -0.8%. The rotation into services and Delta concerns are weighing, as the boost from stimulus checks fades.

USD is struggling to find a strong sense of direction as the weak NFP and CPI data dent Fed expectations. That means the world’s most important central bank can take its time tapering, which would typically boost the dollar. Meanwhile continued concerns about the Delta impact keep support. As does its influence on global rebound prospects underscored by China’s softening recent activity data.

Chart of the Day – Oil and gas prices surge

There was much chatter about energy prices yesterday. The looming/unfolding European energy crisis saw gas and electricity prices jump. Oil closed north of $75 for the first time since the end of July. Stocks and bond markets didn’t flinch with energy stocks hugely outperforming. That says rising commodity prices are currently being seen as reflationary rather than stagflationary.

After making lows at $64.76 in late August, crude staged an impressive two-day rebound back to the 50% retrace level of the summer high to low move. Prices have then tracked sideways over the last couple of weeks. Monday saw a break out of consolidation and the larger-than-expected drawdown in US crude oil stocks propelled prices above $75. The 78.6% Fib level sits at $75.03 with the July top at $77.82. Support comes in at the top of the rcent range around $73.73.