Overnight Headlines

*US stocks rebounded as tech bounced back, Vix inched lower

*USD broadly firmer with yields pushing to new cycle highs  

*RBNZ hiked by 25bps as expected, market reaction muted

US equities gained on Tuesday to recoup some of their losses with the S&P500 rising +1.05% to 4345. The September 20 low at 4305 is acting as support. The 100-day SMA sits above at 4353. Both banks and tech were the leaders, somewhat strangely, with defensives down. Asia is mostly lower with markets falling another -1% and mainland China still closed for holiday. US futures are firmly in the red this morning.

USD printed an inside day on DXY but is pushing higher this morning. The August top at 93.72 has acted as support this week. Bulls are regathering for an advance on the cycle high from last week at 94.50. EUR is trading back below 1.1604 while GBP/USD enjoyed four straight days of gains. First level of support in cable is 1.3602, then 1.3571. NZD reversed its initial move higher after the (priced in) RBNZ rate hike and is following the broader strong dollar sentiment.

Market Thoughts – Energy, energy, energy

It sounds like a sketch from the classic Carry On films of yesteryear (“Infamy, infamy…”) but the energy crunch is getting ever more serious. Prices continued surging yesterday with European gas up another 23% to an all-time high. Supply fears are well and truly here as the heating season is nearing winter in the northern hemisphere.

This is pushing up oil prices which remain elevated above $82. OPEC+ didn’t the help the situation by not increasing output with fuel switching ongoing. Bond markets are also reacting which is a major issue for central banks. The US 10-year Treasury surged to new swing highs above 1.55%, levels last seen in June. The ECB’s Lagarde reiterated yesterday that the bank wouldn’t overreact to supply shortages or rising energy prices. But hawks are circling while the RBNZ stated that further rate hikes will likely be needed to tame inflation.

Chart of the Day – Gold potentially rolling over

After falling to recent support around $1721 late last month, gold’s retracement hit a Fib level ((38.2%) at $1769. Prices have turned lower from here and risks are mounting of more downside.

Rising US real yields and a strengthening dollar will continue to weigh on the precious metal. With the daily RSI pointing down again, the late September low is the first target for the bears. The summer spike low and previous year-to-date trough around $1677 is major support.