Overnight Headlines

*US stocks hit fresh record highs, tech led the way

*USD was mixed but closed higher as EUR faltered

*Gold broke above $1800 and 200-day SMA again

*Tesla rose 12% on a massive order from Hertz

US equities made new record highs with the S&P500 (+0.5%) and Dow (+0.2%) both in new territory. Energy was the clear sector winner. Consumer discretionary stocks led the way with Tesla hitting the $1 trillion market cap mark. Asian markets are mostly in the green with the Nikkei outperforming. Chinese equities are mixed as another missed bond payment by a small property developer weighs on the Hang Seng. Futures in Europe and the US are in the green.

USD had a mixed day but closed stronger as it continues to find support at 93.50. Resistance at 1.1665 in EUR/USD remains as the pair heads back to 1.16. GBP closed higher but stays below trendline resistance from the June high. AUD and NZD both closed higher as they look to make gains after bullish consolidation.

Market Thoughts – Market complacency

There’s quite a bit of chatter about markets climbing the infamous “wall of worry”. That said, there always is in the current environment. Wall Street’s fear gauge, the Vix, has dropped back to cycle lows and is below 16. Its long-term average is around 20. The broader US markets is making all-time highs once again even as the Fed is set to take away liquidity.

The world’s most powerful central bank is not yet ready to actually raise interest rates. Of course, stock markets are the general guide for markets as a whole. And the Q3 earnings season has gone well so far. Sales and earnings have positively surprised in nearly every sector, except energy. That means high prices can be passed onto the consumer. This is what the Fed will pay attention to, as market rates reflecting US inflation expectations make all-time highs.

Chart of the Day – Big barrier ahead in USD/JPY

After US 10-year Treasury yields rallied to 1.70% recently, so USD/JPY peaked last week at 114.70. The positive risk mood and policy divergence between the Fed and BoJ also boosted the bulls.

But the pair hit a major resistance zone around previous tops from 2017 and 2018 and we’ve seen prices fall back to previous highs around 113.40. We might expect, and also prefer more consolidation after such a strong move.

However, buyers are active again today and looking towards 114 and beyond. There appears to be a high bar for a sustained rally to new highs as the market already has fairly aggressive policy expectations. A higher terminal rate for the Fed could push us through the mid -114 barrier towards 116.