Overnight Headlines

*USD remained near recent highs above 93

*US stocks closed mixed after a volatile week

*The Vix fell below 18 as risk sentiment improved

*Oil is higher for a fifth straight day, nearing $80

USD printed a “doji” weekly candle as prices hovered near recent highs. The DXY eased modestly on Friday but remains above the July swing high. EUR softened and closed below 1.1750 resistance. GBP failed to climb above 1.3726 again. USD/JPY pushed higher breaking out of its recent range. The August high at 110.80 remains resistance. NZD is holding just above support around 0.70.

US equities ended a mixed bag with the Dow and S&P500 marginally higher, but the Nasdaq ticked down. Higher bond yields have helped boost value companies. Evergrande fears have diminished for now with Asian markets mixed to start the week. US and European futures point to a positive opening. The Dax is set to open 1.1% higher after the tight German election.

Market Thoughts – Quiet start to the week data-wise

After the volatile week just gone, the upcoming risk calendar looks quieter. China Evergrande developments will remain a focus with more bond payments due on Wednesday. Media attention will also focus on the German election as the Merkel era draws to a close.

This afternoon’s US durable goods data should get a lift from Boeing aircraft orders. Friday sees the US personal income and the Fed’s favoured measure of inflation – the core PCE deflator. More acute price pressures have started to ease though inflation is expected to remain elevated. We also get the Eurozone CPI flash estimate which is expected to hit a 13-year high in September. Surging energy costs and strong demand as economies reopened will show an annual rise of 3.5%.

Chart of the Day – Oil surges to new cycle highs

Recent media focus has all been on rampant European gas and electricity prices. But commodity prices in general are back on the rise with Bloomberg’s aggregate commodity index as its highest level since 2015. With central banks moving to tighten monetary policy and clear slowdowns in global manufacturing with bottlenecks still evident, stagflation risks are rising.

Today’s spotlight is on oil prices which are just shy of $80/bbl, the highest level in nearly three years. Demand is outstripping supply with the global recovery, bottlenecks and spill-over form other energy markets impacting. Prices are rising for a fourth straight week and have taken out the July high at $77.82. The May 2018 top sits at $80.47 ahead of the October 2018 peak at $86.71. Brent is overbought on the daily RSI now and prices have pierced the upper Keltner band.