Headlines

* RBA raises rates to 10-year high, say more hikes ahead

* Fed’s Bostic says higher peak rate on the table after jobs blowout

* Dollar pauses bullish run, Aussie jumps after RBA 25bp rate decision

* Asian stock markets stabilise ahead of Powell speech

FX: USD extended its gains against its major peers for a third straight session. The DXY has surged by nearly 3% from its lows last Thursday. The index of a basket of 6 major currencies has hit the 50-day SMA at 103.57. It last touched this back in November. Resistance above is the January 2017 top at 103.82. Support comes in at the pandemic spike high at 102.99. Treasury yields continued higher after the NFP report. The benchmark 10-year yield has rebounded strongly from the 200-day SMA, now at 3.37%. It is now also above the 50-day SMA at 3.57%.

EUR tumbled for a third day close to the mid-December high at 1.0736. The 50-day SMA sits at 1.0692 as initial support. GBP dropped marginally lower. It found a bid around 1.20 on the MPC’s hawkish Mann comments. She suggested that the bank rate is still more likely to see another hike than a cut or hold. USD/JPY built on its NFP gains after reports the dovish Amamiya was being lined up as the next BoJ Governor. The yen weakened beyond 132. But it has also hit the 50-day SMA at 132.52 and pulled back.  AUD has found a bid on the hawkish hike by the RBA earlier this morning. It had fallen for a third day yesterday, tapping the 50-day SMA at 0.6859.

Stocks: US equities extended further into the red as bond yields rose sharply. Investors continued to ponder the size of further Fed rate hikes after the blowout NFP headline number dimmed sentiment. The S&P 500 closed 0.6% lower. Nine of the 11 sectors retreated led by IT. The tech-heavy Nasdaq lost 0.87%. Tesla outperformed with a 2.5% giant. The EV maker raised the price of its Model Y SUV. The Dow outperformed, losing just 0.1%. Defensive sectors faired better with the Chinese balloon incident adding to the downside pressure.  

Asian stocks traded mixed again. Markets are digesting the ramp up in hawkish Fed pricing. The RBA decision also stood out as they signalled more rate hikes to come. The Hang Seng was mixed with a rebound in tech and property following yesterday’s underperformance. The ASX 200 saw strength in the energy sector as oil rebounded. But the index was pressured late on by the RBA’s rate hike to a fresh decade high.

US equity futures are marginally in the green. Futures in Europe are similarly just about positive too (+0.1%). The cash market closed lower 1.2% yesterday.

Gold is trying to stabilise after its near 2.5% plunge post-Friday’s US jobs data. The stronger dollar and higher yields along with hawkish Bostic comments point to more downside in the near term. Support is $1870 with $1848 below that.

Day Ahead – Powell speech now a big event

A hugely volatile end to last week has seen money markets ramp up their hawkish Fed rate expectations. The blockbuster headline NFP print has seen the peak, terminal rate push up to 5.1% in June this year. That rate was below 4.9% before the NFP report. There is a 35% chance that rates are stuck at 4.75-5% in December. Those odds have switched from the current 4.5-4.75%.

Fed Chair Powell will be speaking in Washington at 17.00 GMT. There will now be a lot of attention on this as it will be a chance for him to push back against the dovish reaction to his press conference last week. Obviously, we have had the strong jobs report and ISM Services data since then to add into the mix.

Chart of the Day – FTSE100 backs off all-time highs

The UK’s FTSE 100 closed at 7902 on Friday, beating its previous peak in May 2018. The index had risen over 6% this year after closing nearly 1% higher in 2022. That made it the best performing developed market index in local currency terms.

The FTSE is dominated by multinational companies so there’s little drag from the domestic economy heading into recession. Many of those firms book the bulk of their revenues overseas so GBP devaluation against the EUR and USD since Brexit has helped. Those companies are heavily exposed to oil, miners, banks, insurers and utilities. This means the index lacks high-growth tech. These vices in the past are now are virtues as inflation and rising rates have squeezed tech valuations and pushed investors to potential stores of value.

The May 2018 peak (7903) consolidates the resistance zone with Friday’s top at 7906. Initial support comes in around 7689 where prices range traded above last week. This is also previous highs.