Headlines

*Chinese stocks slip as Covid curbs temper reopening hopes

*Senate control still a toss up as key midterm races remain uncalled

*US inflation set to ease, decline could impact possible Fed action

*US dollar advances ahead of inflation data, bitcoin hits multi-year low

FX: USD rebounded just above support seen at 109.24. Price action has been choppy above the 110 level. The dollar has found a bid amid broad risk aversion. US Treasury yields dipped back to the 21-day SMA.

EUR/USD struggled with the 100-day SMA at 1.0030 and is trading just below this indicator this morning. GBP/USD pulled back into the long-term descending channel and below the pandemic low at 1.1409. Cable remains above the 50-day SMA at 1.1321. USD/JPY found some buyers and ignored the dovish rhetoric form BoJ Governor Kuroda. The 50-day SMA is offering support at 145.51.

AUD/USD couldn’t push above the 50-day SMA again, which currently sits at 0.6497. Resistance from October around 0.6522/47 looks tough to break. USD/CAD moved back above the Fib level (38.2%) of the August rally at 1.35. The potential head and shoulders reversal pattern has also failed. Gold is consolidating just below its recent highs this morning. The 100-day SMA is $1715.

Stocks: US equities dropped through the session amid strong risk aversion. Fears grew around contagion from the further sell-off in the digital asset space as Binance pulled out of the FXT buyout deal. The Dow fell 1.95%, the Nasdaq dropped 2.37% and the benchmark S&P 500 closed lower 2.08%. Growth cyclicals led the decline although value-based stocks weren’t far behind in a broad-based sell-off. The Vix rose for a second day.

Asian stocks traded negatively as the region followed Wall Street lower.  The Nikkei 225 fell as investors digested multiple company earnings. Honda was among the worst performers after it cuts its sales forecast due to chip shortages. Chinese stocks retreated amid ongoing Covid worries and more lockdowns.  

S&P 500 futures are marginally in the green. European equity futures are again muted after the cash market closed down 0.3% yesterday.

Day Ahead – US CPI data in focus

Today sees the release of the first of two US inflation reports due before the next FOMC meeting in mid-December. Inflation is now the number one data point for traders to focus on and the key driver of markets and Fed policy. CPI  is expected to moderate slightly with the headline figure dropping to 7.9% from 8.3% in September. But the monthly number is forecast to rise to 0.6% from 0.4% previously. The core measures, which strip out volatile food and energy costs, are seen easing to 6.5% y/y and 0.5% m/m.

Falling inflation is certainly what the Fed want to see. But this would be the eleventh time in thirteen months that the monthly core number has printed at 0.5% or more. A faster fall would give a welcome boost to stocks and the tech-heavy Nasdaq especially. The dollar would also see some selling. But this could be temporary as markets will be wary of the December inflation data released the day before the final FOMC meeting of 2022.

Chart of the Day – USD/JPY relatively quiet

Twelve consecutive days of gains were too much for the Japanese authorities in mid-October. In that time, the major broke through the long-term high at 147.67 and spiked to 151.94. Massive intervention then followed as prices tumbled nearly 600 pips on the day. Since then, the pair has drifted around the 2002 high before moving to the lower end of the recent range.

We had some verbal rhetoric from Governor Kuroda overnight who continued to bang the dovish drum. But USD/JPY has largely ignored this in quiet trade. The 50-day SMA at 145.51 may offer inital support. Below here sees prices back in the September range below 145. Treasury yields are a key driver of this pair so will be impacted by today’s inflation release.