Headlines

*US dollar gains Tuesday, Japanese yen flirts with intervention levels

*Global yields spike as selling fever spreads from UK gilts

* Two Fed officials make case for caution with future rate rises

*UK jobless rate at 3.5% vs 3.6% expected, BoE to widen scope of gilt buying

*Chip stocks fall in Asia as Japan, Korea, Taiwan traders return

FX: USD extended above 113 and is enjoying a fifth day of gains. After falling to 110.05 a week ago, bulls will be aiming for the highs above 114. Treasury yields pushed higher and are within touching distance of 4% on the widely watched 10-year.

GBP was subdued after the BoE’s measures failed to support the UK bond market. EUR retreated below 0.97 on the stronger dollar and geopolitical tensions, particularly in Ukraine. EUR/GBP tracked sideways printing another “doji” but above support at 0.8721. USD/JPY was stuck around 145.70 and very close to intervention territory. The yen has not been helped by the narrower than expected current account surplus.  

AUD is lower again for a sixth day in a row. It broke the prior cycle low at 0.6363 yesterday. Next major support is at 0.60. USD/CAD is making new highs this morning at 1.3854. Oil and other commodities pulled back yesterday.   NZD keeps dropping with the pandemic low at 0.5469 in sight.

Stocks: US equities fell, continuing their losses from last week as earnings season kicks off. The S&P 500 closed the session down 0.8%, the Nasdaq 100 fell 1% and the Dow dropped 0.3%. The semiconductor index was hit after Washington launched new export controls to restrict Beijing’s plans for technological self-sufficiency.

APAC stocks traded lower as numerous markets returned from a long weekend, with tech stocks under pressure. ASX 200 was indecisive after mixed data.  Nikkei 225 dropped with the opening of Japan’s borders overshadowed by the US’s chip tech curb.  

The Euro Stoxx 50 futures are signalling a softer open, down -0.6%, after the cash market closed down 0.6%.  S&P 500 futures are down 0.5%.

Day Ahead – UK action and markets

In what was meant to be a fairly uneventful day with a US holiday turned out to be quite volatile. This was sparked by the bond markets and UK gilts again influencing the wider market. The BoE provided a supposed backstop to pension funds and the gilt market, but this was seen merely as a “sticking plaster”. The 30-year Gilt yield moved closer to last week’s highs while global yields pushed sharply north.

This saw stocks go lower with the post-BoE emergency intervention rally now gone. Several indices are testing new lows with the VIX, Wall Street’s fear gauge north of 32. The UK Chancellor’s announcement to bring forward his fiscal plans and independent forecasts did little to stem the tide. Headlines this morning point to the finance minister struggling to make the books balance. Further announcements by the BoE in the gilt market also feed uncertainty. This is all very negative for sterling.

Chart of the Day – Nasdaq dips below support

The Nasdaq 100 fell to its lowest level in two years as tech stocks continue to take the brunt of the selling due to spiking interest rates. Rising rates expose tech shares’ relatively high valuations and raise their cost of capital. The US export control announcement also weighed heavily on semiconductor stocks like Nvidia and AMD. The declines came after JP Morgan CEO warned the US would likely fall into a recession next year, and it may not be mild.

The short-term bear channel form the August highs is very much intact. Trendline resistance worked well last week with the move up to the 21-day SMA at 11,568 failing. Yesterday’s sell off has fallen below 11,037 which becomes major resistance. The 200-week SMA at 11,222 will also be a barrier. Next major support sits around 10,677.