Headlines

*Risk-off amid unscheduled Nord Stream I maintenance and surging gas prices

*Dollar steady, euro at two-decade low on energy, growth worries

*US yields advance as markets position for hawkish Powell speech

*Oil gains after Saudis flag OPEC+ action to arrest price slide

US equities suffered their biggest decline in two months. The S&P500 slid 2.14%, its worst one-day fall since mid-June. Every sector declined, with tech and cyclical consumer stocks worst hit. The tech-heavy Nasdaq fell 2.66%. Asian shares are down for a seventh straight session. China blue chips were lower after getting only a fleeting bid from the latest policy easing. European and US futures are in the red.

USD is on the march again today, for the seventh time in eight days. The DXY is in the 109-handle eyeing up its year-to-date peak at 109.29. EUR remains weak after breaking down through parity. GBP has posted new cycle lows this morning through the mid-July bottom at 1.1759. USD/CAD has pushed above 1.30 and is nearing previous tops around 1.3076/78. The Antipodeans remained relative outperformers versus the greenback.

Market Thoughts – Dollar moves into overbought territory

The summer lull we talked about last week got a jolt yesterday as selling picked up in risky assets. The dollar was an obvious beneficiary. But it could be a case of “buy the rumour, sell the fact” as we hear from Fed Chair Powell at the Jackson Hole symposium on Friday. The market is pricing in his presumed hawkish message, loud and clear. That message is one where there is no compromise on fighting inflation and the Fed will continue to raise rates.

This comes after other Fed officials already pushed back on the perception of a dovish pivot by the FOMC. There is the risk that the market prices more hawkishness than Powell delivers. If that is correct, then recent long dollar positioning may get pared back. Today’s PMIs could also seize the narrative from upside inflation.

Chart of the Day – Bearish EUR/USD sinks to new lows

Markets continue to fret about restricted Russian natural gas flows after the announcement of more Nord Stream maintenance early next month. Natgas prices in Europe spiked over 17% yesterday. Next-day delivery prices in the UK surged as much as 33%. Fears are growing around a fuel shortage in the winter that could “weaponise” energy supplies.

EUR/USD failed to get decisively above 1.0341 earlier this month. The falling trendline and 50-day SMA capped the upside as well. Prices have taken out the 0.9952 cycle low. We are nearing oversold conditions which could see a correction. Today’s PMI data may pause the latest bond sell-off as the energy-induced recession kicks in.