BoE: Looking for a 75 bps rate hike next week – Rabobank

 Next week, the Bank of England will have its monetary policy committee meeting. Analysts at Rabobank look for a 75 basis points rate hike to 3.00% from 2.25%. They explain that it would still be the largest rate hike of this cycle. They expect to see rates peaking at 4.75%.

Key Quotes: 

“After the mini-Budget disaster of late-September, we shifted our call for the November MPC from +50 to +100 bps. We have dialled back our forecast to +75 bps, as most of the political and financial market upheaval has subsided. This is also the consensus among economists.”

“The central bank needs to show markets that it is cognizant that confidence in the UK’s institutional framework has been damaged, but there is no need for crisis management anymore. Still, a 75 bps hike would still be Britain’s largest of this cycle. We think it will also be a one-off, allowing the central bank to move back to a more gradual pace of 50 bps and then 25 bps rate increases this winter.”

“While inflation should remain around 10% in upcoming months, the outlook for growth has weakened markedly. Even as the August Monetary Policy Report was already sombre, forecasting a fifteen-month recession, we expect more of this gloominess rather than less.”

USD/IDR to grind higher toward next resistance at 15,832 – TDS

 Bank Indonesia (BI) hiked rates by 50 bps as expected. Nonetheless, economists at TD Securities expect the USD/IDR to advance nicely toward the 15,832 resistance.

Another 50 bps hike cannot be discounted if IDR weakens aggressively

“BI hiked by another 50 bps, bringing the 7-day reverse repo rate to 4.75%. BI Governor Warjiyo noted that the hike was a ‘front-loaded, pre-emptive and forward-looking step to lower inflation expectations that are too high or overshooting’. However, we think the policy path ahead leans more on the pace of IDR depreciation given BI's historical focus on FX. Further, Warjiyo commented that the Bank wants to control the IDR to prevent imported inflation.”

“We see a gradual move for USD/IDR higher towards its next technical resistance level at 15,832 (76.4% Fib level over 5 yr-window).” 

“BI likely won't tolerate any sharp one-sided moves in IDR and another 50 bps hike cannot be discounted if IDR weakens aggressively against the USD and compared to its regional peers.”

Gold Price Forecast: XAU/USD to come under pressure if real rates remain elevated – SocGen

 Gold has resisted higher real rates, strong dollar and fund outflows, but remains vulnerable, in the view of strategists at Société Générale.

Gold has outperformed treasuries and TIPS so far this year

“In the past, we have observed that gold seems to correlate well with three factors – US real rates, the dollar and ETF flows (regression r-squared of almost 95%). However, the price of gold has remained quite elevated compared to the theoretical value yielded by our models.”

“If real rates remain elevated for the foreseeable future, one of the assets that could come under pressure is gold.”

“Gold has outperformed treasuries and TIPS so far this year, but may not be able to resist the high yield for much longer if there is no pivot in the near-term from the Fed.”

Stocks still look expensive and valuations look high – Morgan Stanley

 Will the fourth quarter bring an end to the bear market? Morgan Stanley’s Global Investment Committee believes this bear market is far from over and recommends investors consider three key dynamics to inform their equity investments going forward.

Stock investors should demand a greater premium for taking on risk

“The paths for interest rates, inflation and corporate profitability all remain uncertain. That’s why stock investors should be demanding a greater premium for taking on risk. In other words, stocks still look expensive, and valuations look high, especially given that inflation-adjusted yields have moved up.”

“Investors could be in for more surprises as they continue to overlook the impact of tightening financial conditions. They should be cautious about investing in long-duration or growth-oriented equities, which currently may not offer fair compensation for the risks of rising rates, weakening operating leverage and the strong US dollar.” 

“Any bear-market rally that may occur in the seasonally strong fourth quarter should be used for rebalancing portfolios and tax-loss harvesting.”

Malaysia: Trade balance figures came on the strong side – UOB

 UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting review the latest trade balance figures in Malaysia.

Key Quotes

“Malaysia’s external trade surprisingly posted stronger gains last month, in part due to year-ago low base effects. Export growth hit a 16-month high of 48.2% y/y in Aug (Jul: +38.0%, UOB est: +30.5%, Bloomberg est: +34.3%) as a result of a triple-digit gain in re-exports (+112.5%) versus a double digit gain in domestic exports (+34.8%). Imports posted the largest ever annual growth on record, at 67.6% (Jul: +41.8%, UOB est: +48.0%, Bloomberg est: +48.0%). This brought trade surplus higher to MYR16.9bn from MYR15.6bn in the preceding month.”

“Increased shipments of commodity-based and electrical & electronic (E&E) products amid stronger demand from almost all trading partners were key drivers of robust export growth in Aug. Exports of petroleum products, liquefied natural gas (LNG) and optical & scientific equipment registered the highest monthly value in the month. Exports to the ASEAN region, South Korea and Hong Kong improved by more than 50% while shipments to the US jumped the most in 15 months by 38.2%.”

“Given that Aug’s export reading defied our earlier expectations of a soft patch in the greater part of 2H22 and the 30.3% year-to-date export growth moved further apart from our full-year growth target of 18.0%, we now upgrade our export growth projection to 26.0% for 2022 with statistical base and commodity price effects remaining wildcards for the outlook. We expect the recent retreat in major commodity prices and lingering global uncertainties particularly a global recession risk to weigh on Malaysia’s export outlook going into 2023, leading to a modest export growth of 1.5% next year.”

Iran Foreign Minister: Carefully reviewing EU-drafted text for revival of 2015 nuclear pact

 Iran's Foreign Minister Hossein Amirabdollahian said on Wednesday that Tehran is carefully reviewing the EU-drafted text for the revival of the 2015 nuclear pact, as reported by Reuters. 

"We need stronger guarantees from the other party to have a sustainable deal,"  Amirabdollahian added. "The (U.N.) agency should close its politically-motivated probes."

Market reaction

Crude oil prices showed no immediate reaction to these comments. As of writing, the barrel of West Texas Intermediate was trading at $89.10, where it was down 3.5% on a daily basis. 

US Dollar Index Price Analysis: Immediately to the upside comes 109.77

 

• DXY prints fresh cycle highs near 109.50 on Monday.
• Further upside could revisit the September 2002 high at 109.77.

DXY extends the post-Powell rally to the area of 109.50, recording at the same time new cycle highs.

Further upside remains on the cards for the index in the near term. Against that, the surpass of the 2022 high at 109.47 (August 29) should open the door to the September 2002 top at 109.77 prior to the round level at 110.00.

In the meantime, while above the 6-month support line around 105.40, the index is expected to keep the short-term positive stance.

Looking at the long-term scenario, the bullish view in the dollar remains in place while above the 200-day SMA at 100.74.

When is the Canadian monthly jobs report and how could it affect USD/CAD?

 

Canadian employment details overview

Statistics Canada is scheduled to publish the monthly employment details for July later this Friday at 12:30 GMT. The Canadian economy is anticipated to have added 20K jobs during the reported month, up sharply from the 43.2K decline reported in June. Meanwhile, the unemployment rate is expected to edge higher to 5.0% in July from the 4.9% previous.

Analysts at TD Securities (TDS) are more optimistic about the report and explain: “We look for job growth of 38k in July, driven by a partial rebound for trade services and natural resources after their sharp decline in June. Full-time hiring should lead the increase, while stronger labour force participation should keep unemployment stable at 4.9%. We also expect to see wage growth firm to 6.0% y/y in July, although AHE (Average Hourly Earnings) should slow on a m/m basis.”

Euro edges higher as focus on Ukraine, yen rebounds vs dollar

The euro was edging higher on Friday, but concerns about a potential slowdown of the economy kept it in a tight range, while the dollar weakened as investors priced in the expected monetary tightening from the Federal Reserve.

"The combination of lingering Russia-related risks, high energy prices and Fed-ECB policy divergence still points to a weaker, rather than stronger, EUR/USD,” ING analysts said.

"EUR-USD remains quite stuck at around 1.10, with better-than-expected PMI surveys across the eurozone for March not sufficient to induce buying interest,” Unicredit (MI:CRDI) analysts said in a research note.

German business morale deteriorated in March due to worsening supply chain issues resulting from high petrol prices and driver shortages, a survey showed on Friday.

The single currency rose 0.1% to $1.1016

Derek Halpenny, head of global research markets at MUFG, said in a note to clients that some renewed optimism over the prospect of the end of the conflict in Ukraine “helped improve financial market conditions and weaken the U.S. dollar.”

President Volodymyr Zelensky said that Ukrainians "need to achieve peace" and halt Russian bombardment.

The U.S. dollar index, which measures the greenback against six peers, edged 0.1% lower to 98.631

BofA analysts underlined markets priced in next moves from the Fed even before it started and a lot more rapidly than during the previous tightening cycle between 2015 and 2018.

Money markets are betting on 190 bps of Fed rate hikes by year-end, including an 80% chance of a 50 bps in May. [IRPR]

Japan’s yen staged a rebound versus the greenback, up 0.6%, after hitting a fresh low since December 2015 overnight on the difference in rate hike expectations between the Bank of Japan and other major central banks.

Analysts flagged that the Bank of Japan (BOJ) provided a bullish signal as it refrained from stepping into the market Friday morning, even as the 10-year government bond yield rose above the level at which the central bank had offered to buy an unlimited amount in February.

However, Governor Haruhiko Kuroda clarified that a weak yen benefits the economy.

“We don't expect a significant further depreciation of the yen versus the dollar. We think that at 115, it is fairly valued considering the Japanese central bank's dovish stance,” Roman Ziruk, market analyst at Ebury, said.

The Norwegian crown was down 0.2% lower against the euro after rising the previous day as the central bank raised its benchmark interest rate and said it now plans to hike at a faster pace than previously intended.

Get daily live market updates with us. here we are providing best technical and fundamental analysis with full time support. We also provides learning and recommendation on live trade.

For free trial visit: MONEY LIFE RESEARCH