Malaysia: BNM could pause its hiking cycle in November – UOB

 Bank Negara Malaysia (BNM) could make an impasse in its tightening cycle at the November 3 event, suggests Lee Sue Ann, an Economist at UOB Group.

Key Quotes

“Given that inflation expectations are anchored to official targets and risks to the domestic growth outlook are tilting to the downside, we believe BNM will tread more cautiously”.

“We expect BNM to take an intermittent pause to assess the effect of its cumulative 75bps rate hikes to date, domestic policy outcomes, as well as higher external risks and weaker global outlook. As such, we expect the OPR to be left unchanged at 2.50% at the coming Nov meeting”.

EUR/USD Price Analysis: Key resistance lies at the parity zone

 

• EUR/USD wobbles around the 0.9800 zone ahead of NFP.
• Bullish attempts face a tough barrier at the parity level.

EUR/USD gyrates around the 0.9800 region ahead of the release of US Nonfarm Payrolls on Friday.

The resumption of the buying interest is expected to meet a solid hurdle at recent peaks around the parity zone. Ideally, EUR/USD should leave behind this key resistance zone in the near term to allow for the continuation of the rebound.

In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0616.

S&P 500 Index: Next potential supports at 3500/3460 – SocGen

 S&P 500 has resumed its downtrend. Analysts at Société Générale note that the technical outlook denotes prevalence in downward momentum.

Failure to reclaim 3900 can lead to continuation in decline

“Monthly RSI is now close to the lower limit of its bullish territory (near 40 levels); this band has cushioned the declines since 2010. However, signals of a trend reversal are still not visible in price action.”

“Short-term resistance is located at 3860/3900, the 38.2% retracement from August. Failure to reclaim 3900 can lead to continuation in decline.” 

“Next potential supports are at projections of 3500/3460 and February 2020 levels of 3393.”

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.”

AUD/USD descends to its lowest level since May 2020 amid blowout USD rally to 20-year top

 

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• AUD/USD drops to its lowest level since May 2020 amid broad-based USD strength.
• Bets for more aggressive Fed rate hikes, elevated US bond yields underpin the buck.
• The risk-off mood further benefits the USD and weighs on the risk-sensitive aussie.
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The AUD/USD pair continues losing ground through the first half of the European session on Friday and drops to the 0.6565 area or its lowest level since May 2020.

The US dollar catches fresh bids on the last day of the week and hits a new 20-year peak, which turns out to be a key factor exerting downward pressure on the AUD/USD pair. The Federal Reserve struck a more hawkish tone on Wednesday and signalled that it will undertake more aggressive rate increases to cap inflation. This, in turn, remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the greenback.

In fact, the yield on the rate-sensitive two-year US government bond touched a fresh 15-year high and the benchmark 10-year Treasury note jumped to its highest level since 2011 on Thursday. Meanwhile, investors remain concerned that rapidly rising borrowing costs will lead to a deeper global economic downturn. This, in turn, tempers investors' appetite for riskier assets and is further underpinning demand for the traditional safe-haven buck.

Apart from this, economic headwinds stemming from China's zero-covid policy and the risk of a further escalation in the Russia-Ukraine conflict, have been fueling recession fears. This is seen as another factor contributing to driving flows away from the risk-sensitive aussie. With oscillators still far from being in the oversold territory, the fundamental backdrop supports prospects for an extension of the depreciating move for the AUD/USD pair.

Market participants now look forward to the release of the flash US PMI prints, due later during the early North American session. This, along with the US bond yields and Fed Chair Jerome Powell's speech at an event in Washington, will influence the USD price dynamics and provide some impetus to the AUD/USD pair. Traders will further take cues from the broader market risk sentiment to grab short-term opportunities heading into the weekend.

Euro holds above 2-decade low before ECB decision

 LONDON (Reuters) - The euro was hovering above Tuesday's two-decade low on Thursday as investors awaited a policy decision from the European Central Bank (ECB) and comments from the head of the Federal Reserve for insight on the path for global monetary tightening.

The ECB is expected to raise rates by 75 basis points (bps), taking its deposit rate above zero for the first time since 2012, but the option of a smaller 50 basis point hike hasn't been ruled out.

"We expect the ECB to only do 50 basis points today, instead of the consensus view of 75," said Chris Turner, head of markets at ING. "If that's the case, we think euro-dollar probably corrects back down to about $0.99."

By 0747 GMT, the euro was trading down 0.3% at $0.99795, holding above its lowest level since late 2002 of $0.9864 as Europe's energy crisis keeps the single currency under pressure and the dollar reigns as the Fed reiterates its commitment to bring inflation down to target.

Fed Chair Jerome Powell is scheduled to participate in a discussion at 1310 GMT -- overlapping with ECB chief Lagarde's post-decision press conference -- with Fed officials soon due to enter into a blackout period prior to the central bank's Sept. 20-21 meeting.

Recent Fed rhetoric has continued to be hawkish overall.

Boston Fed President Susan Collins said on Wednesday that bringing inflation back down to 2% is the Fed's "Job One," while Vice Chair Lael Brainard said tight monetary policy will continue "for as long as it takes to get inflation down."

Money markets lay 79% odds that the Fed will hike by another 75 basis points at this month's meeting, which would increase the fed funds rate to 3.0% to 3.25%.

The U.S. dollar index, which measures the currency against six major counterparts, edged up 0.1% lower to 109.82, after hitting a peak at 110.79 on Wednesday, a level not seen since June 2002.

Sterling weakened 0.4% to $1.1486, heading back toward the previous day's 37-year low of $1.1407, ahead of new British Prime Minister Liz Truss's announcement on her plans to tackle soaring energy bills.

Japan's yen showed some resilience on Thursday, trading little changed at 143.77 per dollar, after reaching a 24-year low of 144.99 in the previous session.

The yen has been a particular victim of recent dollar strength, partly due to its sensitivity to rising long-term U.S. yields as hawkish Fed bets ramped up and the Bank of Japan remains the holdout dovish central bank.

"Ongoing depreciation pressure on the yen has raised the probability of a change in policy (from the Bank of Japan) later this year," Goldman Sachs (NYSE:GS) analysts said in a research note.

"If the BoJ drops YCC (yield curve control), rate differentials vs the U.S. should stop widening, and the rise in USD/JPY should pause or reverse."

Officials from Japan's Finance Ministry, Bank of Japan and Financial Services Agency are meeting today to discuss global financial markets, the Ministry of Finance (MOF) said.

Meanwhile, the Aussie fell 0.5% to $0.67345, earlier tumbling as low as $0.6713, after RBA Governor Lowe said in a speech "the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises."

BOE’s Pill: All inflation forecasts are dependent on very volatile gas prices

 

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Bank of England (BOE) Chief Economist Huw Pill is testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Committee on Wednesday.

Also read: Bailey speech: Confident BOE will respond to price shock

Key comments

Goldman Sachs UK inflation forecasts are mechanical implication of wholesale gas markets.

Goldman Sachs forecasts illustrate how much market prices have changed since BOE prepared Aug inflation forecast.

Some of rise in gas prices has reversed since Goldman inflation forecast.

All inflation forecasts are dependent on very volatile gas prices.

Inflation forecast also depends on machinery by which wholesale gas prices translate into retail prices.

Politicians are considering transmission of wholesale gas prices to consumer.

Seems clear to me we will see changes in this area.

Inflation impact of future fiscal stimulus depends on details.

Supporting household incomes will boost demand, leading to slightly stronger inflation.

I would expect headline inflation to decline in short term.

Implication for inflation at monetary policy relevant horizon is unclear, given lack of detail.

Very short-term impact on government measures on inflation may not be most important thing for BOE.

Must emphasise importance of BOE inflation target as anchor, not consider new regime.

We are here to ensure fiscal policy does not generate inflation.

We think output measures of GDP are better measures of activity, as less distorted by problems with trade figures.

Hopefully quality of trade data will improve over time.

UK: Liz Truss wins contest to become the next UK Prime Minister

 Liz Truss won the Conservative Party leadership race to become the next British Prime Minister.

"I will deal with long-term issues on energy supply," Liz Truss said in her acceptance speech and noted that she will deal with the crisis in households' energy bills.

Additional takeaways

"I will govern as a conservative."

"I intend to deliver what we promised voters in 2019."

"I will deliver a bold plan to cut taxes and grow our economy."

"We will deliver a great victory for the conservative party in 2024."

Market reaction

The UK's FTSE 100 Index showed no immediate reaction to these comments and was last seen losing 0.6% on a daily basis. Meanwhile, the GBP/USD pair continues to fluctuate at around 1.1500 during the European trading hours.

US Dollar Index Price Analysis: The surpass of the YTD high exposes 109.77

 

• DXY remains bid and flirts with the 2022 top near 109.30.
• Further north of comes the September 2002 high around 109.80.

DXY keeps the rally well and sound and trades at shouting distance from the YTD highs near 109.30 on Tuesday.

The continuation of the upside momentum looks increasingly likely in the very near term. That said, beyond the 2022 high at 109.29 (July 14) the index could challenge the September 2002 peak at 109.77 prior to the round level at 110.00.

In the meantime, while above the 6-month support line near 105.10, 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 100.49.

USD/TRY leaps to fresh 2022 peaks past 18.00 after CBRT cut rates

 

• USD/TRY clinches new YTD tops beyond the 18.00 mark.
• The pair now targets the all-time top at 18.25 (December 20 2021).
• The Turkish central bank reduced the policy rate by 100 bps.
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The Turkish lira debilitates to fresh lows vs. the greenback and pushes USD/TRY past the 18.00 yardstick for the first time since December 2021.

USD/TRY now targets the all-time high at 18.25

USD/TRY leaves behind the key barrier at 18.00 after the Turkish central bank (CBRT) caught the markets off guard and reduced the One-Week Repo Rate by a full point to 13.00% at its meeting earlier on Thursday. the central bank also cut the Overnight Borrowing Rate and the Overnight Lending Rate by 100 bps to 11.50% and 14.50%, respectively.

In its statement, the CBRT continues to see domestic inflation largely driven by higher energy costs exclusively on the back of geopolitical events and “effects of pricing formations that are not supported by economic fundamentals”.

EUR/USD Price Analysis: Range bound within 1.0100-1.0260 since July 22

 

• The EUR/USD is set to finish the week almost flat, gaining 0.05%.
• The shared currency daily chart is neutral-to-downwards, but the hourly is neutral-to-upwards.
• EUR/USD Price Analysis: A daily close above 1.0200 could pave the way towards 1.0300; otherwise, it might drop towards 1.0096.

The EUR/USD is trading at 1.0220, after hitting a daily high at 1.0254, but later tumbled towards the daily low at 1.0145 on elevated US inflation data. In June, the Personal Consumption Expenditures (PCE) rose by 6.8% YoY, fueling expectations of additional Federal Reserve rate hikes, despite the market's pricing in only 80 bps of tightening.

EUR/USD Price Analysis: Technical outlook

From a daily chart perspective, the EUR/USD remains neutral-to-downward biased, helped by the 20-day EMA lying below the exchange rate at 1.0167. Nevertheless, the EUR/USD, unable to capitalize on an upbeat market mood, and broad US dollar weakness, keeps the shared currency exposed to further selling pressure. If EUR/USD buyers want to shift the bias to neutral, they must reclaim the May 13 low-turned-resistance at 1.0348. Once cleared, a challenge of the 50-day EMA at 1.0423 is on the cards. On the other hand, if EUR/USD sellers achieve a daily close below 1.0200, that would pave the road towards 1.0096.

Fed's Bostic: Fed is going to have to do more with interest rates

  "The Federal Reserve is going to have to do more with interest rates but details depend on the flow of data in coming months," Atlanta Fed President Raphael Bostic said on Friday, as reported by Reuters.

Additional takeaways

"The country is not in recession, but the real question is whether current conditions are creating hardship, inflation needs to be addressed."

There is still more work to be done on bringing demand and supply into balance."

"Rate hikes could hurt job growth, but so far seems there is momentum for continued hiring."

"Possible to control inflation while limiting the number of families who have really bad outcomes."

"The US is a ways from a recession, though concerned that recession fears could become self-fulfilling."

Market reaction

These comments don't seem to be having a significant impact on the greenback's performance against its rivals. As of writing, the US Dollar Index was down 0.25% on the day at 105.92.

Malaysia: Inflation surprised to the upside in June – UOB

 UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest inflation figures in the Malaysian economy.

Key Takeaways

“Headline inflation breached the 3% level for the first time this year at 3.4% y/y in Jun (from 2.8% in May). It came in higher than ours and Bloomberg consensus of 3.2%. Price pressures broadened with more consumer price index (CPI) components recording larger price increases last month compared to the preceding month, led by food and transport components.”

“We expect CPI growth to jump above 4.0% in 2H22 after averaging 2.5% in 1H22. Our 2H22 inflation outlook largely rests on high commodity prices, year-ago low base effects, persistent currency weakness, changes in some staple food prices (i.e. chicken, eggs and cooking oil), and recovering domestic demand. The new targeted fuel subsidy mechanism, which is currently under pilot testing, will pose upside risks to our inflation outlook should it be implemented over the next few months.   As such, our current full-year inflation forecast of 3.0% is subject to upward revision next month when the Jul CPI reading is released (vs. 2.5% in 2021, BNM est: 2.2%-3.2%).”

“The combination of factors including broadening second-round effects on inflation, firmer domestic economic recovery, and diminishing real interest rate gap with US continue to suggest a need for further policy normalisation. We expect Bank Negara Malaysia to deliver another 25bps rate hike at the next MPC meeting on 7-8 Sep, taking the Overnight Policy Rate (OPR) to 2.50%.

Downing Street Resignations: Housing Minister Stuart Andrew quits NEWS | 7/6/2022 12:16:19 PM GMT | By Eren Sengezer

 

"It is with sadness that I am resigning as Housing Minister," Conservative MP for Pudsey Stuart Andrew announced via Twitter on Wednesday.

Meanwhile, Sajid Javid, former British Health Minister who quit in protest at Prime Minister Boris Johnson on Tuesday, told Parliament that it had become increasingly difficult to be in PM's team.

 "It's not fair on conservative voters who expect better standards," Javid added. "At some point, we have to conclude that enough is enough. That point is now."

Market reaction

GBP/USD stays under heavy bearish pressure on Wednesday and was last seen trading at its weakest level since March 2020 at 1.1877, losing 0.67% on a daily basis.

Germany's Habeck: We want to prevent a domino effect in gas market

  

German Economy Minister Robert Habeck said on Tuesday that they will stick to their plan of prioritizing private households in case of a gas emergency, as reported by Reuters.

"The gas market situation is tense, cannot say whether more protection measures will be needed," Habeck added. "We want to prevent a domino effect in the gas market."

Market reaction

Safe-haven flows continue to dominate the financial markets following these remarks. As of writing, Germany's DAX 30 Index was down 1.5% on the day at 12,580.50 points.

EUR/USD Price Analysis: Sustained gains seen above 1.0670/80

 

• EUR/USD keeps the erratic activity well in place this week.
• The 1.0670/80 band continues to cap the upside so far.

EUR/USD resumes the upside bias past the 1.0500 mark following Thursday’s decent pullback.

So far, and as long as the 4-month line in the 1.0670/80 band limits the upside, extra pullbacks in the pair should remain on the cards in the near term. The surpass of this area, however, could spark a bull run to the June top at 1.0773 and the May peak at 1.0786.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.1136.

📕 Comment on Gold on May 9, 2022:

 

📕 Comment on Gold on May 9, 2022:

 - On Friday, the US released Nonfarm payrolls data, this data was better than market expectations but only caused Gold to decline slightly to 1875. Gold then bounced up to close the daily candle equal to 1875.  The bullish candle is around 1882. This also makes the last candle close with a bearish candle, but retreated quite long.

 - My personal view at the beginning of this week's trading session is that Gold will continue to gain momentum.  The closest support area for this precious metal is around 1873-1877.  Here we can establish a long position with a safe target around 1883 -1888.

US Dollar Index Price Analysis: Room for a test of YTD highs

 

• DXY resumes the upside beyond the 103.00 yardstick.
• Next on the upside comes the cycle tops near 104.00.

The index leaves behind the pullback seen at the end of last week and advances above the 103.00 area on Monday.

Price action in DXY remains supportive of the resumption of the uptrend with the initial target at the 2022 highs just below the 104.00 yardstick (April 28). Above this level comes 105.63 (December 11 2002 high).

The current bullish stance in the index remains supported by the 8-month line near 96.80, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.56

📕 Comment on Gold on April 29, 2022:

 📕 Comment on Gold on April 29, 2022:

 - In yesterday's trading session, after precious metal fell to 1871, Gold rallied strongly to 1896 ($25), closed the day session with a bull pusher and in the early morning of this day Gold continued to rise.  up to around 1905. With the current showing of good upward momentum, my view will be to prioritize the bullish option for this precious metal.

 - On the H4 time frame, bullish force also prevails and the nearest support area for this precious metal is around 1895-1898, Here we can establish a buy position with a safe target around the threshold.  1910-1915.

USD/CHF pares intraday gains to fresh YTD peak, downside seems limited amid stronger USD

 

• USD/CHF jumped to a fresh YTD peak on Wednesday amid the prevalent USD buying interest.
• Bets for aggressive Fed rate hikes, a bleak global economic outlook continued boosting the USD.
• The risk-on impulse could undermine the safe-haven CHF and supports prospects for further gains.

The USD/CHF pair retreated a few pips from its highest level since May 2020 touched during the first half of the European session and was last seen trading just below the mid-0.9600s.

The pair prolonged its recent strong bullish run witnessed since the beginning of this month and gained follow-through traction for the fifth successive day on Wednesday. The momentum was sponsored by sustained buying around the US dollar, which climbed to a more than two-year peak amid the prospects for a more aggressive policy tightening by the Fed.

Investors now expect the Fed to raise interest rates by 50 bps at each of its next four meetings in May, June, July and September. The bets were reaffirmed by the recent hawkish comments by influential FOMC members, including Fed Chair Jerome Powell. This, along with the deteriorating global economic outlook, boosted the greenback's reserve currency status.

Expectations for rapid interest rate hikes in the US, prolonged Russia-Ukraine conflict and the latest COVID-19 outbreak in China have raised fears of stalling global growth. Investors now seem worried that Russia could follow through on its threat to halt gas flows to countries that refuse to pay for fuel in roubles and cut off supplies to Europe.

That said, extremely overbought conditions held back traders from placing fresh bullish bets and kept a lid on any further gains for the USD/CHF pair, at least for now. The intraday bias, however, remains tilted in favour of bulls amid the prevalent strong bullish sentiment surrounding the USD and the risk-on impulse, which tends to undermine the safe-haven Swiss franc.

Market participants now look forward to second-tier US economic releases for some impetus later during the early North American session. The data, along with Fed rate hike expectations, would influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/CHF pair.