Market Update – November 4 – Cautious & Jumpy Markets

FOMC announced $15 bln QE tapering to begin in Nov, as expected! Chair Powell ended up taking a very neutral stance with respect to the next step in the FOMC’s policy moves, neither validating nor pushing back against expectations for a June tightening with 2 quarter point tightening on the year.
US Yields were measurably higher on the day but ended cheaper as even a baby step toward normalization via the start of tapering, brings the day of tightening that much closer. (10-year at 1.60% and the 30-year at 2.02%, while the 2-year cheapened 1.6 bps to 0.466%).
Global stocks higher & Bonds firm  as markets seem to have taken the Fed’s tapering schedule quite well and indeed a sign that the recovery remains on trackTopix and JPN225 are up 1.2% and 0.9%.  The USA100 led the way with a 1.0% gain, with the USA500 0.65% firmer, and the USA30 up 0.29%. (record highs again)
Data included better than expected results with a new historic peak on the ISM services index and near record high prices, a solid ADP print, and an uptick in factory orders.
ECB’s Lagarde continued to try to tamp down rate hike speculation as she stressed an undue tightening of financing conditions is not desirable.
USD (USDIndex 94.00) steadied at 93.80-94.10 for a 4th day.
USOil dropped back to $78.50 amid speculation that with Iran nuclear talks resuming the country could start boosting supplies, although that remains a dubious assumption.
FX markets –  USD strengthened across the board, while AUD, NZD, EUR and GBP retreated. EURUSD at 1.1580 and Cable at 1.3650. USDJPY is at 114.24.

BoE Preview: The BoE has flagged that this month’s MPC meeting will be a “live” one, with chief economist Pill suggesting that the decision on rates will be “finely balanced”. Inflation is expected to pick up further in coming months, before dropping back next year, but central bankers seem increasingly convinced that structural labour market shortages will push up wage growth further with the end of the furlough scheme apparently not really denting momentum. Not everyone is convinced though as dovish comments from MPC member Tenreyro highlighted. A tight decision then today, and likely a split one, which is also reflected in expectations, with Bloomberg consensus predicting unchanged rates, while money markets have fully priced in a move and more to come for 2022. However, market pricing also suggests that investors actually see the expected early lift-off as a mistake that the BoE will have to reverse in 2023. For bond markets it may ultimately not matter much if a move comes in November or December, but the updated projections on the growth and inflation outlook will be decisive for the question how fast and how far the BoE expects to take rates over the next year.

Today – The focus is now turning to the BoE announcemen, while data calendar include German manufacturing orders and the final Eurozone services and composite PMIs for October, US claims and profuctivity. The earnings slate is the heaviest of the week and features from Alibaba, Moderna, Illumina, Square, Airbnb, Zoetis, Anheuser-Busch Inbev, Uber, Duke Energy, Cigna, Beckton, Dickenson, Air Products, Regeneron, etc.

Interesting Mover @ (06:30 GMT) EURUSD (-0.50%) dips to 1.1549 with the nearest support at 1.1525 which is key (15-month support), Faster MAs aligned sharply lower, MACD turned negative but not signal line yet, RSI 28 and slopingm, while Stochastic is OS. H1 ATR 0.0010, Daily ATR 0.0062.

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Andria Pichidi

Market Analyst

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