Tuesday October 12th, 2021

The US$ is flat, oil continues to inch higher, equity markets are weaker while US yields are mixed as surging energy costs stoke up inflation fears and dents global risk appetite. Currency markets remain somewhat sidelined waiting for US inflation and the FOMC minutes on Wednesday. Intraday Fed Bostic & Clarida are speaking, alongside the US JOLTS Job Openings but we expect markets to remain contained within current ranges. In other news, China to liberalize coal-fired power pricing to tackle its energy crisis. UK jobs hit record high as BOE weighs up its first post-pandemic interest rate hike. China’s Evergrande misses 3rd round of bond coupon payments which intensifies contagion fears. The US House is expected to pass the bill to hike the debt ceiling and avert a default. Covid, Texas Governor bars all covid-19 vaccine mandates in the state. Sydney covid cases ease further as focus shifts to reviving its economy. New Zealand seeks to ramp up covid vaccinations amid persistent cases. In currency markets, the US$ index is flat as currencies remain sidelined waiting for Wednesday’s US CPI data. CNY & Asian currencies are flat on average vs US$. Trading currencies are firmer with AUD & NZD up 0.15%, MXN is up 0.2%, ZAR firms 0.5% while NOK strengthens 0.6%, while JPY is flat vs US$. 

Oil prices hold close to multi-year highs as energy crunch fears remain. OPEC+ continue to hold to their supply plan to gradually increase output despite growing demand as economies return to pre-pandemic levels which is adding to the energy shortages. C$ extends its gains vs US$ into a 4th-week on the back of positive domestic economic data and surging energy prices. Expect to see C$ hold within its current range ahead of tomorrow’s US CPI & FOMC minutes. Support holds to 1.2418 (Jul 31st), if breaks look for 1.2298 (Jul 6th) next, while resistance remains at 1.2539.

Euro holds 1.1550 level despite falling German ZEW sentiment. The German ZEW which reflects institutional investor optimism saw both the Current Situation (oct) and the Economic Situation (oct) both fall below expectations. The ECB continues to maintain its transitory stance on inflation with its Chief Economist Lane saying they need to be “less trigger happy” and wait for the data. Euro remains in a tight trading range but is vulnerable to breach 1.1520 as risk-off sentiment keeps pressure on the single currency. Support at 1.1520, while resistance lowers 1.1605.

EURGBP remains under selling pressure with the prospect of a BOE rate hike increase.  Support holds at .8460 (1.1820) while resistance holds .8580 (1.1655).

GBP continues edge higher on rising inflation fears and the prospect that the BOE may raise interest rates. UK employers increased their payrolls to a record high in September, while domestic grocery prices increased 1.7% Y/Y in September and retail sales slipped as UK shoppers turn more cautious. Markets appear to be ignoring Brexit issues with the French threatening to reduce its energy supply to Jersey over fishery issues and the continuing negotiation over the NI protocol. The prospect of a hike in UK interest rates will continue to support the pound for the short term. Support holds at 1.3580 and while resistance remains at 1.3675.