Tuesday September 6th, 2022

The US$ weakens, oil prices ease, while equity markets and US yields firm as optimism improves. A ray of optimism returns as investors assessed responses by EU leaders to the regions growing energy crisis ahead of the ECB’s rate decision this week. In the UK the pound rallies on the incoming UK PM Truss and the announcement she is drafting an energy plan that could cost GBP130bln over the next 18-months to fix annual electricity and gas bills. In China, officials plan to speed up stimulus, stepping up support for its economy as it struggles with increasing covid lockdowns, a property slump and ongoing power shortages. Today focus will be on US ISM Services PMI, while this week focus will be on BOE, BOC & ECB interest rate decisions. In other news. Gazprom says Nord Stream 1 resumption depends on Siemans Energy, while Siemans responded saying ‘we cannot comprehend this new representation based on the information provided to us over the weekend’. In China’s covid lockdown spread across more cities. Russia privately warns of deep and prolonged economic damage (Bloomberg). Brussels pushes for EU-wide cap on gas price in response to Russia ‘using energy as weapon’ (FT). Iran nuclear deal ‘in danger’ say EU chief negotiator after US & Tehran diverge. In currency markets. The US$ is softer while GBP bounce on energy policy hopes. JPY hits fresh 24-year lows vs US$ with Japan’s finance minister warning of extreme volatility. CNY firms off 2-year lows after the C.Bank cuts FX reserve ratio requirements. Economists warn of longer-term weakness in the Pound below 1.1000 and Euro towards 0.9000 vs US$.  

Oil prices weaken despite OPEC+ announcing a 100,000bpd cut in output for October stating concern about weak economic outlook and the prospect of more global interest rate hikes. C$ edges higher in early trading despite weaker oil prices as the loonie finds support from a softer US$ and investors anticipate 75bps hike by the BoC on Wednesday. Intraday US PMI will provide direction to the currency markets. Support lowers to 1.3065 while resistance lowers to 1.3170.

Euro loses early gains as markets shift focus to the US PMI report. Euro remains on the backfoot as investors remain wary amid persisting European energy crisis. Gazprom’s decision to hold gas supplies until Siemans Energy replaces faulty equipment, while Siemans said it’s not been asked to do the job and clarified sanctions do not prohibit maintenance. The ECB rate decision will be the key event for Europe as markets expect a 75bps rate hike, taking EU interest rates positive for the first time in 14-years. In the bigger picture Euro remains vulnerable to ongoing weakness. Support resets to .9900 while resistance lowers to 1.0000.

GBPEUR rallies as investors are buoyed with the new UK PM and her aggressive energy package. Support resets to 1.1500 (.8690) while resistance lowers to 1.1700 (.8547).

GBP tests 1.1600 amid hopes for Truss’s energy relief package. The pound rallies as investor confidence improves as confidence returns with the announcement of the PM Truss. UK’s new PM Truss readies her GBP130 billion energy plan, as well the Bank of England meets this week and is expected to continue to hike interest rates. Today US PMI will provide intraday direction to markets. In the bigger picture economists remain pessimistic with some calling for US parity to the pound. Support resets to 1.1525, while resistance holds at 1.1620.