Spreadex Market Update
USD Pushes Higher Again Following Further Hawkish Fed Comments
Demand for the US Dollar accelerated yesterday due to a combination of weaker risk sentiment, linked to fresh China lockdown fears, and further hawkish Fed commentary. News of 2 new covid deaths in Beijing is raising concerns that the government will apply fresh lockdown measures. Given that markets had previously been rallying on a growing China-reopening story, announcement of any such measures would be a devastating blow for risk markets.
On the back of hawkish commentary at the end of last week, Fed’s Mester added to hawkish sentiment yesterday. Mester noted that Fed policy needed to enter more restrictive territory, warning that rates are barely there yet. On the back of recent Fed comments, market pricing for
Key Factors for Today
- USD moved higher again yesterday fuelled by further hawkish Fed comments
- Equities showing resilience so far – PMI data in focus today
- NZD leading in FX, RBNZ expected to hike again tonight – JPY the laggard on reduced
safe haven demand
- Metals stabilise following sales yesterday
- Oil bounces back from yesterday’s crash lower on OPEC production hike rumours
Coming Up
- GBP - Services, Manufacturing PMIs
- EUR - Services, Manufacturing PMIs
- USD - Services, Manufacturing PMIs
Equities Hold Near Highs Despite USD Push
Equities markets have lost upside momentum for now though, notably, we are yet to see any meaningful moves lower. US stocks are holding near recent highs while in the UK, the FTSE is attempting to break higher. Price action suggests that despite the Dollar push, risk sentiment remains buoyant, reflecting that a larger hike is still the outside scenario for now.
PMI Data Due Today
The latest round of PMI data sets from the UK, US and EZ today will be closely watched by equities traders. While typically, any weakness in these readings would weigh on risk sentiment, today such news might be seen as bolstering the chances of the respective central banks easing back on their tightening regimes ultimately supporting stock prices.
NZD Rallying on Rate Hike Expectations
In FX, a softer start for the Dollar today is allowing risk currencies some room to breathe. NZD is among the best performing currencies today as traders brace for the RBNZ November meeting tonight. The bank is widely expected to hike rates by a further 75bps, marking the largest rate rise in RBNZ history, as the bank continues its battle against inflation. AUDNZD is moving nicely lower today given the divergence such a move will create
between the RBNZ and the RBA which has recently pivoted on rates.
JPY Weaker on Reduced Safe Haven Demand
Given the better tone to risk sentiment we’re seeing today, JPY has been weaker across the European open on reduced safe haven demand. NZDJPY is another pair seeing decent volatility given the risk on vs risk off dynamic as well as the divergence between the RBNZ and the BOJ.
Metals Stabilise & Oil Bounces Back From OPEC Crash
In the metals and commodities space, both gold and silver are trading a little higher today, recouping some of yesterday’s losses seen during the fresh uptick in USD. Both metals remain vulnerable to further downside, however should USD continue higher today. Crude oil prices have had a highly volatile start to the week. Crude futures plunged lower yesterday, hitting their lowest levels since January, in response to a WSJ article citing a leaked OPEC+ report outlining plans for a fresh production hike at the next meeting. However, oil prices have since retraced after Saudi Arabia, the group’s de-facto leader, denied such plans.
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