Overview

Risk aversion has flooded back through markets. This is taking hold in gains for the Japanese yen and a drop back in US bond yields (as bonds are bought once more). The interesting feature of this is that it also may induce some near-term profit-taking on the US dollar. Equity markets have fallen back sharply too and are approaching key levels. Manufacturing PMIs and inflation for both the Eurozone and US will be key for reaction as the session develops.

Today’s news

  • Main drivers: Risk aversion taking hold; US Congress passes short term bill to fund US Government; PMIs and inflation data key today
  • Market Sentiment increasingly negative: a whole raft of reasons why markets are risk negative. Concerns over global energy shortages, especially in China and Europe. Concerns over slowing economic growth and rising inflation. Also political wranglings in US Congress over government funding and infrastructure spending. This all adds up to increased investor flows back into safe havens such as US bonds (yields lower) and the Japanese yen.
  • US Congress stop-gap to fund the government: Congress agreed on a short-term funding bill lasting just a couple of months (up to 3rd December) to prevent a US Government shutdown. However, the arguments over longer-term funding continue.
  • PMIs and Inflation watched: With growth and inflation fears front and center, today’s Manufacturing PMIs for major economies will be a trigger for markets. Also, Eurozone and US inflation data will be key.
  • Central bank speakers: None due today
  • Data watch: Eurozone HICP inflation at 0900GMT is expected to increase to +1.9% core and 3.3% headline. US Core PCE inflation at 1230GMT is expected to grow by +0.2% on the month of August, which would continue the plateauing.

Markets Outlook

  • Broad outlook: USD starting to lose upward momentum and could be set for a near-term pullback. Flows into safe havens are preferred for now.
  • Forex: EUR/USD looks long-term bearish towards 1.1300/1.1450. However, an oversold technical rally may be seen near term. A move above 1.1610 opens the 1.1665/1.1700 key resistance area. GBP/USD also looks bearish but is consolidating for now. Resistance at 1.3520. We prefer to sell into strength with the risk of a near-term technical rally. USD/JPY threatens to continue near term unwind into 110.60/110.80.   
  • Commodities: Gold with a sharp oversold technical rally into resistance around $1760. A drift back below $1745/$1750 would suggest renewing downside. Above $1765 opens $1790. We prefer selling into strength but are neutral for now whilst we wait for the next signal. Silver has unwound into the near-term “sell zone” of resistance around $22.00. There is room for the unwind to hit $22.75 but we are now looking for renewing sell signals. Support now at $21.40. Brent Crude oil consolidating in recent sessions. This still has the potential to unwind towards $76.40/$77.10 support. We are neutral for now. 
  • Indices: Selling pressure is still a factor even as European markets look to rebound early today. S&P 500 futures are into a hugely important band of support 4223/4295. A breakdown would imply a new bearish medium-term trend formation. A rally back above 4388 is needed to improve. DAX a series of lower highs threatens, but once more the medium-term support band around 14,800/15,000 is holding. Above resistance at 15,468 to improve. FTSE 100 is still the most stable index for technical outlook. Trading between support around 7000 and resistance at 7150.