JASPER’S MARKET SQUAWK 22-09-2023
Markets Take Beating from Rising Yields
Rising yields weighed on risk appetite on Thursday, sending equities plunging, as data pointed to a continued Fed hiking mode and investors got more comfortable with the higher-for-longer narrative. Gold also took a dive despite House Republicans sending the chamber into recess and a broadly unchanged dollar.
Chart: XAUUSD
Key Factors for Today
- Higher-For-Longer Narrative Rattle Markets, Equities Plunge
- Gold Slumps as Treasury Yields Reach Multiyear Highs
- BOE Hits Pause on Rate Hikes for Now, Pound Hits March Low
- BOJ Holds, Unlikely to Exit Negative Rates Before 2024
- WTI Crude Loses $90 Handle Despite Russian Ban, LNG Resolution in Sight
Gold Craters in Risk-Off Post-Fed Environment
Risk-on assets experienced significant losses, fuelled by continued negative implications from rising yields in the aftermath of the Fed’s hawkish pause. The 10-year Treasury yield rose to 4.479% on Thursday, reaching its highest yield since October 2007, while the 30-year spiked to 4.55%, a 13-year high. Rising yields affect gold negatively. The slump was also influenced by an unexpected decline in jobless claims to 201K, contradicting economists’ expectations of 225K. Gold was down to $1915 an ounce on Thursday before it recoiled for a 0.55% close in the red at $1920 but remains far from Wednesday’s high of $1947.
BOE Kills Rate Hike Record, Pound to March Low
The Bank of England finally decided to pause interest rates for the first time since December 2021, following Wednesday’s inflation drop. The bank decreased its forecast for economic growth but expressed the possibility of further rate increases despite expecting wage growth to slow. Despite the narrow MPC vote, the pound took a beating to 1.2230 following the announcement, hitting a fresh March low. Above 1.23, GBP/USD bulls could attempt 1.2340, but if the handle provides a rejection instead, we could see the lows taken out.
BOJ Unlikely to Exit Negative Rates Before 2024
The Bank of Japan kept interest rates unchanged despite increasing inflationary pressure. Governor Kazuo Ueda has been preparing for a stimulus exit, but forward guidance did not change, suggesting the bank is ready to do more to support the economy. Economists now believe the BOJ will end negative rates in 2024. USD/JPY lost 0.54% on Thursday as inflation figures showed stickiness but is seen returning to the session peak of 148.35 early Friday and following the policy decision. Expected support can be spotted by 147.
WTI Loses $90 Handle Despite Russian Export Ban
Russia temporarily banned gasoline and diesel exports to countries outside a group of four ex-Soviet states to stabilise its domestic fuel market. Oil prices experienced volatile trading on Thursday, with an initial drop due to economic concerns being overshadowed by the ban, as it exerted upward pressure on crude markets. Meanwhile, strikes at Chevron’s LNG facilities may come to an end soon after the oil major agreed to recommended terms by Australia’s Fair Work Commission. Crude closed higher but was relatively unchanged and below the $90 a barrel barrier. Bulls are seen making a comeback early Friday, with the recapture of the round level bringing $91.20 into the spotlight.
On The Docket
- GB Retail Sales
- ES GDP Growth
- EA Manufacturing, Services PMI
- S&P Global/CIPS Manufacturing, Services PMI
- CBI Industrial Trends
- CA Retail Sales
- Fed Cook Speech
- S&P Global Manufacturing, Services PMI
FX 1-Day Relative Performance (USD)
- Aussie and Kiwi 0.16% and 0.12% higher
- Euro 0.04% down, Pound 0.08% in red
- Yen 0.31% down, Swissy unchanged
- Canadian dollar 0.11% higher up
- Gold by 0.23% up, Silver up by 0.67%
- Crude up by 0.71%, Brent 0.58% higher
- Natural gas 0.77% in the green
