The Morning Jumpstart Macro View

OVERNIGHT MARKET SNAPSHOT FOR FRIDAY 9/07/21 (as at 7:30am AEST)

  • SPI200 (Sept) overnight futures down 48 pts to 7207
  • SP500 down 37.31 pts to 4320.82
  • NASDAQ Composite down 105.27 pts to 14559.79
  • Dow Jones down 259.86 pts to 34421.93
  • FTSE100 down 120.36 pts to 7030.66
  • DAX30 down 272.07 pts to 15420.64
  • GOLD futures US session (Aug) up $1.00 to $1803.10 an ounce
  • COPPER futures US session (Comex Sept) down $0.0535 to $4.2690 a pound
  • OIL futures US Session (Nymex Aug) up $0.74 to $72.94 a barrel
  • CRB Index up 0.35 pts to 209.55
  • AUDUSD trading at 0.7428
  • EURUSD trading at 1.1846
  • GBPUSD trading at 1.3784
  • USDJPY trading at 109.7600
  • USD Index US Session (ICE Sep) down 0.277 to 92.368

US indexes saw a big gap down on the open as Asian and European weakness flowed over into the US market open. Major Indexes took a hit early but managed to recover some of the losses as ‘weak hands’ were squeezed out of the action on the open. The selloff was put down to fear of a slowing economic recovery which is a change from the recent concern over higher inflation triggering a selloff. Bonds have been rallying which is said to be due to a safe haven bid but we do not see that the USD is reflecting that same fear as price moved lower. We expect that the rally into bonds is more due to shorts being squeezed as it becomes clearer that the spike in inflation is transitory and sellers reposition themselves for a more controlled inflation scenario and continued Fed support in the near term. So we expect that the selloff was generally triggered buy a weak Asian session, particularly into the Nikkei and Hang Seng which have been under pressure for some time due to rising covid concerns. The way the US reacted from the open, suggests that there is still some buyers around to go bargain hunting as the macro backdrop remains the same and trends up are well and truly intact. The DOW closed down 0.75% while the broader SP500 ended down 0.86% and the Nasdaq closed down 0.72% for the session. In Europe, major Indexes saw some flow over fear based selling from the Asian markets as European bonds rallied and triggered a squeeze on major indexes. All sectors took a hit with traders locking in some hard earned gains although, with the ECB shifting its inflation target to 2%, expect to see policy remain loose and supportive for even longer. A broad rethink of the reflation narrative and a sense that economic growth may have peaked are common explanations for the selloff overnight, together with hedge funds unwinding bets gone wrong.

The USD Index moved lower off the 92.700 level as expected to squeeze out some recent buyers. The dollar failed to find support from the rally into Bonds as we expect that the traders are simply unwinding wrong bets on the back of the inflation narrative shifting. Watching to see if the Dollar continues to push into 92.240 and lower today, as long as the 92.460 zone holds. The EURUSD did try to extend into support around 1.1750 before the dollar weakness pushed the Euro higher. The currency pair also found some support from the rally into European bonds and a flight from risk assets as shares moved lower. If the USD continues the push lower today, expect to see the Euro move up through 1.1870 highs and potentially test into the 1.1900 zone. The GBPUSD took a hit as the broad share market selloff took its toll on the Pound although the selling was well contained as resilient bulls defended spikes into 1.3750. We see this as a good sign of the share market selloff being a little over cooked so will be watching for a recovery into the pound if the 1.3750 level can continue to hold. The AUDUSD saw the risk off move into the share market pressure the Aussie much lower right from the opening bell of the Asian session. Price managed to find some support late into the European session around 0.7420 so we will be watching to see if this level can hold today. The USDJPY could not squeeze higher and broke down through recent higher lows to push straight through support. Price took a bit of a beating as traders factored in USD weakness and some safe haven YEN buying. As price is extended, we may see some corrective action higher as sellers lock in some gains if the 109.690 level holds. If not, then there is a lot of fuel from the rally that will be looking for the exit to push price even lower.

SPOT GOLD pushed up and through the 1810 level before failing back down once the USD started to find a bid. Price action found some support around the 1796 zone which was previous resistance which we will be watching to hold again today. If price can start to build a higher low, expect to see a run up through 1820 soon especially if the USD starts the push lower. Crude Oil initially flushed lower before rallying hard into the USD close being supported by the weaker USD and also weaker than expected inventory data. Price is now trading at a zone where we may see some profit taking from short term buyers off 73.20 although we are looking for any selling pressure to be soaked up and a higher low to build for support above 71.00. Copper moved lower under the weight of the USD share market selling although the weakness in the USD did see buyers step into the action to confirm support at 4.2325. We will be watching to see if Copper can hold the level today and build a higher low to drag in further buyers for a run up.

Cryptocurrencies were not immune to the broad market selloff as majors moved lower in Asian and European trade before finding a bid into the US open to generally hold up off the lows. Bitcoin is currently hanging by a thread along with Ethereum which we expect to see test into major lows soon. Bitcoin is trading at $32851.3 down 4.88% while Ethereum is at $2130.96 down 9.15% and Ripple is at $0.62155 down 6.63%.

The ASX200 started the session well yesterday but then drifted lower as traders were spooked by Asian market weakness. The index ended the session up 14.5 points to 7341.4 with IT, Consumer Staples and Metals and Mining providing some support while Gold stocks were the biggest drag on the day. Falling stocks outnumbered advancing ones by 674 to 650 and 398 ended unchanged. The Nikkei was dragged lower as a state of emergency was declared for a period that would cover the Tokyo Olympics.

The ASX200 is expected to open down 45/50 points after markets took a fear based hit overnight and the SPI200 spiked lower.

ECONOMIC DATA OUT TODAY (AEDT)

CNY CPI and PPI 11:30am

GBP Manufacturing Production, Industrial Production and Goods Trade Balance 4pm

EUR ECB President Lagarde Speaks 8pm

GBP BOE Gov Bailey Speaks 8pm

ALL OPEC Meetings All Day

CAD Employment Change and Unemployment Rate 10:30pm

USD Final Wholesale Inventories 12am

USD Fed Monetary Report Tentative

SPI200 INTRADAY LEVELS TO WATCH