Asian Open: Volatility Erupts as US Inflation Hits a Multi-Decade High

There were some big moves across all major asset classes overnight as US inflation rose to its highest level in 30-years.

Charts (5)

US indices and the US dollar converged after the strong inflation report from the US

Asian Futures:

  • Australia's ASX 200 futures are down -9 points (-0.12%), the cash market is currently estimated to open at 7,414.90
  • Japan's Nikkei 225 futures are down -30 points (-0.1%), the cash market is currently estimated to open at 29,076.78
  • Hong Kong's Hang Seng futures are down -191 points (-0.76%), the cash market is currently estimated to open at 24,805.14
  • China's A50 Index futures are down -48 points (-0.31%), the cash market is currently estimated to open at 15,311.10

 

UK and Europe:

  • UK's FTSE 100 index rose 66.11 points (0.91%) to close at 7,340.15
  • Europe'sEuro STOXX 50 index rose 4.19 points (0.1%) to close at 4,348.82
  • Germany's DAX index rose 27.36 points (0.17%) to close at 16,067.83
  • France's CAC 40 index rose 1.89 points (0.03%) to close at 7,045.16

 

Wednesday US Close:

  • The Dow Jones Industrial fell -240.04 points (-0.66%) to close at 36,079.94
  • The S&P 500 index fell -38.54 points (-0.83%) to close at 4,646.71
  • The Nasdaq 100 index fell -234.363 points (-1.44%) to close at 15,985.57

 

 

Indices: Sea of red for equities in the face of rising inflation

It was a volatile session overnight as US inflation raged as many feared it would. US CPI rose to its highest level since 1990 at a rate of 6.2%. Core CPI (less food and energy) rose by 4.6% and it’s worth noting the monthly change of the annual rate has increased by +2 standard deviations 4 of its past 6 months. You don’t see that very often. In fact, the past time the ‘les volatile’ core CPI monthly change was this volatile was in the early 80’s.

The Fed subtly changed their take on inflation to be “expected” to be transitory (as opposed to just “transitory”) which give them some wriggle room until next year with overshooting prices. And on Monday’s, the Fed’s Evans also said they’d have a clearer idea on inflation by spring although raised the prospects of a hike in 2022. Yet with prints like this, markets are leaning towards a sooner hike than Fed speak currently allows, with Fed futures pricing in around a 49% chance of a hike in June, up from 42% the day prior.

Wall Street took notice. The VIX (volatility index) rose to a 1-month high of 19.9, the S&P 500 fell -0.8% although tech stock bore the brunt with the Nasdaq 100 falling -1.4%. In fact, all major indices and sectors were in the red, along with futures markets, which suggests a weak open in Asia today.

As for the ASX 200, futures dipped below 7400 overnight and the index almost perfectly respected the upper bound of the support zone tweeted yesterday. That zone remains a key area today, although it could get particularly interesting below 7382 given the lack of trading activity beneath that level.  

 

 

ASX 200 Market Internals:

Bluescope steel has underperformed the ASX 200 this past 3-months

ASX 200: 7423.9 (-0.14%), 10 November 2021

  • Utilities (0.74%) was the strongest sector and Materials (-1.47%) was the weakest
  • 3 out of the 11 sectors closed higher
  • 8 out of the 11 sectors closed lower
  • 5 out of the 11 sectors outperformed the index
  • 79 (39.50%) stocks advanced, 114 (57.00%) stocks declined
  • 65% of stocks closed above their 200-day average
  • 65% of stocks closed above their 50-day average
  • 51.5% of stocks closed above their 20-day average

 

Outperformers:

  • + 4.94%-Chalice Mining Ltd(CHN.AX)
  • + 4.62%-United Malt Group Ltd(UMG.AX)
  • + 4.36%-National Australia Bank Ltd(NAB.AX)

 

Underperformers:

  • -5.84%-BlueScope Steel Ltd(BSL.AX)
  • -4.87%-Nearmap Ltd(NEA.AX)
  • -4.67%-Orocobre Ltd(ORE.AX)

 

 

Forex: The mighty dollar roars

USD/JPY was the strongest pair overnight following US inflation data

The US dollar was up across the board, against developed and emerging currencies. USD/ZAR rose 2.7%, USD/NOK is up 1.7% and USD/MXN up 1.5%. Oh, and USD/TRY hit a new record high.

AUD/USD has fallen to the 0.7316 / 23 support zone ahead of Australian employment at 11:30 AEDT. It’s hard to image employment will be a huge driver for the Aussie today given the narrative is all about the US dollar and inflation. NZD/USD is firmly below 0.7100 at an 18-month low. But given its 50 bps base rate ad hawkish RBNZ, we do not want this in our bearish watchlist.

USD/JPY was the biggest gainer of the day, breaking firmly back above the 113.00 - 133.17 resistance zone and close to testing 114.0. With yields likely to move higher then USD/JPY could find itself back at the October 2018 high sooner than later.

USD/CAD appears set to break above 1.25

A chart that has caught our eye for a potential bullish setup is USD/CAD. On 5th November we outlined a potential basing pattern on the pairs ahead of NFP and it looks like it may now be ready to break higher. A bullish engulfing candle formed on the daily chart and closed at the upper bound of a small bullish channel and key resistance at the 1.2500 handle. If we see a clean break higher our bias remains bullish above the monthly pivot point.

 

Commodities: Gold makes light work of its breakout

Gold’s breakout did not disappoint. It made light work of breaking above the 1834.14 resistance level and its rally promptly stopped just shy of our 1870 target. Profit-taking likely sent it back to 1840 but prices are now stabilising around 1850 ahead of the open. A key level for bulls to defend is 1834, although traders with a longer time-horizon.

Copper, however, is not happy with recent developments and is close to testing the 4.27 swing low. A clear break beneath here invalidates the bullish bias but we’re happy to step aside given the unfavourable direction and volatility.

 

Up Next (Times in AEDT)

Australian employment is scheduled for 11:30 AEDT

 

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