US100 - Morning Wrap

US indices ended yesterday's session with solid gains. The Nasdaq 100 Index gained 1.60%, while the S&P 500 was up 1.10%. The Dow Jones was the day's worst performer, rising only 0.54%.

Asian equities and US futures rallied, driven by rising US tech shares and signs that the Federal Reserve's rate-hiking campaign is coming to an end. Stocks in Japan, Australia, and South Korea climbed, with Hong Kong's tech-led surge marking its best performance in a month.

The upbeat mood in the Asia-Pacific markets followed the Wall Street session, with the Nikkei rising by 0.92%, the Kospi by 1.12%, the Nifty 50 by 0.39%, and the S&P/ASX 200 by 0.21%.

Chinese indices performed exceptionally well after a prolonged period of being strongly oversold. The Hang Seng gained 2.30%.

Regarding a potential Australia-EU trade deal, Trade Minister Dan Tehan shared optimism about forthcoming discussions with the EU trade commissioner, emphasizing enhanced access to essential minerals for Europe as one of the strongest positives.

The CEO of National Australia Bank, one of Australia's 'big four', believes the country won't face a recession, highlighting the resilience of the housing market despite interest rate hikes by the Reserve Bank of Australia.

Nvidia (NVDA.US) shares rose over 6.50% in pre-market trading after surpassing analyst earnings estimates and offering a positive future outlook.

Nvidia reported revenues of $13.51 billion versus a $11.04 billion forecast, a 101% year-on-year growth. Earnings per share (EPS) stood at $2.7, compared to a forecast of $2.07 and $0.51 in Q2 2022. Data center revenues reached $10.32 billion against a $7.99 billion forecast, marking a 171% year-on-year surge.

The Japanese Yen underperformed today, with USDJPY rising to 145.1. Conversely, after a period of lagging, the EUR emerged as the top performer, with EURUSD advancing 0.12% to 1.0815.

After strong increases yesterday, the US100 has once again broken above the support line of the upward trend that was recently breached. Good results from Nvidia will likely support the index today, and further increases may continue.

USDTRY Surges After Massive Interest Hike

Central Bank of Republic of Turkey (CBRT) announced its latest monetary policy decision today at 12:00 pm BST. CBRT was expected to deliver a 250 basis points rate hike, bring the 1-week repo rate to 20.00%. However, the actual hike turned out to be much bigger than expected with 1-week repo rate being hiked to 25%!

Turkish lira surged following the decision as it looks like new Turkish monetary authorities are indeed taking inflation fight seriously. Increase in underlying inflation trend was given as a reason behind such a massive hike. USDTRY and EURTRY plunged more than 2% following the decision.

USDTRY plunged after a bigger-than-expected CBRT rate hike and is attempting to break below the 50-session moving average (green line).

Chart of the Day - CNH Cash

Chinese equities were outperformers during today's Asia-Pacific session and there was a good reason behind this outperformance. A number of measures was announced over the weekend by Chinese authorities with an aim of supporting domestic equity markets. Those measures include:

Halving stamp tax on securities trading (from 0.10% to 0.05%)
Relaxing deposit requirements while trading at margin (from 100 to 80%)
Imposing limits on stock selling by some institutions

While the first two measures listed are clearly positive for stock markets and have a potential to boost liquidity as well as encourage more investors to trade, the impact of the third measure is not so simple. Of course, putting restrictions on stock selling by major shareholders will reduce downward pressure on prices but it is a short-term measure. After all, putting restrictions on how investors can manage their portfolios is not a move that inspires confidence. It looks like that after an initial euphoria, the market seems to have realized it and started to shed gains.

Taking a look at Chinese index CHN.cash chart at H4 interval, we can see that the index launched today's trading with a big bullish price gap (over 3.5%) and traded near the downward trendline at the start of today's trading. However, no breakout above the trendline occurred and gains started to be trimmed after session launch. Price dropped back below the 6,300 pts price zone and reduced daily gain to below 1%. The key question now is whether the sell-off will continue and the stock drops below the 6,150 pts zone.

Fundamental Outlook

The US dollar has risen slightly after a strong run, but traders are waiting for more economic data before making any big bets. The Japanese yen, on the other hand, is near levels that triggered intervention last year.

The dollar index is up over 2% this month and has had six weeks of gains due to strong US economic data. This has led to expectations that interest rates may stay higher for longer. Federal Reserve Chairman Jerome Powell suggested that further rate increases may be needed to control inflation, but he also promised to move with care.

This week, there will be several important economic data releases, including personal consumption expenditure data and non-farm payrolls. Markets are currently pricing in a 78% chance that the Fed will not change interest rates next month, but the odds of a hike by November have increased.

In Europe, the euro zone CPI report will be released on Thursday and is expected to have a big impact on the market. The euro is currently flat at $1.081.

The yen has been under pressure due to the widening gap in interest rates between Japan and the US. The currency is currently at 146.69 per dollar, near its weakest level since November 9th. Traders are watching for any signs of intervention from Japanese authorities.

If US data continues to be strong, there could be more pressure on the yen. However, the threat of intervention has retreated at sub-150 levels due to a lack of comments from Bank of Japan Governor Kazuo Ueda and no signs of verbal intervention yet.

CPI in France Significantly Higher

> France inflation data for August was published at 7:45 am BST time today:
> CPI: actual 4,8% y/y; expected 4,6% y/y; previously 4,3% y/y
> HICP: actual 5,7% y/y; expected 5,4% y/y; previously 5,1% y/y

Inflation data came in worse than expected. France is the only country among major EU members today that was expected to publish higher CPI data. Later today, investors will be presented with HICP and HICP core inflation data from the EU. EUR is clearly appreciating after the publication and EURUSD is trading higher.

WTI is testing $83 per barrel area amid expectations of further supply cuts.

WTI (West Texas Intermediate) is a type of crude oil that is used as a benchmark for oil prices. It is currently trading at around $83 per barrel, which is higher than usual. This is happening even though the US dollar has become stronger, which usually causes oil prices to go down.

The main reason for the increase in WTI price is that people are worried that OPEC+ countries will reduce the amount of oil they produce. Saudi Arabia has already said that it might continue to produce 1 million fewer barrels of oil per day until October. Russia might also continue to produce 0.5 million fewer barrels of oil per day until October.

Another thing that could affect oil production is the hurricane season in the Gulf of Mexico. This area produces around 2 million barrels of oil per day, but if there are hurricanes, production could be reduced. The Gulf of Mexico also has many natural gas drilling rigs, so the price of natural gas (NATGAS) could also be affected.

Barclays thinks that the reduction in oil production by OPEC+ countries is more important than any changes in demand for oil in China. They expect the price of Brent (another type of crude oil) to go up to $97 per barrel next year.

Finally, it’s worth noting that a recent report from the US showed that there are 10.5 million fewer barrels of crude oil in storage than there were before. This means that there is less oil available, which could also cause prices to go up.

Will the Price Drop Below $25,000

Bitcoin’s price is falling and is currently around $25,400. A few days ago, the price went up after Grayscale won a court case against the SEC. However, the excitement didn’t last long. Major cryptocurrencies are having trouble keeping their value because there aren’t enough new investors. The SEC didn’t accept other applications for funds, including one from BlackRock. The next deadline for reviewing applications is in mid-October.

Technically looking at the D1 interval, Bitcoin prices recently reacted at the support level of $26,000 (slightly breaching it earlier). This level stemmed from the lower limit of a broad 1:1 pattern. According to the Overbalance methodology, defending this level could result in a move to new highs. However, the upward movement was halted at the level of the 100-day EMA, after which the price dynamically moved downward. We are currently observing another attempt to negate the 1:1 geometry. Attention should be paid to the horizontal support zone at the level of $25,300, which is currently being tested. If this level is breached, the price drop may intensify. The next noteworthy support level is only at $23,600, which results from a 50% measurement of the last upward wave.

EURUSD

Christopher J. Waller, a voting member of the Fed's Governing Council, delivered some comments on monetary policy and economy this afternoon. Comments can be seen as dovish with Waller hinting that the September meeting may see rates being kept unchanged.

Key takeaways from Waller today
Data released last week allows Fed to proceed carefully
Data doesn't say we need to do anything imminent
Data is looking 'pretty good' for no recession
Whether more rate hikes are needed depends on data
Want to be careful on saying inflation job done
Don't think one more hike would trigger recession
Not obvious one more rate hike would damage job market
Need to keep rates up until inflation eases
Treasury yields are about where they should be
Fed takes fiscal policy as a given
Trillion dollar deficits sustained don't look good for the US fiscal position
We are keeping a close eye on the commercial real estate sector
I'm not seeing anything in commercial estate that will threaten the economy

Markets saw dovish reactions to Waller's comments, especially to bolded lines. EURUSD bounced off the daily lows and attempted to climb back above 1.0750 mark while European and US index futures revisited daily highs.

EURUSD bounced off the daily lows following dovish comments from Fed Waller.

Oil - What You Need to Know

Recently, Russia and Saudi Arabia decided to keep reducing the amount of oil they produce until the end of 2023. This move has made a big impact on the price of oil worldwide. These two countries are important in the oil market, and their decision to cut back on oil production has made experts think that oil prices will go up. After this announcement, the price of Brent crude oil went up by more than 1.5%, reaching over $90 per barrel. The price of U.S. West Texas Intermediate (WTI) crude oil also went up by a similar amount, reaching $86.5 per barrel. This decision to extend the cuts was a surprise because most investors thought the cuts would only last until October.

To make sense of these numbers, Saudi Arabia said it would keep producing 1 million fewer barrels of oil each day for another three months, until the end of December 2023. Russia, on the other hand, decided to export 300,000 fewer barrels of oil each day for the same period. These cuts are on top of the cuts that the OPEC+ group had already agreed on, which will last until the end of 2024. It's important to know that Saudi Arabia needs the price of Brent crude oil to be around $81 per barrel to manage its budget, according to the International Monetary Fund. Russia, on the other hand, can manage with a lower oil price but wants to make more money to support its war efforts in Ukraine.

Because there's not a lot of oil available right now, and the future is uncertain, the price of oil is likely to stay high in the short term. Rystad Energy, a research group, predicts that the demand for liquid fuels worldwide will be about 2.7 million barrels per day more than what's available in the next few months. The price of Brent crude oil for the month ahead is at its highest point in nine months, which means people expect there to be a shortage of oil soon. But there's a catch: in the U.S., oil refineries usually close for maintenance in September and October, which means they'll use less oil during that time. This could help keep oil prices from going too high.

Looking ahead, the OPEC+ group will have a meeting in November to decide how much oil they should produce in early 2024. Their decision will be really important in deciding how much oil costs and how the oil market works.

Apple Sanctions Shake Wall Street

Wall Street is down today. This is due to a strong reading of US claims, a sell-off in China, and sanctions against Apple. The strong claims reading shows that the labor market is doing well. This fits with the higher-than-expected ISM services report from yesterday.

The dollar is up because people are avoiding risk. Yields are also up, and the chances of the Fed raising interest rates have increased. In China, both imports and exports fell in August compared to last year. This shows that the economy is still weak. The rising dollar is also adding to people’s worries. It is being supported by strong labor market data, which is causing people to sell stocks. Unemployment claims fell again, and productivity and labor costs were revised up more than expected. Markets think there is a 7% chance that the Fed will raise interest rates in September.

Investors are worried about China’s decision to ban state employees from using iPhones. They say this is because of spying concerns. Apple is losing the most out of all the big tech companies today. Its stock is down 3.2% as people wait for the release of the iPhone 15. Investors are worried that China’s decision about iPhones could be part of a bigger plan. They think it could lead to more tension between China and the US, which are still very dependent on each other economically.

The background to today’s decline in the US stock market is the loss of momentum in China. This has happened many times this year, despite efforts to stimulate the economy and help the banking and real estate sectors. Chinese index futures are down nearly 3%. Imports fell 7.2% compared to last year, and exports fell more than 9%.

The US100 index is trying to recover from earlier losses, but sentiment is still down in the short term. The key resistance level on the M15 chart is 15317 points.

Bitcoin Analysis

Cryptocurrencies extend losses amid fears of FTX asset liquidation!

Bitcoin is down 2.70% and is struggling to maintain the key support zone at the level of 25,200 dollars. The sentiment in the market is not improving, and the upcoming decision on September 13th regarding the liquidation of FTX assets with a total value of 3.4 billion dollars is causing another wave of panic. The next level of support is 24,800 dollars. This was the low on June 15, 2023, following the market panic due to the delisting of many altcoins and SEC lawsuits.

The liquidation of funds from FTX is to take place gradually, with between $100-200 million entering the market week by week. However, the details of the transaction are not yet known. It is possible that the assets will be sold on the OTC market - outside exchanges. In this case, all market concerns are panic, which only confirms the stage of the cycle we are currently in.

Another date to watch this week is the statement by the SEC chairman, Gary Gensler, before the Senate Banking Committee, which will take place on September 12th.

UK GDP Below Expectations, GBPUSD Ticks Lower!

The UK's Gross Domestic Product (GDP) data, which measures the size of the economy, didn't grow at all over the past year (0.0%), which was less than what was predicted (0.4%). It was also less than the growth seen in the previous period (0.9%). Over a three-month period, the GDP grew by 0.2%, which was also less than the forecasted 0.3% but equal to the previous period's growth. In July, the economy actually shrank by 0.5%, which was more than the predicted shrinkage of 0.2% and a reversal from the previous month's growth of 0.5%.

This shrinkage in July is attributed to poor weather affecting spending and strikes in the public sector. This makes it increasingly likely that the UK might experience a recession this year.

As for Industrial Production, specifically manufacturing, there was a decrease of 0.8% in a month, which is actually better than the predicted decrease of 1%. However, it's a significant drop from the previous month's increase of 2.4%. Over a year, manufacturing grew by 3.0%, slightly less than the previous year's growth of 3.1%. The overall industrial production over a year grew by 0.4%, which was as predicted but less than the previous year's growth of 0.7%.

In summary, the UK's economic activity is weaker than expected based on GDP readings, and while manufacturing production was slightly better than anticipated, it still shows a downward trend. This resulted in a sudden drop in the value of GBPUSD (British Pound to US Dollar exchange rate) after this data was published.