Yen and Swiss Franc in Strong Momentum as Risk Aversion Dominates

The new coronavirus variant is the main them in the markets today, sending global stocks and benchmark treasury yields sharply lower. Yen and Swiss Franc are trading sharply higher, followed by Euro. Commodity currencies tumble sharply on risk aversion but Sterling and Dollar are also pressured. For the week, Swiss Franc is now the strongest one, while Kiwi is the worst performing. We’ll see how the picture changes before weekly close.

In Europe, at the time of writing, FTSE is down -2.96%. DAX is down -3.07%. CAC is down -3.82%. Germany 10-year yield is down -0.0654 at -0.314. Earlier in Asia, Nikkei dropped -2.53%. Hong Kong HSI dropped -2.67%. China Shanghai SSE dropped -0.56%. Singapore Strait Times dropped -1.72%. Japan 10-year JGB yield dropped -0.0082 to 0.077.

BoE Pill: Ground has now been prepared for policy action

In a speech, BoE chief economist Huw Pill said “the ground has now been prepared for policy action” with QE reaching its “natural end” next month. Incoming data supports the conclusion that “recovery is continuing” supply disruptions “create inflationary pressures”, and “labour market is tight”.

These developments were “sufficient” for Pill to support the MPC’s November steer, “should the incoming data continue to be consistent with the projections published in the committee’s latest Monetary Policy Report, it will be necessary over coming months to increase Bank Rate for the inflation target is to be achieved in a sustainable manner.”

Swiss GDP grew 1.7% qoq in Q3, more than 1% above pre-crisis level

Swiss GDP grew 1.7% qoq in Q3, following 1.8% qoq rise in Q2. Looking at some details, private consumption rose 2.7%. Government consumption dropped -1.5%. Equipment and software investment dropped 1.3%. Construction investment rose 0.1%. Exports of goods excluding valuables rose 2.3%. Exports of services dropped -2.2%. Import of goods rose 3.2%. Imports of services rose 2.9%.

The FSO said, “Value added grew markedly in the affected service sectors as a result of the further relaxation GDP was more than 1% higher in the third quarter than the pre-crisis level seen in the fourth quarter of 2019.

RBNZ Hawkesby: We need to continue this process of removing stimulus

RBNZ Assistant Governor Christian Hawkesby said in a Bloomberg TV interview, “in New Zealand we’ve had a very resilient economy, we’ve got core inflation running near the top of our 1-3% target range, we’ve got an employment market that’s through what we think it maximum sustainable employment.”

He said, “so we’re getting pretty clear signals that we need to continue this process of removing stimulus and getting interest rates back up towards neutral.”

“Inflation expectations are going to be absolutely key for us. There are things that could make us go faster, and I think inflation expectations is one, he said. “Five- to 10-year inflation expectations are very well anchored. Short-term inflation expectations have lifted with headline, but lifted in a way that we would anticipate, so I think that’s a really key thing to watch.”

“On the upside, the risks are that we’ve had a very strong economy, a big change in the starting point, inflation expectations, there’s a risk that they lift,” he said. “But on the other side, interest rates have moved a long way here in New Zealand, mortgage rates are nearly 2% up from their lows in January, and ahead of us we’re going to have to navigate having Covid in our community.”

Australia retail sales rose 3.9% mom in Oct, still short of pre-delta level

Australia retail sales rose 4.9% mom in October, above expectation of 2.5% mom. That’s the strongest rise since Victoria’s first lockdown bounce back in November 2020, with retail turnover rising to its highest level since June 2021.

“Retail performance continues to be tied to state lockdowns as this month’s recovery was driven by the end of lockdowns in New South Wales, Victoria and the Australian Capital Territory,” Ben James, Director of Quarterly Economy Wide Statistics said.

“With lockdown ending on October 11, New South Wales sales rose 13.3 per cent returning to the levels seen in the months immediately prior to the Delta outbreak, while Victoria and the Australian Capital Territory remain below pre-Delta levels.”

“Although sales have bounced back strongly following the end of lockdowns, it is important to note that overall retail turnover has not yet reached the level of May 2021, the month prior to the Delta outbreak.”

WTI oil in free fall, can 71 fibo support hold?

WTI crude oil is in free fall today, together with other risk markets. At this point, the decline from 85.92 is seen as a correction to rise from 61.90 only. Hence, we’d start to look for bottoming signal around 61.8% retracement of 61.90 to 85.92 at 71.07. This is slightly lower than medium term trend line at around 71.5.

However, in any case, break of 80.04 resistance is needed to indicate completion of the decline. Otherwise, further fall will remain in favor. Indeed, sustained break of 71.07 fibonacci level will argue that WTI is already correcting the long term up trend. In such case, even deeper fall would be seen towards 61.90 key structural support.

GBP/JPY Mid-Day Outlook

Daily Pivots: (S1) 153.38; (P) 153.73; (R1) 154.03; More…

GBP/JPY’s fall from 158.19 resumes by breaking 152.35 support and intraday bias is back on the downside. Deeper fall would be seen back to 148.93 key support. On the upside, break of 154.70 resistance is needed to indicate short term bottoming. Otherwise, near term outlook will stay bearish in case of recovery.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). Further rally is still expected as long as 148.93 support holds. However, firm break of 148.93 will argue that the medium term trend has reversed and bring deeper fall back to 142.71 resistance turned support first.

Economic Indicators Update