Digest – Markets spent much of yesterday searching for, but failing to find, a catalyst to drive price action. Today’s busier data docket, plus month-end flows, may inject some more life into proceedings.
Where We Stand – Yesterday was not exactly a day brimming with catalysts, as ‘Mr Market’ served up little more than thin gruel for participants to digest.
As a result, it was no surprise to see equities trade in relatively choppy fashion, with the S&P 500 notching its first down day in three, while the Nasdaq trod water.
That said, the medium-term path of least resistance continues to lead to the upside, with the ‘Fed put’ remaining forceful, and policymakers continuing to have participants’ backs.
Interestingly, these relatively quiet conditions are not solely anecdotal, with the 5-day moving average of the daily high-low range in the front S&P contract having slipped to less than 45 points, its lowest level since mid-July. This low vol environment seems set to persist for the time being, barring any end-of-month/quarter rebalancing flows, with the next notable risk event not coming until next Friday’s US labour market report.
Speaking of flows, the greenback was somewhat more supported yesterday than it has been in recent trade, likely benefitting from the typically USD-positive EoM flows, as the DXY rallied towards the 101 figure. With today being T+2 value for month-end itself, that support could persist throughout the session ahead, though should have relatively little by way of longer-run implications.
That said, the dollar’s modest recovery still leaves the DXY lingering towards the bottom of the recent range, close to YTD lows. The buck’s gains also came relatively late in the day, after the EUR had risen north of the $1.12 handle for the first time in 14 months, and the Aussie had pierced above the 69 figure for the first time since last February.
Nevertheless, the gains were relatively broad-based, with the AUD, NZD, and JPY all ending the day around 1% lower, though the USD’s resurgence is likely to be relatively brief, particularly with the FOMC plotting a much more rapid return to neutral than their G10 peers.
Meanwhile, in the Treasury complex, yesterday saw supply easily digested once again, with the 5-year auction stopping on the screws. Nevertheless, the curve bear steepened once more, for the 6th day in a row, with participants’ concern over the FOMC easing too much, too soon, continuing to linger, as the long-end continues to bear the brunt of the market’s ire.
Elsewhere, crude traded heavy, with WTI dipping back beneath $70bbl, as participants once again demonstrated a ‘buy the rumour, sell the fact’ reaction to incoming geopolitical and weather-related news flow. As I’ve said for some time, a sustained pick-up in demand is required to unlock more durable upside.
Gold, finally, notched a new record high for the fifth day in a row, as the yellow metal continued to glimmer. In the absence of supportive fundamentals, one can only assume that retail and EM CB buying continue to fuel gold’s ascent, though the strong upside momentum is not something that I would seek to step in front of just yet, with there being few more bullish signs for an asset, than one which is setting record highs on a near-daily basis.
Look Ahead – The hunt for an external catalyst to drive price action goes on today, though the calendar does provide much more cause for intrigue.
Chief among said events will be a deluge of Fedspeak, with remarks from 8 FOMC members due, including Chair Powell, and NY Fed President Williams, often thought of as one of the most significant thought leaders among Committee members.
Naturally, markets will be seeking any clarity on the future rate path, particularly whether or not another 50bp cut could be delivered at the November meeting, with the USD OIS curve currently discounting around a 6-in-10 chance of such an outcome. Any firm commitments, though, will likely be thin on the ground, with all policymakers set to reiterate an easing bias, albeit one where the pace of said easing remains contingent on incoming data.
On which note, the data docket is busy. The final estimate of US second quarter GDP is set to see a very modest 0.1pp downward revision to the second reading, pointing to growth of 2.9% on an annualised QoQ basis, the seventh quarter in the last eight to see a growth rate north of 2%. The latest durable goods orders, ending home sales, and jobless claims figures are also all due, with the continuing claims print coinciding with the September nonfarm payrolls survey week.
Away from the US, the Swiss National Bank should announce a 25bp cut this morning, taking rates to 1.00%, though there is some chance that Chair Jordan springs a surprise at his last meeting, plumping for a larger 50bp move. Such a dovish surprise would likely be delivered if the SNB were seeking to keep pace with a more rapid rate of policy normalisation elsewhere, with Swiss policymakers only meeting on a quarterly basis.
Other notable aspects of today’s calendar include speeches from a handful of ECB policymakers, including President Lagarde, as well as earnings from Costco after the closing bell, which may prove a useful bellwether for consumer spending more broadly.
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