Global Market Quick Take: Asia – September 25, 2023

SAXO

Commodity

Forex

Bond

Stocks

Energy

Summary:

While equity and bond markets stabilized on Friday after two days of post-FOMC selloff, sentiment still remains fragile with higher-for-longer messages reverberating through the markets. Looming U.S. government shutdown and UAW strike could further dent sentiment this week…

U.S. Equities

After two days of sharp selloffs, markets somewhat stabilized last Friday, but sentiment remained fragile and technicals weak. The S&P500 dropped 0.2%, hitting a new recent low, and the Nasdaq 100 ended nearly flat. Nvidia rose by 1.5%.

Fixed income

Treasuries recovered some of their losses post-FOMC, with the 10-year yield declining 6bps last Friday, closing at 4.43%. No specific news drove this movement. We believe that, like us, investors see value in Treasuries after the recent selloffs that pushed yields to levels not seen since 2007.

China/HK Equities

The Hang Seng Index saw a decent rally, reclaiming 18,000 and closing up 2.3% at 18,057. This may signal exhaustion in the recent selling waves. Additionally, China and the U.S. are forming working groups on economic and financial matters. China is also reportedly easing the 30% foreign ownership cap and 10% single foreign shareholder cap on listed companies. Technology stocks led the surge, with the Hang Seng Tech Index jumping 3.7%, driven by internet and EV stocks. Mainland investors, however, sold Hong Kong-listed stocks worth HKD4.2 billion, while overseas investors returned as net buyers, acquiring RMB7.5 billion worth of A shares. The CSI300 increased by 1.8%.

Dollar index closed a 10th straight week of gains with losses led by GBP and CHF after the BOE and SNB announced a surprise pause in their monetary policy decisions last week.

NZD emerged as the G10 outperformer with Q2 GDP data coming in better than expected, followed by SEK (on FX hedging announcement) and CAD (with oil prices staying higher).

USD/JPY rose back higher towards 148.50 after BOJ's announcement on Friday lacking any hints of a potential shift by early 2024. EUR/USD holding up above 1.0635 support and any upside in German Ifo today or hawkish Lagarde could bring it back closer to 1.07 with EUR/GBP testing a break above 0.87.

Commodities

Brent still around $93/barrel after Russia temporarily banned gasoline and diesel exports further adding to supply tightness concerns. Demand expectations, meanwhile, could get a lift this week with China travel expected to pick up. Iron ore prices rose to USD 121/t with strong demand from steel mills and restocking ahead of the National Day holiday week. Gold continues to be resilient despite Fed's hawkish tilt.

Macro

UK PMIs confirmed the hint in last Thursday's Bank of England Minutes that they had deteriorated. Manufacturing remained in contraction at 44.2 in August (prev 43) while services dipped deeper in contraction at 47.2 (prev. 49.5).
Eurozone PMIs were mixed with Germany improving but still remaining weak but France deteriorating. German manufacturing PMI was at 39.8 (prev 39.1) and services was 49.8 (prev 47.3), while France manufacturing PMI was at 43.6 (prev 46.0) and services at 43.9 (prev 46). Overall Eurozone manufacturing PMI dipped a notch to 43.4 from 43.5 while services held up but still in contraction at 48.4 vs. prev 47.9.
U.S. S&P Global PMIs saw manufacturing improve but services deterioate, but its Composite reading is still just above 50 (50.1 from 50.2) and of late has been sharply at odds with the more established (and much stronger) ISM surveys.
Fed speakers struck a hawkish chord with Governor Michelle Bowman (voter) saying she expects "further rate hikes". Boston Fed President Susan Collins (non-voter) and San Francisco Fed President Mary Daly (non-voter) talked about higher-for-longer.
The Bank of Japan maintained a dovish rhetoric, with Governor Ueda trying to undo the hawkish interpretations from his previous remarks. For a full review, read Friday's Macro/FX article.

In the news

U.S., China agrees to forge new economic, financial dialogues.
China mulls easing foreign stake limits to lure global funds.
Apple boosts retail worker pay to cope with tighter labor market.
Amazon to run ads in Prime Video shows and movies.
UAW strikes more GM, Stellantis facilities, cites Ford progress.
Microsoft's Activision Deal Clears Main Hurdle as U.K. Regulator Accepts Changes

Macro events

German Ifo (Sep) exp 85.2 (prev 85.7) due 16:00 SGT
U.S. Chicago Fed National Activity Index (Aug) due 20:30 SGT
ECB President Lagarde testifies to parliament, and the (usually hawkish) Schnabel speaks at 21:00 SGT

Key company events

Alibaba's Cainiao plans to raise at least $1 Billion in Hong Kong IPO soon
China Evergrande scraps creditor meetings in risk to US$20 billion debt restructuring as homes sales sag, lawsuits snowball. The Chinese developer is unable to meet the regulatory qualifications for the issuance of new notes under the proposed restructuring of offshore debts

Risk Warnings and Disclaimers

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FXOpen

Forex

The USD/JPY pair remains flat below the mid-148.00s during the early European session on Monday. Markets turn cautious amid the fear of FX intervention by the Japanese authorities. The pair currently trades around 148.35, losing 0.01% on the day.

The Bank of Japan (BOJ) Governor Kazuo Ueda stated on Monday that Japan's economy recovering moderately and the central bank's basic stance is that they must patiently maintain monetary easing. Additionally, Japan's Finance Minister Shunichi Suzuki was out with some usual verbal intervention last week. He said that authorities will closely watch FX moves with a high sense of urgency and won't rule out any options for response to excessive FX volatility. Similarly, the Bank of Japan (BoJ) Governor Ueda emphasized the need to spend more time assessing data before raising interest rates. This, in turn, might cap the upside of the U.S. Dollar (USD) and act as a headwind for the USD/JPY pair.

Apart from this, economic data released on Friday revealed that Japan's National Consumer Price Index (CPI) for August came in at 3.2% YoY from 3.3% in July. Additionally, the National CPI ex Fresh Food improved from 3.0% in July to 3.1% in August, whereas the National CPI ex Food, Energy came in at 4.3% compared to 4.3% in previous readings.

On the USD's front, Friday's Purchasing Managers Index data prompted concerns about the trajectory of demand conditions in the U.S. economy in the wake of interest rate hikes cycle and elevated inflation. The U.S. S&P Global Manufacturing PMI grew to 48.9 in September from 47.9 in August, indicating that manufacturing sector business activity continues to contract. The Services PMI fell to 50.2 from 50.5 the previous month, while the Composite PMI dropped to 50.1 from 50.2.

Most Fed officials still expect the additional rate to rise later this year. Susan Collins and Mary Daly, presidents of the Federal Reserve Banks of Boston and San Francisco, emphasized that although inflation is cooling down, additional rate hikes would be necessary. Furthermore, Minneapolis Federal Reserve President Neel Kashkari said he would have thought with 500 basis points (bps) or 525 bps of interest rate increases as they would have slammed the brakes on consumer spending and it has not slammed the brakes on consumer spending.

Market participants will monitor Japan's Tokyo Consumer Price Index (CPI) for September, Industrial Production, and Retail Sales due on Friday. The key event this week will be the U.S. Core Personal Consumption Expenditure (PCE) Price Index, the Fed's preferred measure of consumer inflation. The annual figure is expected to drop from 4.2% to 3.9%. Traders will take cues from these figures and find trading opportunities around the USD/JPY pair.

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Samantha Luan

Central Bank

Economic

Energy

Forex

Asian stock markets commenced the week with divergent performances. While Japan's Nikkei showed resilience, bouncing back after enduring its most challenging week this year, Hong Kong's stocks weren't as fortunate. The uncertainty surrounding China Evergrande Group's protracted debt restructuring initiative ignited a fresh wave of selling, impacting not just Evergrande but also its contemporaries. Consequently, apprehensions around the beleaguered property sector have once again come to the fore.

In the currency markets, mixed market sentiments have cast a shadow Australian and New Zealand Dollar, making them a tad softer. Swiss Franc seems eager to further its selloff from last week. Meanwhile, both Dollar and Euro, along with Canadian Dollar, show signs of firmness. British Pound is making an attempt at a comeback, but the momentum remains tepid. Meanwhile, the Yen is leaning on the softer end of the spectrum. As the week progresses, eyes will be keenly set on inflation data releases from Australia, Eurozone, and U.S., potentially guiding the subsequent moves in currency markets.

On the technical front, AUD/NZD's break of 1.0811 support last week argues that the consolidation pattern from 1.0721 has completed at 1.0914. That is fall from 1.1050 is ready to resume. Near term risk will stay on the downside as long as 55 D EMA (now at 1.0839) holds. Next target is 61.8% projection of 1.1050 to 1.0721 from 1.0914 at 1.0711. Aussie Dips as Evergrande Concerns Resurface; More Global Inflation Data Ahead_1

Aussie Dips as Evergrande Concerns Resurface; More Global Inflation Data Ahead_1

In Asia, at the time of writing, Nikkei is up 0.84%. Hong Kong HSI is down -1.24%. China Shanghai SSE is down -0.39% Singapore Strait Times is up 0.22%. Japan 10-year JGB yield is down -0.0142 at 0.735.

ECB's Villeroy: Patience is more important now

ECB Governing Council member Francois Villeroy de Galhau spoke about the current monetary policy outlook in an interview with France Inter radio on Saturday. Emphasizing the need for a patient approach, Villeroy stated, "From today's perspective, patience is more important than raising rates further."

He highlighted the current deposit rate, which stands at a record 4%. According to Villeroy, this level should be held steady as it plays a crucial role in controlling inflation within Eurozone.

Amid concerns over the potential inflationary impact of rising oil prices on the global economy, Villeroy remained steadfast in the ECB's commitment to its objectives.

"The recent increase in oil prices won't derail the European Central Bank's fight to tame inflation," he asserted. Elaborating further on this, he said, "We're very attentive, but [this] doesn't put into doubt the underlying disinflation."

Villeroy reiterated ECB's target: "Our outlook and engagement is to bring inflation to around 2% in 2025."

Oil's ascension pauses as momentum exhausted, but 100 still a possibility

The financial world was abuzz last week with discussions of oil potentially breaking the 100 mark. While some pundits deem this as a stretch, the consensus is that no one can entirely dismiss the possibility.

The recent spike in oil prices brings with it a myriad of concerns, particularly about its ripple effect on the broader economy. As central banks globally grapple to suppress rising inflation, the surge in energy costs, with gasoline taking the lead, is becoming a pressing issue. Notably, August's inflation readings surpassed expectations in several countries, with energy prices being the main instigator.

Tracing back to late June, energy prices have witnessed a consistent rise. This surge can be attributed to crude output reductions by major oil producers in OPEC+, coupled with additional cuts from Saudi Arabia. These decisions have propelled crude futures by approximately 30% over the past quarter.

With the possibility of OPEC+ announcing another surprise cut, bullish momentum could very well drive oil prices beyond 100. Contrarily, some anticipate that if prices climb above 95 per barrel, there might be a significant dip in demand, causing oil price to recalibrate and settle within a more balanced range.

From a technical perspective, WTI crude seems to have hit a near-term ceiling at 93.07 last week. Given that D MACD has already slid beneath the signal line, the prevailing bullish momentum may have been exhausted for the near term.

Nevertheless, decisive drop below 84.91 resistance turned support is essential to counteract the uptrend that began at 66.94. If this doesn't materialize, the prospects of a continued rally remain. Break of 93.07 will put key resistance level at 50% retracement of 131.82 to 63.67 at 97.74 into focus. Aussie Dips as Evergrande Concerns Resurface; More Global Inflation Data Ahead_2

Aussie Dips as Evergrande Concerns Resurface; More Global Inflation Data Ahead_2

Inflation data to stay in the global spotlight

Inflation continues to be the talk of global markets, as expectations and actual data often seem to dance around each other. Upcoming data from Australia, Eurozone, and U.S. are poised to play a pivotal role in the evolving narrative.

Australia's upcoming monthly CPI is projected to ascend from 4.9% yoy to 5.2% yoy in August. While this monthly figure doesn't encompass the full spectrum of the CPI – given that a significant chunk of the data is disseminated quarterly – it does offer vital cues for market players to recalibrate their anticipations. Present consensus leans toward RBA maintaining its current policy in October, especially as Q3 figures will remain undisclosed. The November decision, however, remains contentious. A Bloomberg poll depicts a divide among experts, with 18 forecasting another hike by the year's end and 17 foreseeing the status quo.

Moving to Europe, Eurozone's CPI flash is anticipated to register a deceleration, coming in at 4.5% yoy in September, a dip from the previous 5.2%. Core CPI might also reflect a decline from 5.3% yoy to 4.8%. Following ECB recent 25bps rate increase, the bank is inclined toward a sustained pause. Philip Lane, the bank's Chief Economist, underscored the adequacy of the current 4% deposit rate to realign inflation with 2% target within the projection horizon. This week's figures could fortify this perspective.

Across the Atlantic, U.S. core PCE inflation is projected to taper off to 3.9% yoy in August from the previous 4.2% yoy. Despite market skepticism, Fed's recent communiqué underscored the possibility of another rate hike this year. With the subsequent FOMC meet slated for November 1, a slew of pertinent data remains to be assessed prior to policy determinations.

In addition to the above, markets will be tuned into several other key indicators this week, including U.S. durable goods orders and consumer confidence, Germany's Ifo business climate, Canada's GDP, and Australia's retail sales.

Here are some highlights for the week:

Monday: Germany Ifo business climate.
Tuesday: Japan corporate service prices; U.S. house prices, new homes sales, consumer confidence.
Wednesday: BoJ minutes; Australia CPI; Germany Gfk consumer sentiment; Eurozone M3; U.S. durable goods orders.
Thursday: New Zealand ANZ business confidence; Australia retail sales; Germany CPI flash; ECB bulletin; U.S. Q2 GDP final, jobless claims, pending home sales.
Friday: Japan Tokyo CPI, unemployment rate, industrial production, retail sales, consumer confidence, housing starts; Germany import prices, retail sales, unemployment; UK Q2 GDP final, M4 money supply, mortgage supply; France consumer spending; Swiss KOF economic barometer; Eurozone CPI flash; Canada GDP; U.S. goods trade balance, personal income and spending, PCE inflation; Chicago PMI.

AUD/USD Daily Report

AUD/USD is staying in consolidation from 0.6356 and outlook is unchanged. Intraday bias remains neutral at this point. Further decline is expected as long as 0.6520 resistance holds. Break of 0.6356 will resume larger down trend to 100% projection of 0.7156 to 0.6457 from 0.6894 at 0.6195. Aussie Dips as Evergrande Concerns Resurface; More Global Inflation Data Ahead_3

Aussie Dips as Evergrande Concerns Resurface; More Global Inflation Data Ahead_3

In the bigger picture, down trend from 0.8006 (2021 high) is possibly still in progress. Decisive break of 0.6169 will target 61.8% projection of 0.8006 to 0.6169 to 0.7156 at 0.6021. This will now remain the favored case as long as 0.6894, in case of strong rebound. Aussie Dips as Evergrande Concerns Resurface; More Global Inflation Data Ahead_4

Aussie Dips as Evergrande Concerns Resurface; More Global Inflation Data Ahead_4

Source: ActionForex

To stay updated on all economic events of today, please check out our Economic calendar

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Danske Bank

Economic

Stocks

Bond

Forex

This week starts off with thin calendar in terms of data releases. In Germany, we receive the Ifo indicator for September. The assessment of the current climate has declined continuously since March and it will likely tick lower again. Expectations have stabilised in recent months, and it will be interesting to see if they actually increase a bit, which is what consensus is looking for.

We have seen modest moves in the global bond and equity markets this morning. U.S. Treasury yields rose very modestly from the long end of the curve. There have also been modest declines in the Asian equity markets this morning where the Chinese equity market is under pressure given the uncertainty surrounding the Chinese property market.

The main event today is the release of the German IFO indicator for September. We also get PPI from Finland and Spain and there are several ECB speeches from Villeroy, Schabel and Lagarde.

The main event this week will be the inflation data from U.S. and Euroland released on Friday. A downside surprise will be supportive for the bond market as the market will again speculate in faster rate cuts than is currently priced in after last week's central bank meetings where especially the Federal Reserve indicated "higher for longer" and the market priced out rate cuts and Treasury yields rose. However, with 2Y yields higher than 5%, short-dated bonds look attractive from the outright perspective.

Equities

Global equities were lower on Friday and hence failed to recover the lost ground from Thursday. Hence last week equities were lower 5 out of 5 days and the higher for longer narrative was dominating.

Higher-for-longer was driven by central banks and not least the updated summary of economic projections from Fed members. Inflation numbers were benign last week and oil prices were lower.

Higher-for-longer is not just a drag on the economy but is also leading to new discussions on the level of discounting factor and leading to long duration small caps underperforming.

On Friday in the U.S., Dow -0.3%, S&P 500 -0.2%, Nasdaq -0.1% and Russell 2000 -0.3%. Asian markets are mixed this morning with Japan outperforming once again. European futures are lower while U.S. futures are higher.

Last week was busy with several central bank meetings. One common theme was "higher for longer" as rate cuts are not coming in as fast as previously expected especially in the U.S., and 10Y U.S. Treasury yields have risen some 19bp during the week before declining 6bp on Friday. If the inflation data published on Friday surprises on the downside it should lead to a decline in yields and rates.

After a hectic central bank week, EUR/USD consolidates around 1.0650 following the Fed-induced one-figure drop.

GBP/USD continues its downward trajectory following the dovish surprise from BoE.

The JPY remains under pressure after BoJ left ultra-easy monetary policy unchanged.

Both SEK and NOK are modestly stronger vs EUR after the Riksbank's marginally dovish rate path was effectively balanced by the decision to start hedging the FX reserves and Norges Bank left a hawkish surprise in its rate trajectory.

This week has a lot to offer as well including U.S. and EA inflation numbers and interesting central bank speeches.

Credit

The credit markets ended the week on a marginally stronger footing with iTraxx main tightening 0.2bp to 77.3bp and Xover tightening 2.4bp to 416.7bp.

We expect a revival of the primary markets in the coming weeks with the central bank rate decisions now out of the way and ahead of the black-out periods.

Nordic macro

This week, August data in the form of PPI, trade balance, household lending and retail sales will be released and the implications for Q3 GDP assessed. Selling price expectations will be in focus what concerns the September confidence survey.

Riksbank's Jansson and Flodén will be talking about current monetary policy.

To stay updated on all economic events of today, please check out our Economic calendar

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Owen Li

Commodity

Speculators have held bullish views toward Chicago soybeans for the last three-and-a-half years, though the optimism has soured this month as an enormous Brazilian bean crop has been satisfying global needs since early this year.

That has allowed CBOT soy futures to decline over the last few weeks because despite a shrinking U.S. harvest, export demand for U.S. beans has been unusually poor so far this month.

Most-active November soybeans dropped more than 2% in the week ended Sept. 19, and money managers reduced their net long in CBOT soy futures and options to 45,832 contracts from 73,815 a week earlier. The new stance is funds’ least bullish in three months. Funds' Bullish Bean Bets Tumble on Sufficient World Supplies_1

Funds' Bullish Bean Bets Tumble on Sufficient World Supplies_1

That move was primarily the result of exiting longs, which is backed by market data. Trading volume for CBOT soybeans in the week ended Sept. 19 was notably above normal for the week, and open interest in bean futures and options surged 5% on the week.

Soybean open interest as of Sept. 19 was at a three-year high for the week and a 15-month high outright, having risen 19% in the latest six weeks. That compares with an 8% jump in the same period a year ago.

CBOT November beans fell 1.5% in the last three sessions, hitting a six-week low on Friday of $12.92-1/2 per bushel. Strong trade volume continued at least both Wednesday and Thursday, a possible signal that investors have shed additional bean length.

In the week ended Sept. 19, money managers increased their net long in CBOT soybean oil futures and options by nearly 6,200 to 47,064 contracts, though they cut their net long in soymeal futures and options by about 6,300 to 55,873 contracts.

That was associated with a 2.2% fall in most-active soymeal futures and a fractional rise in soyoil. On Friday, soyoil hit a six-week low of 58.26 cents per pound, losing 1% in the last three sessions.

Soymeal hit a one-month low on Friday of $385.10 per short ton, falling about 1% between Wednesday and Friday. However, traders are watching for displaced Argentine soymeal export business to get rerouted to the United States, which has seen a bump in export sales in recent weeks.

Grains

Through Sept. 19, money managers increased their net short in CBOT wheat futures and options to a three-month high of 96,805 contracts from 84,139 a week earlier. That is funds’ most bearish wheat view for the date since 2016, when open interest was about 15% higher.

However, CBOT wheat open interest has risen recently and trading volume was above average during the latest week, similar to the trend in soybeans. Wheat open interest was up 14% in the three weeks ended Sept. 19, and futures slipped nearly 3% in that time frame.

Most-active CBOT wheat fell fractionally in both the week ended Sept. 19 and the following three sessions. Global wheat prices continue to be pressured by ample Black Sea supplies, and the U.S. dollar hit a six-month high on Friday, which can soften export demand for U.S. grains.

Money managers through Sept. 19 were net sellers of Minneapolis wheat futures and options for an eighth consecutive week, expanding their net short to a three-year high of 15,177 contracts. Futures were largely unchanged during that week, but spring wheat has traded near contract lows this month.

Most-active CBOT corn was steady in the week ended Sept. 19, though money managers extended their net short in corn futures and options to a three-year high of 144,815 contracts versus 134,909 in the prior week. New shorts explained most of the move.

Corn on Sept. 19 dropped to $4.67-3/4 per bushel, the most-active contract’s lowest level since December 2020, though futures drifted fractionally higher in the last three sessions.

Corn trading volumes were mixed over the last several sessions, though open interest in futures and options remains at 10-year lows for the date. Corn open interest has not made anomalous strides in the latest few weeks as have been observed in beans and wheat. Karen Braun is a market analyst for Reuters. Views expressed above are her own.

Source: Reuters

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Devin

Economic

Forex

One year since former prime minister Liz Truss's spending plans drove the pound to a record low, markets are again turning against the British currency.

For months, investors have been piling in to take advantage of soaring UK interest rates. Yet Thursday's surprise decision by the Bank of England to stay on hold has refocused bears on the nation's fundamentals, which remain tepid even as the impact of last year's crisis fades. Many are now betting that sterling will enter a sustained downward trajectory against the dollar.

"A year ago it was fiscal credibility that markets were questioning," said Adam Cole, chief currency strategist at RBC Capital Markets. "This time it is monetary policy credibility."

Widening cracks in the UK's economic data and fears that higher rates will exacerbate a potential recession prompted the BOE to call time on its rate hiking cycle. But traders warn policy makers could be underestimating a host of factors that still threaten to push consumer prices higher.

After topping returns among its Group-of-10 peers in the past year, September saw the pound place last and Thursday's decision tipped sterling to a six-month low versus the greenback. Asset managers trimmed long positions, flipping to bet against the currency.

RBC and HSBC Holdings Plc are bracing for more weakness. Bank of America Corp and BNP Paribas SA warn that a sharper slide is in the cards if positions are unwound further.

"The really negative moves will come for sterling when, not if, we start to see much more pronounced weakness in the data," RBC's Cole said.

The UK will continue moving into recessionary territory and this will push the pound-dollar pair down around 5% to 1.17 by year-end and 1.11 by the second half of next year, he said.

Bullish on the pound since November last year, Dominic Bunning at HSBC is confident the rally now has no more room to run. Rates at their peak means the currency is poised to slump almost 4% to around 1.18 against the dollar in the next nine months, the head of HSBC's European currency research said.

Despite asset managers turning against the pound, hedge funds still hold bullish positions in the UK currency near their highest on record. The pound is currently their longest Group-of-10 currency trade, according to Bank of America flows data, leaving it vulnerable if dollar strength in the near-term triggers further unwinding.

Following the swings

Trend-following hedge funds — known as CTAs — could exacerbate the moves if there's a rush for the exits, BNP Paribas said.

CTAs typically track swings in markets, switching strategy to follow the overall direction. As investors absorb the end of the BOE's hiking cycle and the pound comes under further pressure, more of these funds will switch to betting on weakness, BNP said.

"CTA positioning is extremely long the pound," said Parisha Saimbi, a currency strategist at BNP Paribas. "Given the bearish catalyst from the BOE having paused, and with the data likely to decelerate, positioning reduction by these accounts could exacerbate downside moves in the pound."

The pound's fortunes against the dollar may look dim, but sterling could prove resilient compared with the euro as economic growth and inflation on the continent for once more of a cause for alarm than in the UK.

"If you have less interest rate hikes in the system, then you're also reducing recessionary risks" in the UK, said Jane Foley, head of currency strategy at Rabobank. "With the growth clouds darkening over Germany and perhaps lifting slightly over the UK, the outlook for sterling may have improved a touch."

Markets have largely put the UK into a "secular stagflation camp" ever since Truss's unvetted mini-budget last year, but Europe is now heading into the same camp, said Geoff Yu, senior market strategist for Europe, the Middle East and Africa at BNY Mellon, who sees this prompting a re-allocation of assets.

"Downside risk to the pound and UK assets in general will not be as big as for Eurozone equivalents," he said.

Still, overall investor allocations still gravitate toward the US, Yu said, and the pound's path below US$1.20 in the near future is a near-certainty.

"It's a comparison of who's going to lose the race at the bottom."

Source: Bloomberg

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FXOpen

Commodity

Western Texas Intermediate (WTI), the U.S. crude oil benchmark eases from the recent gains, trading lower around $89.70 per barrel during the Asian session on Monday.

Investors are anticipated to provide upward support to Crude oil prices due to their focus on a tighter supply outlook. This is exacerbated by Moscow's temporary ban on fuel exports. However, there is also caution regarding the potential impact of further rate hikes on demand.

The prices of black gold had risen more than 10% in the last three weeks due to a constrained production outlook from Saudi Arabia and Russia.

The combined supply cuts of 1.3 million barrels per day from Saudi Arabia and Russia have been extended until the end of 2023. Market analysts believe that this extension will exacerbate an anticipated 2 million barrels per day deficit in global oil supplies.

However, the U.S. Federal Reserve's (Fed) hawkish stance on the interest rates trajectory snapped a winning streak in oil prices during the previous week.

Furthermore, Moscow imposed a temporary ban on gasoline and diesel exports last week with the aim of stabilizing the domestic market. This move has raised concerns about a potential shortage of petroleum products as the northern hemisphere enters the winter season.

U.S. Dollar Index (DXY), measuring the Greenback's value against six major currencies, is struggling to gain momentum, hovering around 105.60 at the time of writing. However, the yield on the 10-year U.S. Treasury note appreciated to 4.45%, a 0.50% increase by the press time, which could provide support in underpinning the U.S. Dollar (USD).

Moreover, Boston Fed President Susan Collins has stated that further tightening is possible but emphasized the need for patience. While U.S. Federal Reserve (Fed) Governor Michelle W. Bowman expressed a similar opinion, adding that more rate hikes are necessary to curb inflation. Rising interest rates could dampen the demand for the Crude oil.

The Federal Reserve has stressed the significance of keeping interest rates elevated for an extended duration to steer inflation back to its 2% target. This stance has heightened market anticipations for at least one additional 25-basis-point rate hike by year-end. Moreover, the Fed's "dot plot" now suggests only two rate hikes in 2024, a reduction from the prior forecast of four rate hikes.

Investors will likely watch the U.S. economic calendar, which includes key data releases such as Consumer Confidence, Durable Goods Orders, Initial Jobless Claims, and the Core PCE, the Fed's preferred measure of inflation.

The annual figure for Core PCE is expected to drop from 4.2% to 3.9%. These figures could provide cues on the economic situation in the U.S., which helps the traders of the WTI Crude oil in placing their fresh bets.

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