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Market Report – 16th October 2023

Increased volatility expected in sterling-based currency pairs.  Key data on UK inflation and unemployment set to be released. Bellwether stock Tesla…



  • Increased volatility expected in sterling-based currency pairs. 
  • Key data on UK inflation and unemployment set to be released.
  • Bellwether stock Tesla due to share its quarterly earnings as investors react to US inflation news. 
  • Netflix, Johnson & Johnson and big US banks due to update investors as earnings season gathers pace.

Last week’s US CPI inflation report jolted investor risk appetite and left major currency pairs trading mid-range between important price levels. The September figures on the US CPI report showed that on a year-on-year basis, the index rose 3.7%, which was the same number as found in the August report. Price inflation may have stalled, but questions remain about how long it might take to return to lower levels and the Fed’s 2% target rate.

With few reasons to suggest that the Fed will be rushing to deviate from its hawkish policy on interest rates, the US dollar had a strong run into the end of the week, which leaves the markets in major currency pairs finely poised. The coming week sees earnings season build momentum with updates due from major corporations. Those could act as a catalyst for further price moves, and traders of sterling-based currency pairs can expect increased levels of price volatility as inflation and unemployment reports are released in the UK.

US Dollar

This week, traders of the US dollar will see the release of a selection of Tier-2 grade economic reports. While none have the same significance as the key CPI and Non-Farm Payrolls statements, they will shed further light on the state of the world’s most important economy. In the background, stock market sentiment can be expected to adjust to the earnings updates that are due to be released by major multinationals. Price moves in major stocks such as Netflix and Tesla have the potential to impact trading behaviour in other asset groups, including the currency markets.

The US Empire State Manufacturing Index report due out on Monday is followed by US retail sales on Tuesday, housing starts on Wednesday, and existing home sales on Thursday. The reports relating to the housing market will be closely followed given the influence that this sector has on the rest of the economy. Analysts are forecasting that existing home sales numbers will fall a not inconsiderable 2.1% on a month-on-month basis, with any deviation from that figure likely to result in price moves in US currency pairs.

Major corporations including Goldman Sachs, Bank of America Corp, Johnson & Johnson, United Airlines and Lockheed Martin all release their quarterly earnings reports on Tuesday. In the run into the end of the week, other household names such as Netflix, Tesla, Procter & Gamble, American Airlines, Alcoa and American Express will open their books for inspection.

US Dollar Basket Index – Daily Price Chart – Mid-Range

us dollar basket index daily price chart mid range oct 16 2023

Source: IG

  • Key number to watch: Thursday 19th October 3:00pm (BST) – US existing home sales (September) – analysts forecast sales volumes to fall 2.1% on a month-on-month basis.
  • Key price levels: Support at 105.46, which marks the intraday price high of Friday 22nd September, and resistance in the region of 106.97, which is the current year-to-date high.


The German ZEW Index report for October will be released on Tuesday, with that number forecast to fall to -16 from 11.4 in the previous month. The absence of any other major eurozone news announcements doesn’t necessarily mean that it will be a quiet week for traders of euro-based currency pairs. Updates from the UK on inflation and unemployment will influence price levels in EURGBP, and earnings season news could trigger price moves in EURUSD.

Daily Price Chart – EURUSD – Daily Price Chart – Support and Resistance

eurusd daily price chart support and resistance oct 16 2023

Source: IG

  • Key number to watch: Tuesday 17th October 10:00am (BST) – German ZEW Index (October).
  • Key price levels: The 20 SMA on the Daily Price Chart continues to guide EURUSD’s downwards price move. Currently in the region of 1.05519, that metric sits mid-range between the support offered by 1.04482, the new year-to-date low printed on Tuesday 3rd October, and resistance in the form of the price high of Thursday 12th October (1.06397).


GDP data out of the UK last week surprised to the upside and triggered a rise in the price of GBPUSD as investors adjusted to the likelihood of the Bank of England keeping interest rates higher for longer. Growth in August was 0.2%, mainly thanks to a strong showing by the service sector, and this week sees UK unemployment numbers (Tuesday) and CPI inflation data (Wednesday) provide more pieces of the jigsaw.

Daily Price Chart – GBPUSD – Daily Price Chart

gbpusd daily price chart oct 16 2023

Source: IG

  • Key number to watch: Wednesday 18th October 7:00am (BST) – UK CPI (September) – analysts predict price growth to be 6.5% year on year, compared to 6.7% year on year in August.
  • Key price level: Resistance in the region of 1.23081, which marks the pivot of the swing-low pattern recorded on 25th May.


Traders of yen-based currency pairs can expect an uptick in volatility as Friday’s Japan CPI inflation report nears. The release of China GDP figures on Wednesday will also likely steer price moves given the close trading relationship between the two countries.

USDJPY – Daily Price Chart

usdjpy daily price chart oct 16 2023

Source: IG

  • Key number to watch: Friday 20th October 12:30am (BST) – Japan CPI (September). CPI expected to be 3.1% year on year down from 3.2% year on year in August.
  • Key price level: 149.16 – Region of the 20 SMA on the Daily Price Chart. This key support level was tested last week, but held firm, which indicates a continuation of the dollar-yen bull run.

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    Yen Doesn’t Buy The BOJ Narrative Just Yet, But It Will

    Yen Doesn’t Buy The BOJ Narrative Just Yet, But It Will

    By Ven Ram, Bloomberg markets live reporter and strategist

    There seems to be growing…



    Yen Doesn't Buy The BOJ Narrative Just Yet, But It Will

    By Ven Ram, Bloomberg markets live reporter and strategist

    There seems to be growing conviction that Japan will exit negative rates in possibly just a couple of months, though the currency markets are underpricing that prospect.

    Earlier Tuesday, data for January inflation showed not only faster-than-forecast headline numbers but also a core-core reading above 3% for a 13th straight month. The prints may convince the Bank of Japan that the sustainable inflation that it has long sought is here. Little wonder that overnight indexed swaps, which were assigning some 60% chance of a 10-basis point move from the BOJ in April, now reckon the probability is more like 80%.

    The yen, though, hasn’t come to the party at all. Since the start of the year, the currency has slumped more than 6% against the dollar. That decline isn’t what is indicated by fundamentals, with the yen’s weakness looking completely out of sync with what ought to have happened.

    A major part of what has happened with the yen is actually a dollar story. Fed fund futures, which were pricing a little more than three interest-rate cuts from the US central bank by June, are now wondering if policymakers will even deliver a single reduction by then. That has pushed up nominal and inflation-adjusted rates, sending the dollar far higher than reckoned.
    There is also seasonality at play. The yen has weakened in four of the past five first quarters, except when the pandemic first struck the markets in 2020 and spurred investors to scramble for havens.
    The Japanese currency is exceptionally undervalued at current levels, with its real-effective exchange rate near the cheapest it has ever been in history. Once the BOJ exits negative rates, expectations are that it will raise rates further and buoy the yen, although Japan won’t see any tightening anywhere on the scale that we have seen in in the other major economies as colleague Mark Cranfield notes.
    The tide will turn decisively in favor of the yen whenever it becomes abundantly clear that inflation in the US is slowing to a crawl — allowing the Fed to cut rates as outlined in its December dot plot.

    Tyler Durden Tue, 02/27/2024 - 22:00

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    Will New Gavin Newsom Recall Effort Backfire Again?

    Will New Gavin Newsom Recall Effort Backfire Again?

    Authored by Susan Crabtree viaRealClear Wire,

    Conservative activists in California hope…



    Will New Gavin Newsom Recall Effort Backfire Again?

    Authored by Susan Crabtree viaRealClear Wire,

    Conservative activists in California hope the seventh time is a charm when it comes to recalling Gavin Newsom. The governor, they say, is focused on serving as a top surrogate for President Biden and raising a national profile for his own presidential run while neglecting the state’s deep budget deficit, rising crime rate, persistent homelessness, and sky-high cost-of-living – factors driving an exodus of people and businesses to other states.

    But their latest effort to oust Newsom after so many failed attempts isn’t stoking the same fears among Democrats as in the past, and even some Republicans are worried the partisan effort will blow up in their faces. It has the potential, some GOP operatives caution, to overshadow waning support for progressive policies in San Francisco and elsewhere while galvanizing Democrats and big donors behind the term-limited but politically ambitious governor.

    Democrats argue that the latest recall effort is an obvious attempt to blunt presumed Newsom’s White House aspirations by showing that there’s a backlash against him resurfacing at home. But far from a big cloud hanging over his head, top California Democratic strategists are casting it as little more than an annoyance.

    “I don’t think it even merits a cloud – maybe a little bit of fog or haze,” Steve Maviglio told RealClearPolitics Monday. Maviglio served as the press secretary for former California Gov. Gray Davis, a Democrat who, in 2003, became the state’s second top executive to be recalled.

    Republicans are so outnumbered by Democrats in California that one of their only political weapons is a recall petition. “They can either howl at the moon, or they can file a recall petition – those are their two choices,” said Garry South, a longtime Democratic strategist who managed Davis’ successful campaigns in 1998 and 2002.

    Some Republican political players across the state are also disheartened by the tired feel of the repeated long-shot effort. “I would much rather focus on the legislative and [federal and local] races where we could win, but they seem to want flashy politicking, not the hard work of retail politics,” one conservative activist told RCP.

    The California Republican Party provided $125,000 for the 2021 recall effort but sidestepped questions on Monday about whether it would support it this year.

    “We are eight days out from our March 5 primary and several weeks into pre-election voting,” California GOP Chairwoman Jessica Millan Patterson said in a statement. “While Gavin Newsom has been an absolute disaster for our state – from accruing a record $73 billion budget deficit to hosting the nation’s largest homeless population to flatlining the quality of our schools and allowing criminals to thrive – the CAGOP’s attention is on turning out the vote in the primary election and supporting our endorsed candidates who can fix our broken state.”

    Newsom wasted no time connecting the recall to Trump, confidently predicting it would go down in flames.

    “Trump Republicans are launching another wasteful recall campaign to distract us from the existential fight for democracy and reproductive freedom,” he tweeted Monday. “We will defeat them.”

    Newsom triumphed over a 2021 recall that made it on the ballot and was organized by the same conservative activists. The first-term governor overwhelmingly defeated the effort to oust him after a jittery summer in which polls predicted the race as a dead heat. After Newsom was fortified by nearly $75 million in unlimited campaign donations from his committees and allies, he sailed to victory over Republican talk-radio host Larry Elder.

    The deep blue state’s Democratic voters showed up for Newsom in droves, with 61.9% voting to keep Newsom and only 38.1% voting to remove him. It was essentially the same margin he won by in his first campaign for governor against businessman John Cox in 2018. After the failed recall, Newsom’s support dipped only slightly. He came back in 2022 to win a second term by 59.2% to 40.8% against state Senator Brian Dahle.

    Newsom beat back the 2021 recall so strongly it only strengthened his reelection and bolstered his political ambitions, South argued. President Biden and Vice President Kamala Harris stumped with Newsom in the final days before the election. Former President Barack Obama cut a television ad, deeming the election a “matter of life and death” – the difference between “protecting kids from COVID or putting them at risk, helping Californians recover or taking them backward.”

    Newsom hadn’t benefited from that level of Democratic star power since former President Bill Clinton flew in for a last-minute rally when polls showed his 2003 race for San Francisco mayor against a Green Party candidate much tighter than expected.

    During his 2021 recall victory remarks, Newsom twice said he was “humbled” by the experience. But he also viewed the landslide as a validation of his strict COVID policies and efforts to lean into the country’s culture wars and hinted at his long-held White House ambitions.

    “We are enjoying an overwhelming ‘no’ vote tonight here in the state of California,” Newsom told a crowd of cheering supporters gathered in Sacramento to view the recall returns. “But ‘no’ was not the only thing that was expressed tonight. I want to focus on what we said ‘yes’ to as a state. We said ‘yes’ to science, ‘yes’ to vaccines, we said ‘yes’ to ending the pandemic.”

    “We said ‘yes’ to diversity, we said ‘yes’ to inclusion, we said ‘yes’ to pluralism,” he declared. “We said ‘yes’ to those things that we hold dear as Californians, and I would argue, as Americans.”

    Recall organizers, led by Rescue California, acknowledge that Newsom was emboldened by beating the recall, but insist that it should have motivated him to focus his attention  on fixing California’s problems instead of skewering red states and serving as a star surrogate for Biden. Half the state’s voters seem to agree.

    Last fall, when Newsom was amplifying his national profile, his standing among California voters hit an all-time low, with 49% disapproving of his job as governor, a UC Berkeley Institute of Governmental Studies/Los Angeles Times poll found. His approval rating in the late October poll fell to 44%, an 11-point slide from February when 55% of voters approved his performance.

    “He’s using California taxpayer money to fly around the country and the world to support a national political agenda for president when he’s not even qualified, at this point, to run the state of California as the deficit numbers approach $100 billion,” Ann Dunsmore, Rescue California’s campaign director, told RCP.

    Dunsmore also points out that Newsom will have little choice but to raise taxes to reduce the deficit because the state Constitution prohibits the government from declaring bankruptcy without voter approval. Right now, Newsom is backing a proposition calling for $6 billion in new spending to curb homelessness after the state has spent more than $20 billion on the issue during his time in office while the problem grew worse.

    In early January, Newsom and Democrats who run the state legislature also ushered in new health insurance payments for all illegal immigrants. Newsom this week continued taking the fight to conservative states, unveiling a six-figure ad campaign and online petition effort in several Republican-controlled states that he said are trying to ban out-of-state travel for abortions and related medications. Newsom paid for the ads with a national political action committee he launched last year with $10 million from leftover state campaign funds.

    Crime and cost of living are driving more and more businesses from the state, Dunsmore said, “and now Newsom’s coming out with an abortion ad?”

    Right now, people are trying to make ends meet, and it’s getting worse, not better,” she said. “Our tax base is gone. Just how out of touch is he?”

    Recall petitions can be launched easily in California, but they face formidable hurdles. This one would require signatures equal to 12% of the turnout in the last election – roughly 1.31 million verified signatures.

    Dunsmore won’t say how much Rescue California, which successfully led the effort to recall Davis in 2003, plans to spend on the effort. The 2021 recall required 1.5 million signatures, which it exceeded by 126,000. It cost organizers roughly $8 million, a fraction of the $78 million Newsom amassed to fight it.

    This year, however, Dunsmore says they don’t plan to use costly paid signature-gatherers posted outside shopping centers. Instead, she said her organization and its partners already have the infrastructure in place – supporters’ physical addresses and emails – from the last effort.

    Garry South, however, cautions that the 2021 recall only went forward after an unprecedented four-month extension for signature-gathering. A judge appointed by GOP Gov. Arnold Schwarzenegger approved the rare extension to compensate for COVID lockdowns when signature-gathering was far more difficult.

    “That’s never happened before in a recall election in California,” South said, adding that there’s “no way” recall organizers will amass the required signatures with an all-volunteer effort.

    The 2003 recall effort against Gov. Gray Davis got a boost when wealthy GOP Rep. Darrell Issa poured $2 million of his own money into signature-gathering efforts because he was aiming to become governor. But Schwarzenegger, a blockbuster Hollywood actor, stepped into the race and won it, thwarting Issa’s political ambitions.

    Even Davis’ low poll numbers didn’t stop him from winning election in 2002. On Election Day in 2002, South recalls that Davis’ approval rating was only 22%, and he still won with 47.4% of the vote to the GOP candidate Bill Simon’s 42.4%.

    “Newsom beat the recall with nearly 62% of the vote and then was reelected to a second term with 59%,” South said. “Those are not the metrics of someone who is going to be recalled.”

    Susan Crabtree is RealClearPolitics' national political correspondent.

    Tyler Durden Tue, 02/27/2024 - 22:20

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    Stock Bull Market Might Just Be Getting Started, But…

    Stock Bull Market Might Just Be Getting Started, But…

    Authored by Simon White, Bloomberg macro strategist,

    The rally in equities might…



    Stock Bull Market Might Just Be Getting Started, But...

    Authored by Simon White, Bloomberg macro strategist,

    The rally in equities might have much further to go, based on the positive outlook for liquidity.

    It might not seem like it after a seemingly relentless advance and fevered speculation, but the new bull market is comparatively mild versus the postwar past.

    Yet that could change. Excess liquidity - the difference between real money growth and economic growth - shows that the stock rally could have much further to go, turning a so-far historically below-par bull market into one that’s above the past average.

    There are many reasons why this might not transpire...

    As a natural cynic, I’m more comfortable when the outlook is pessimistic (no room for disappointment) versus when it is optimistic (plenty of opportunity to end up with egg on your face when things do go wrong after all). But sometimes the data just isn’t there to support a downbeat view.

    That’s the case today. One of the best medium-term drivers of stock returns is excess liquidity. It’s an intuitive measure: when money, which is created by banks and central banks, is growing faster in real terms than GDP, liquidity is left which is “excess” to the needs of the real economy, and which thus tends to find its way into risk assets.

    After beginning to rise in the first half of last year, and supporting the equity rally that began in March, excess liquidity has continued to rise. It is difficult for markets to sell off significantly when there is plenty of risk-asset-supporting liquidity sloshing around the system.

    Fiscal and monetary policy are conspiring to keep excess liquidity climbing despite the cumulative impact of higher rates coursing through the economy.

    First, what has been driving excess liquidity so far?

    It has three main elements: inflation, economic growth and narrow money, with the latter responsible for most of the measure’s rise over the last year.

    But that’s not the full picture.

    Excess liquidity is a global measure, made up of the money and economic growth of countries in the G10, in dollar terms. That means a weaker dollar boosts non-US excess liquidity.

    As the chart below shows, it’s the weaker dollar - down over 9% from its September 2022 highs - that has been the biggest driver of excess liquidity.

    We can blame fiscal policy here. The US’s expansive deficit has been one of the most important longer-term negative influences on the dollar. There is little sign the deficit is about to improve by much, based on (no doubt conservative) Congressional Budget Office forecasts. Government finances are also unlikely to be straitened whoever the next president is, meaning the primary trend in the dollar (DXY) is likely to remain down.

    We can also blame monetary policy for the dollar’s malaise and excess liquidity’s buoyancy. The latter looked like it was about to start turning lower last year, but was saved in the nick of time by the Federal Reserve’s pivot in December.

    How? On a shorter-term basis (6-9 months), the dollar is led by the real yield curve. The US currency is driven at the margin by the real return of foreign investors in long-term US assets. In the latter months of 2023, the real yield curve had been steepening, as longer-term real yields were rising more than shorter ones.

    Then the Fed came with its still unfathomable pivot. Shorter-term real yields fell, but their longer-term counterparts fell by more, and the curve re-flattened. What was a strong supportive sign for the dollar returned to being a weight on it – and thus a continued tailwind for excess liquidity.

    It’s not just liquidity that could charge the bull market further. The absence of a US recession, which continues to look off the cards for the time being, also bolsters the case that equities should not soon face a steep selloff. Traditional recession indicators have been misleading in this pandemic-addled cycle, but it has become increasingly clear a downturn in the US is now less likely than not.

    Furthermore, the rally might be on shakier legs if sentiment and technicals were overly bullish, but they are not yet historically stretched. The net number of stocks making new 52-week highs, the number trading above their 200-day moving average or their upper Bollinger band, and the advance-decline line are all high but have been higher. Moreover, sentiment is net bullish but not at extremes, while retail allocation to stocks is only at its 5-year average.

    Leadership is narrow, with only a handful of stocks driving the advance, but there is little historically to show that this leads to sub-par returns. And when markets eclipse new highs, as the S&P did a few weeks ago, it acts as a psychological all-clear that we are indeed in a new bull market. Whether you agree that’s justified or not, the catch-up money that floods the market creates its own momentum.

    No bull market comes without risks and this one is no different. The biggest is a recession. While, as mentioned above, that does not look likely in the near term, a sudden and unanticipated economic slump (either endogenous or due to an exogenous shock) would decimate returns. Also, a bull market that does not begin either during a recession or within 18 months of one is unusual, with only one postwar example (1966).

    Equities experience their largest drawdowns in recessions, and given there is little ex ante to indicate one is coming in the current environment, it would likely be particularly devastating.

    A blow-off top is another risk. Even then, despite the upset one would cause, it might not be enough to kick-start a new bear market. Inflation, too, will pose a risk to stocks, but to their real returns, unless price growth’s revival is particularly abrupt or steep (bull and bear markets are, sub-optimally, based off nominal returns). A persistent bear-steepening of the yield curve would be the sign the rally is at risk.

    To misquote John Templeton, bull markets are born on pessimism, but they grow on liquidity. As long as excess liquidity is supported, the market is primed to keep grinding higher, regardless of how cynical you might be.

    Tyler Durden Tue, 02/27/2024 - 14:40

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