Market Recap
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The pull-ahead in US retail sales yesterday provided some validation for soft landing hopes but also left room for rates to be kept high for longer, with market sentiments seemingly placing their focus on the latter. The July retail sales figure increased 3.2% from the previous year, far outpacing the 1.5% forecast. Month-on-month, retail sales were up 0.7% versus the 0.4% consensus, reflecting the prevailing resilience in US consumer demand.
That said, market participants took the chance to de-risk further, sending all three major US indices lower by more than 1%. The VIX jumped 11% as a sign of increased market caution, especially with real-time inflation estimates suggesting that headline inflation is likely to pull further ahead in August. Moves in US Treasury yields were more measured overnight, with the 10-year yields defending its 4.20% level, while the US dollar index continues to challenge its 200-day moving average (MA).
The S&P 500 is down 1.2% overnight, bringing the index back below its key 50-day MA for the first time since March this year while its daily relative strength index (RSI) fell further below the 50 level. The 4,300 level could be on the radar, having marked the lower edge of its Ichimoku cloud on the daily chart, alongside its 100-day MA. On the broader trend, the upward trend in the index remains intact, which could still keep any formation of a higher low on watch.
of clients are net long. of clients are net short.
| Change in | Longs | Shorts | OI |
| Daily | 1% | -7% | -3% |
| Weekly | 13% | -15% | -4% |
Source: IG charts
Asia Open
Asian stocks look set for a negative open, with Nikkei -1.10%, ASX -1.27% and KOSPI -1.40% at the time of writing, tracking the downbeat performance in Wall Street overnight. A recent set of disappointing economic data out of China has not been encouraging for the region as well, with the aggressive 15 bp cuts to its one-year policy interest reflecting the severity of the economic weakness that authorities foresee to drag on for longer.
Ahead, the Reserve Bank of New Zealand (RBNZ) interest rate decision will be in focus. With inflation data drifting lower according to script, rate expectations are firmly priced for the central bank to keep rates on hold at the upcoming meeting. Any clues on New Zealand’s rate outlook will be sought in the RBNZ press conference, although sticking to its data-dependence stance for future rate decisions may still be the likely scenario.
For now, the NZD/USD continues to trade on a near-term downward bias, with a falling channel pattern firmly in place. On the weekly chart, its Ichimoku cloud resistance has been keeping a lid on upside, with the pair failing to overcome it on multiple attempts since the start of the year. Its weekly RSI heads further below the 50 level as a reflection of sellers in control. The 0.590 level may be on watch ahead, failing to defend the level may potentially pave the way to retest the 0.575 level next.
Source: IG charts
On the watchlist: GBP/USD attempting to defend its 100-day MA ahead of UK inflation data
The GBP/USD has been stuck in a series of ranging moves over the past two weeks, attempting to defend its key 100-day MA lately, which stands alongside the Ichimoku cloud support on the daily chart. Thus far, the formation of long-legged bullish pin bars at the 100-day MA seems to reflect the line as a crucial support watched by the bulls. That leaves the 1.264 level in focus ahead, with any breakdown of the level potentially paving the way to retest the 1.239 level next, where its 200-day MA resides.
Expectations are for both UK headline and core figures to ease further to 6.8% for July, versus the previous 7.9% and 6.9% respectively. Given that inflation is still too high for comfort, particularly the limited progress in the core aspect, further rate hikes are firmly priced for the Bank of England (BoE) through the rest of the year. A more persistent showing in inflation data ahead will likely feed into hawkish bets and validates views of further tightening, which may aid to support the GBP/USD.
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Source: IG charts
Tuesday: DJIA -1.02%; S&P 500 -1.16%; Nasdaq -1.14%, DAX -0.86%, FTSE -1.57%