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Sterling Rises in Stable Markets, Euro and Swiss Franc Soft

Market sentiment is stable today, with European index trading mildly higher while US futures point to a rebound. But overall direction remains rather unclear. Sterling is currently the stronger one, with additional help from buying against other European majors. Kiwi is also firmer, awaiting tomorrow’s RBNZ rate hike, followed by Dollar. On the other hand, Swiss Franc, Yen and Euro are the softer ones. Aussie is mixed after an uneventful RBA decision earlier in the day.

Technically, we’ll keep an eye on Sterling again. In particular, EUR/GBP is heading closer to 0.8499 near term support. Firm break there will indicate completion of rebound from 0.8448 and bring retest of this low. Such development would also reaffirm medium term bearishness after prior rejection by 0.8668 resistance. GBP/JPY is also heading towards 152.54 resistance. Firm break there will suggest completion of correction from 156.05, after multiple test on 149.03 key support. Stronger rise would be seen back towards 156.05 high next.

In Europe, at the time of writing, FTSE is up 0.58%. DAX is up 0.37%. CAC is up 0.79%. Germany 10-year yield is up 0.0039 at -0.209. Earlier in Asia, Nikkei dropped -2.19%. Hong Kong HSI rose 0.28%. Singapore Strait Times dropped -0.70%. Japan 10-year JGB rose 0.0058 to 0.057. China was on holiday.

US trade deficit widened to USD 73.3B

US exports rose 0.4% to USD 213.7B in August. Imports rose 1.4% to USD 287.0B. Trade deficit widened to USD -73.3B, versus expectation of USD -70.5B.

Canada exports rose 0.8% in August while exports dropped -1.4%. Trade surplus widened to CAD 1.9B, versus expectation of CAD 0.3B.

Eurozone PPI rose 1.1% mom, 13.4% yoy in Aug

Eurozone PPI rose 1.1% mom, 13.4% yoy in August. Industrial producer prices increased by 2.0% mom in the energy sector, by 1.4% mom for intermediate goods, by 0.5% mom for capital goods, by 0.3% mom for durable consumer goods and by 0.2% mom for non-durable consumer goods. Prices in total industry excluding energy increased by 0.7% mom.

EU PPI rose 1.1% mom, 13.5% yoy. The highest monthly increases in industrial producer prices were recorded in Bulgaria (+4.2%), Denmark (+3.1%) and Latvia (+2.6%), while decreases were observed only in Ireland (-4.1%) and Malta (-0.1%).

Eurozone PMI composite finalized at 56.2, unwelcome mix of rising price pressures but slower growth

Eurozone PMI PMI Services was finalized at 56.4, down from August’s 59.0. PMI Composite was finalized at 56.2, down from August’s 59.0. Looking at some member states, Ireland PMI Composite was finalized at 61.5, Spain at 57.0, Italy at 56.6, Germany at 55.4, France at 55.3.

Chris Williamson, Chief Business Economist at IHS Markit said: “The current economic situation in the eurozone is an unwelcome mix of rising price pressures but slower growth. Both are linked to supply shortages, especially in manufacturing, which has seen a steeper fall in output growth than services… Although for now the overall rate of expansion remains relatively solid by historical standards, the economy enters the final quarter of the year on a slowing growth trajectory. A drop in business confidence to the lowest since February adds further downside risks to the outlook.”

UK PMI services finalized at 55.4, supply chain crisis put a considerable brake on recovery

UK PMI Services was finalized at 55.4 in September, up slightly from August’s 55.0. PMI Composite was finalized at 54.9, up fractionally form August’s 54.8. Markit said charges rose at record pace amid supply constraints and spike in costs. Staff shortages held back output and new orders. Backlogs accumulated for the seventh month running.

Tim Moore, Economics Director at IHS Markit: “The supply chain crisis put a considerable brake on recovery in the UK service sector during September. Survey respondents widely noted that shortages of staff, raw materials and transport had resulted in lost business opportunities… Another spike in operating expenses was reported… even though this data is yet to fully reflect the inflationary impact of the UK fuel crisis and surging energy prices…

“Tight constraints on business capacity and rampant supply chain uncertainty meant that service providers have become more willing to pass on higher costs to customers. The latest rise in average prices charged by UK service sector firms was the fastest in over 25 years of data collection, with many businesses reporting more frequent reviews of pricing due to escalating cost increases by suppliers.”

RBA keeps rate at 0.10%, continue QE until at least Feb 2022

RBA left monetary policy unchanged as widely expected. Cash rate is kept at 0.10%. Target for April 2024 Australian Government bond yield is also held at 0.10%. The asset purchase program will continue at AUD 4B per week until at least mid February 2022. RBA also maintained that the condition for rate hike “will not be met before 2024”.

It maintained that the set back to economy expansion by the Delta outbreak is “expected to be only temporary”. In the central s