Gold turns lower and stocks take another hit.

Headlines

* US Consumer Confidence drops to a four-month low on outlook

* Wall Street slides over 1% as Treasury yields hover at 16-year peaks

* Sterling under pressure as GBP/USD hits six-month lows

*Gold retreats as dollar, yields rise on hawkish Fed

FX: USD hit a 10-month high finally moving up above the March top at 105.88. Yields continued north with the 10-year Treasury yield, a global proxy for borrowing costs, hitting 4.56% before settling marginally below Monday’s close. A Government shutdown looks increasingly likely though moderate Republicans have said they will try and work with Democrats to shorten a shutdown.

EUR fell to a new low at 1.0562 before settling 10 pips higher. Comments from ECB official, Muller, support the outlook for no further rate hikes. But they also underscore that the central bank is in no rush to discuss rate cuts (Simkus). The next support is around 1.0535 while resistance sits around 1.0610/30.

GBP finished very close to the lows of the day at 1.2152. GBP is tracking the wider risk mood. A base could be developed on shorter-run charts. But any gains need to push above 1.22 for a squeeze to 1.23 and beyond.

USD/JPY printed another new high at 149.18. But it was a narrow-range trading day as US yields backed off their highs. We had more verbal intervention from Japanese officials earlier in the day.

AUD continues to track sideways but has dropped below 0.64. Tomorrow’s CPI could see a jump in services inflation which would confirm the RBA’s worries.  CAD suffered due to poor risk sentiment and weak stocks. USD/CAD bounced off the 200-day SMA at 1.3457. USD/CHF is having a historic bull run. It is up 18 out of the last 21 days. Prices are severely overbought.

Stocks: US equities ended down over 1% with all S&P 500 sectors lower. The drop was led by utilities which declined more than 3%. The benchmark S&P 500 lost 1.47% to settle at 4273. The tech-laden Nasdaq finished 1.51% lower at 14,545. The Dow posted its worst day since March. The index closed down 1.14% at 33,618. It was the lowest close in the Nasdaq since late May and the lowest close in the Dow and S&P 500 since June. Weak data including worse-than-expected new home sales and consumer confidence hurt the risk mood.

Asian futures are firmly in the red. APAC stocks were mostly lower Tuesday with headwinds from the rising global yield environment. The ASX 200 was muted by underperformance in real estate and tech. Trade frictions hurt sentiment in Shanghai and Hong Kong.

Gold moved lower for a second day and through last week’s low at $1913. Below here is the mid-September bottom at $1901. The strong dollar and rising yields are making gold bugs feel the heat.

Day Ahead – Australian CPI, US Durable Goods

First up today is the monthly Australian inflation data. As one local investment bank notes, this is not a true monthly inflation measure but rather the release of the data for the quarterly CPI as it becomes available. Much of the data is monthly, but a fair proportion is only available quarterly. It is released in the month of the quarter the survey is conducted, with a smaller proportion of annual data. Consensus sees a 5.2% increase, up from the prior 4.8%. Petrol and diesel prices will cause the rise.

US durable goods are forecast to drop 0.4%, an improvement on the -5.2% print in July. Weakness seems likely as global and domestic demand pulls back. The ongoing sell-off in the US bond market, and rising yields, are currently dominating market sentiment for FX and stocks. Volatility is creeping higher, and this favours risk reduction.

Chart of the Day – Gold nearing major support

As we said above, strong bond yields and the exceptional rally in the dollar are hitting gold bugs. That said, prices had been defying the gravitational pull from those drivers with the yellow metal trading around the 200-day SMA at $1926 until recently. But Monday saw it move lower and yesterday’s price action fell below near-term mid-September support. A major Fib level of the October rally sits at $1894. This is also where the June and August lows reside so a big support zone.