More hawkish Powell hits risky assets, USD up

Headlines

* Fed Chair Powell outlines a cautious approach to raising rates or declaring an end to hikes

* US yields soar as investors weigh economic outlook, weak auction

* Bitcoin surges to near $38,000 as Blackrock iShares Ethereum ETF is listed

* S&P 500 falls to first loss in nine sessions, Tesla gets dumped on bank initiation

FX: USD jumped late in the day after Fed Chair Powell suggested higher rates are possible. He said policymakers are not confident rates are high enough to bring inflation to the 2% target. The economy remains relatively solid in this stage of the cycle. Claims for unemployment benefits edged down last week pointing to layoffs staying low. The DXY closed just above the 50-day SMA at 105.80.

EUR eventually steadied below 1.07. Soft Chinese didn’t help the single currency initially.  ECB speakers continue to push back on dovish market pricing. But there is still around a 70% chance of a rate cut priced in April. Support sits at 1.0659.

GBP traded around the 50-day SMA at 1.2275 for most of the day until Powell spoke. Cable then made a fresh low for the week at 1.2212. We had more comments from the BoE’s Pill who tried to rein in his off-script dovish comments from earlier in the week.

USD/JPY pushed north for a fourth straight day. The major sits above 151 as it digested more comments from BoJ Governor Ueda. He said exiting from the bank’s ultra-loose policy measures will be “challenging”. Recent highs are 151.68/72. The top from last October is at 151.94.

AUD continued lower with more aggressive selling late on adding to the bearish momentum over the previous three days. The 50-day SMA is now resistance at 0.6389.

Stocks:

US equities closed lower to snap a decent win streak. The benchmark S&P 500 lost 0.81% to settle at 4347. That put an end to its longest daily series of gains in two years. The tech-laden Nasdaq finished 0.85% lower at 15,256. Prices turned back from the mid-October top. The Dow settled 0.65% lower at 33,891. All the major indices closed near their lows after a long bond auction went poorly. Powell’s speech also acted as a headwind. He said inflation “has given us a few head fakes”. All sectors were in the red with healthcare weakest. Before yesterday’s sell-off, the S&P 500 had gained 6.5%.

Asian futures are in the red. APAC stocks traded mostly firmer on Thursday. The Nikkei 225 topped 32,500 with the yen weakness helping. The latest Chinese inflation data saw the figures fall back into deflation. Hong Kong underperformed as the property sector weighed.

Gold turned green after three days of selling this week. It had made fresh three-week lows at $1944. Rising yields late in the session saw selling.

Day Ahead – UK GDP

UK growth is expected to contract by 0.1% m/m in September. This comes after a meagre 0.2% expansion in August. Economists reckon this would leave third-quarter growth marginally negative at -0.1%. UK PMIs paint a grim picture with all measures below the contraction/expansion 50 level.

Certainly, policymakers at the BoE are more focused on services inflation and wage growth. We get an update on those key data points next week. Otherwise, we had more chatter from BoE Chief Economist Pill who said rates were restrictive enough to bear down on inflation. But he added that policy needed to stay tight to hit the bank’s 2% target. GBP looks to have rolled over with the next support in the mid-121s.

Chart of the Day – Tesla gets rejected at the resistance zone

The Tesla chart looks interesting. The stock fell sharply in mid-October from above $250 after the worst quarterly results in years. It eventually hit a low and some support in late October around $194. The 50% point of this year’s rally is at $200.55. But the rebound has recently struggled at the 200-day SMA at $200.62. The 38.2% Fib level is just above here at $223.85. This has capped the upside and prices could now roll back towards the $200 level.

Interestingly, the EV-maker fell over 5% yesterday as HSBC started its coverage of the company in the bear camp. Its price target is over 30% below Wednesday’s close, at $146. Analysts say Tesla’s many concept-stage ideas will take longer than the market thinks to hit the bottom line. Elon Musk’s prominence is also seen as a “singleman” risk.