Helpful US data helps risk and stocks rally

Headlines

* Global stocks rise with dollar, yields as data calms nerves

* Gold jumps, bitcoin soars back above $59,000

* US 10-year Treasury yield moves up to 4%, back above last Friday’s levels

* JP Morgan raises odds of US recession by year end to 35%

FX: USD was bid for a third consecutive day as it settled right on Mondays open. The weekly initial jobless claims printed lower than expected. A higher figure would have added to fears of rising unemployment and a Fed response. US Treasury yields rallied with the 10-year touching 4% again. CPI data is the focus next week.

EUR fell for a third straight day, something we haven’t seen since 11 June as it printed a wide legged doji. There were no major data points out of the eurozone.

GBP saw buyers again at the 100-day SMA at 1.2683. The halfway point of the April to July move sits at 1.2669.

USD/JPY initially dipped but risk taking resumed during the US session helping the currency major. Resistance is 148.68 and support at 144.58.

AUD outperformed with risk sentiment buoyant. Prices are heading towards the 100-day and 200-day SMAs around 0.66. Hawkish comments from RBA Governor Bullock helped set the tone, saying the bank will not hesitate to hike if needed. USD/CAD fell for a fourth day but can’t yet break the 50-day SMA at 1.3719. The rebound in the risk mood continues to help pro-cyclical currencies. Attention turns to the job numbers out later today.

US Stocks: US markets continued their rebound once more, closing the gaps from Monday’s wild price action. Positive US data boosted risk sentiment. The benchmark S&P 500 closed 2.3% higher at 5,319. The tech-laden Nasdaq 100 finished up by 3.1% at 18,414. The Dow Jones settled 1.8% higher at 39,447. The VIX, Wall Street’s fear gauge, closed lower at 23. All sectors were positive with tech and communication services leading the gains. Drugmaker Eli Lilly soared 9.5% as it beat on profit and revenue, together with stronger than expected guidance.

Asian stock futures are positive. Asian stocks were mixed after the weak day on Wall Street. The ASX 200 lagged on soft commodity-related stocks. The Nikkei 225 tanked early on, dropping 2.5% before recovering. The Hang Seng and Shanghai Composite both pared early losses with the former back towards the 17,000 psychological level.

Gold picked up even though the dollar and yields were bid. Gold, usually a safe haven during times of uncertainty, sold off sharply on Monday and the following two days, amid likely liquidations to cover margin calls on other assets.

Day ahead – China Inflation & PPI, Canada jobs

China CPI is seen ticking two-tenths higher to 0.4% y/y in July. PPI is forecast to remain negative so in deflation at -0.9% from the prior -0.8%. The release will be watched as a gauge of demand in the Chinese economy.

 The BoC has been one of the most dovish major central banks, already cutting interest rates twice and signaling that more reductions may be on the way. Investors are convinced that a third consecutive 25bps cut will be delivered in September and a soft employment report may seal the deal. The headline print is forecast to come in at 28,700, better than the prior net loss of 1,400 jobs. The unemployment rate is seen one-tenth higher at 6.5%. The youth and temps categories are causing major challenges.

Chart of the Day – USD/CNH bounces from strong support

Worries about a slowdown in the US economy are intensifying – was NFP a one-off very weak report or will the soft landing become a hard one? Yesterday’s better jobless claims will not be part of the next NFP data. A mixed looking USD has also been missing out on the bid for safety to some extent. Regarding China, the central bank has been lowering its daily yuan guidance, but with a bias pointing to some allowance for depreciation.

USD/CNH peaked above 7.30 early in July. Prices then collapsed after last Friday’s all-round softer than expected monthly US jobs data. That sharp move broke down through the 200-day SMA, now at 7.2228. Manic Monday’s spike lower took the pair to levels last seen at the end of last year. That strong support zone around 7.10 saw prices bounce back up to the 38.2% retracement level at 7.1730. The next upside target is 7.1974.

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