Tech tumbles, bonds and bullion bid

* Big ASML miss sends chip stocks and tech lower  

* Jumbo cut seen at next week’s BoC meeting after soft CPI

* Israel assures US it won’t strike Iranian nuclear or oil sites, crude turns lower

* UK inflation set to resume slide after mid-summer stall

FX: USD edged higher and traded around the 100-day SMA at 103.22 on the Dollar Index. The bull run just about continued; this kind of consecutive win streak in the majors is relatively rare and prone to a pull back. That said, the daily RSI has only just touched 70 denoting very mildly overbought conditions. Treasury yields did an about-turn after a soft US manufacturing activity gauge. The 10-year has risen for four straight weeks to its highest level since July 31.

EUR fell to more cycle lows below 1.09. A better-than-expected ZEW German business survey didn’t help euro sentiment. A series of consecutive rate cuts by the ECB is expected, with another 25bps move on Thursday fully priced in by money markets.

GBP is just about in the green on the week versus the dollar, the only major to do so. UK wage data rose in line with estimates as the drop in the jobless rate was looked through due to reliability issues with the data. A base is potentially being formed in cable around 1.30 with bargain hunters evident.

USD/JPY dipped modestly as Treasury yields moved lower. In fact, the yen is the outperformer on the day after the major rose close to 150 yesterday. That prompted renewed talk of intervention, though only because that psychological level was a previous “line in the sand”.

AUD is moving down to one-month lows on muted risk appetite. The 100-day SMA is at 0.6693. USD/CAD spiked to a high at 1.3838 before pulling back. A tenth down day in a row for the loonie was on the cards which would have been its worst run since 2017, according to Bloomberg. CPI data came in softer than expected, tipping rate cut bets in favour of a 50bps move next week at the BoC meeting.

US Stocks turned red reversing all of Monday’s gains and more. The S&P 500 closed 0.76% lower to settle at 5,815. The tech-laden Nasdaq 100 lost 1.37% to finish at 20,323. The Dow settled down 0.75% at 42,470. Tech and especially chipmakers were hit with the early release of ASML earnings in Europe. These came in lower than expectations, primarily due to US sanctions preventing the company from selling to China. Their shares plunged 16%, the most in 26 years, dragging Nvidia down by 4.69%. UnitedHealth dragged the Dow down as it narrowed its full-year earnings outlook amid higher-than-expected impact from business disruptions. That saw the shares drop over 8%.

Asian stocks: Futures are in the red. Asian stocks traded mixed with China lagging the other main markets who were led higher by tech and the fresh record highs on Wall Street. The ASX 200 hit an all-time high boosted by miners and tech. The Nikkei 225 returned from its holiday by jumping up above 40,000. The Hang Seng and Shanghai Composite both traded lower due to the ongoing disappointment with China stimulus measures and weak trade data. Frictions around chip sales by Nvidia and AMD also didn’t help the indices.

Gold advanced higher after dipping close to the 21-day SMA at $2635. The record top is at $2685. The non-interest bearing metal got a lift from falling Treasury yields. The 10-year turned lower towards the 4% level.

Day Ahead – UK CPI to dictate November BoE rate cut

For today’s UK inflation report, consensus sees the annual headline CPI figure easing to 1.9% from 2.2%, after holding steady in the prior release. The core is also seen moderating, though by a smaller extent to 3.5% from 3.6%. That had risen from 3.3%. The all-important services metric previously jumped to 5.6% from 5.2% due to unfavourable base effects and certain volatile sectors. IT is forecast to print at 5.2% in September.

The headline reading is likely to be weighed on by declines in fuel prices for the month. But recent price action in the energy space and ongoing geopolitical tensions means it is hard to say if this will be sustained. For service inflation, we note the BoE’s forecast in August was 5.5% and many economists forecast a lower print, although the data has been volatile recently due to very choppy hotel prices.

Chart of the Day – GBP/USD forming a base?

From a policy perspective, this will be the final inflation report before the November BoE policy announcement and fresh quarterly Monetary Policy Report. Markets assign around an 80% chance of a 25bps cut at that meeting, so there is still a bit of room for dovish repricing. Decent support sits around 1.30 in GBP/USD. However, a hot CPI release would provide ammunition to the more cautious hawks on the MPC and could set markets up for another split vote next month.

A major Fib retracement level (38.2%) of the April to September rally sits at 1.2995. The mid-September low is 1.3001, reinforcing this support zone. If a base isn’t forming here, then we could see 1.2862 relatively quickly with the 100-day SMA at 1.2948 near-term support.

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