BoJ hikes rates as expected

MORNING OVERVIEW

The BOJ hiked interest rates by 25 basis points as was widely expected, yet traders appear unconvinced of the BOJ’s conviction to hike rates further.

MARKET SNAPSHOT

MARKET	CURRENT	CHANGE	COMMENT
S&P 500	7610	+0.77%	Market optimism
DXY	100.21	-0.04%	Fed policymakers to shape the dollar
GBP/USD	1.3386	+0.04%	BoE decision today
Gold	4325	+1.45%	N/A
Brent Crude	104.82	-0.86%	Mid-East in focus

KEY MARKET THEMES

01 — BOJ hikes by 25 basis points as was expected.

The BOJ hiked by 25 basis points, as was widely expected during today’s Asian session. Despite the BOJ’s rate hike the Yen appears to be losing some ground against the US dollar during today’s trading session, which is a surprise considering the BoJ decision raises rates to their highest level since 1995. The weakening of the Yen could be attributed to the two policymakers who dissented, showcasing opposition to the BoJ’s rate hike ambitions. Moreover, according to some media outlets, the bank’s commentary failed to suggest that the bank may be considering another rate hike in October, which may have weighed on the JPY. Yet, when looking at the bank’s accompanying statement, we are taking the following statement “there is a risk that it will deviate upward to a level above the price stability target of 2 percent”, which tends to imply that the bank could hike rates, although the question still remains as to when.

Market implication (JPY): NEUTRAL

02 — ECB Lagarde to speak today

ECB President Lagarde is set to be speak later on today. The ECB President’s comments on the matter of inflation and the ongoing conflict in the Middle East may be closely watched by market participants who could be looking for clues into the bank’s future actions. Should the commentary be perceived as hawkish, it could provide support for the EUR and vice versa. Although in our view, we wouldn’t be surprised if ECB President Lagarde sticks to the narrative she presented last week following the ECB’s interest rate decision, which in turn may have minimal effect on the common currency.

Market implication (EUR): N/A

03 — UK retail sales rates come in higher than expected

The BoE’s retail sales rate for August were released earlier on today. The retail sales rates both on a headline and a core level came in higher than expected implying an increase in consumer consumption. The higher than expected rates may imply an expansion of economic activity, which in turn could provide support for the sterling during today’s trading session.

Market implication (GBP) : BULLISH

WHAT MATTERS TODAY

ECB Lagarde’s speech

Time (GMT+2): 13:30

• Expected: N/A
• Previous: N/A

Potential market reaction:
N/A

FOMC Bowman’s speech

Time (GMT+2): 13:30

• Expected: N/A
• Previous: N/A

Potential market reaction:
N/A

WHAT MATTERS MONDAY MORNING

PBoC interest rate decision

Time (GMT+2): 04:15

• Expected: N/A
• Previous: 3%

Potential market reaction:

Any rate higher could aid the CNH.

ASSET FOCUS

[GOLD / COMMODITIES]

Gold appears to be moving in an upwards fashion for the day. We now opt for a bullish outlook for gold’s price after it clear our resistance turned to support at the 4350 (S1) level. For our bullish outlook to be maintained, we would require a clear break above our 4520 (R1) resistance level, with the next possible target for the bulls being the 4695 (R2) resistance level. On the other hand, for a sideways bias we would require the commodity’s price to remain confined between our 4350 (S1) support level and our 4520 (R1) resistance line. Lastly, for a bearish outlook we would require a break below our 4350 (S1) support level, with the next possible target for the bears being our 4180 (S2) support line.

KEY LEVELS

• Resistance (R1): 4520
• Resistance (R2): 4695
• Support (S1): 4350
• Support (S2): 4180

Technical View: NEUTRAL

CROSS-ASSET VIEW

ASSET CLASS	BIAS	KEY DRIVER
Equities	Bearish	FED
USD	Bullish	FED
Gold	Bullish	N/A
Oil	Bearish	Mid-East

RISKS TO THE VIEW

Easing of tensions with Iran

Per Bloomberg Saudi Arabia is moving to restore their damaged pipeline which resulted in a reduction in the global oil supply, with President Trump also stating that he’s approaching a big decision as to whether the US will re-escalate attacks on Tehran

TRADING SPHERE VIEW

Bearish for oil

Our base case:
Resumption of oil supply into the global markets appears to be pushing oil prices lower. Moreover any attempts at peace in the Middle East could weigh on oil’s price

What would change our view:
The US re-escalating strikes on Iran

TODAY’S WATCHLIST

01 ECB Lagarde speech

02 FOMC Bowman’s speech

Disclaimer:

This information is not considered as investment advice or investment recommendation but instead a marketing communication.