Daily Market Outlook, July 29, 2022

Overnight Headlines

Asian equity market performance is mixed this morning despite yesterday’s rise in US equities. Futures prices point to further gains in the US today reflecting better earnings reports from Amazon and Apple. The release of US Q2 GDP figures which showed a second consecutive fall in quarterly GDP led to comments that the US is in ‘technical’ recession. However, US Treasury Sec. Yellen said that “we are not seeing a broad-based weakening of the economy.” The US and Chinese Presidents are reported to be planning a face-to-face meeting. Japan CPI inflation picked up by more than expected in July reflecting higher energy and food prices, and a weaker yen.

The July Lloyds Business Barometer, which was released earlier this morning, showed a further fall in business confidence taking it below the long-term average. The decline was most marked for large companies and primarily reflected growing concerns about the overall economy as firms views about their own trading conditions remained relatively upbeat. Hiring intentions were also positive although they have moderated somewhat. But there is still little sign of wage or price pressures easing.

Today’s busy data calendar includes GDP and inflation data for the Eurozone. Q2 GDP growth is expected to have slowed sharply from its pace in Q1 and, there is a case that as in the US, output may have fallen during the quarter. Annual Eurozone CPI inflation for July is expected to post a modest fall when compared to June. That is primarily due to the fall in energy prices during the month. In contrast, the ‘core’ measure is expected to pick up slightly - an indication that inflationary pressures may be broadening out. Yesterday, German CPI data for June showed an unexpected acceleration, which points to potential upside risks for today’s report. French & Spanish printss will also be released before the Eurozone numbers.

In the UK, Bank of England money supply and bank lending data is the only release of note. They may provide new insight into the strength of the housing market and into whether consumers and businesses have raised borrowing to tide themselves through the current cost of living squeeze on incomes. However, the data will probably receive only limited market attention as the main focus is on next week’s BoE policy update.

In the US, the June reading for the Fed’s preferred measure of consumer price inflation is predicted to record another rise, taking it even further above the Fed’s inflation target. Finally, the employment cost index, an important measure of wages, is expected to post a deceleration in Q2 but still show labour costs growing at an uncomfortably rapid pace.

Citi note that the estimated outflows from US equities make up the most of the rebalancing need in equities, followed by Japanese equities. Citi add that most other equity and bond markets may see rebalancing inflows.
The USD sell signal strength is in line with the historical norm across all currencies other than EUR/USD. "The signal to buy EUR and sell USD is weakest at 0.7 standard deviations because good performance of Euro Area fixed income may also lead to foreign EUR selling to hedge those gains.With the exceptions of GBP and NZD, we haven’t seen significant net real money buying of other currencies in the past week, potentially suggesting little or no front loading of rebalancing trades so far"

EUR/USD: 1.0050 (1.11B), 1.0125 (658M), 1.0200 (824M), 1.0205 (838M) EUR/USD: 1.0245 (1.28B), 1.0250 (1.80B), 1.0300-05 (1.30B)
EUR/CHF: 0.9700 (702M), 0.9900 (1.0B)
USD/JPY: 128.50 (3.23B), 130.00 (580M), 132.50 (675M))
GBP/USD: 1.1700 (486M), 1.2100 (1.0B).
EUR/GBP: 0.8795-0.8800 (420M)
USD/CAD: 1.2695 (435M), 1.2830 (630M), 1.2920-30 (974M), 1.3195 (671M)
AUD/USD: 0.6750 (401M), 0.7000 (376M)

EURUSD Bias: Bearish below 1.0350

Month end flows often lead to random moves especially in Europe
Ukraine conflict shows no signs of a resolution
Plenty of EZ data today with flash Q2 GDP and EZ inflation to be released
Resistance 1.0250/60 stronger offers seen to 1.0350/60, support 1.0100-05, 1.0070-75
20 Day VWAP is bullish, 5 Day bullish

GBPUSD Bias: Bearish below 1.2280

USDJPY Bias: Bearish below 134

AUDUSD Bias: Bearish below .7050

Risk assets rallied in Asia with strong after-hour results from Apple and Amazon helping
US June PCE, Q2 employment costs will be key data risks for Friday
Offer at .70 being eroded as price is accepted above .70 bulls target .71 test
AUD/USD support now sited at .6950/40
20 Day VWAP is bullish, 5 Day bullish

BTCUSD Bias: Bearish below 25.3K