The US debt ceiling, fiscal flows, and political wrangling, in my opinion, are causing a lot of risk in the markets but there is also bad news coming out of China, and energy prices are keeping inflation metrics higher than expected. Add in supply chain disruptions and the ongoing COVID situation and we have a perfect storm for a 10%+ correction in very frothy markets.
Market Brief
On Friday, the DAX in Frankfurt fell over 1.5% after German retail data for August failed to meet market expectations. Investors will soon be able to review the most recent Eurozone inflation figures, as well as reports on manufacturing activity in Germany, the United Kingdom, and the eurozone. Additionally, the EU postponed its trade talks with Australia following Australia's decision to cancel an order of submarines.
The start of October has already taken out September's low, marking August as the most significant swing high. The next logical line of support will be a lot lower around 13,750 which would be a 15.5% drop from the highs. Some will be calling for the end of the world by then, but it could be a great buying opportunity.
Retail sales in Germany increased 1.1% month-over-month in August, partly recovering from a 4.5% drop in July, but falling short of market expectations of a 1.5% rise. Sales increased by 1.2% in nominal terms compared with July, but by 2.3% on an annual basis. Comparing August 2021 with February 2020, retail turnover increased by 6.0% in real terms.
According to the Japanese Consumer Confidence Index (seasonally adjusted series), the index rose 1.1 points to 37.8 points in September 2021. In general, livelihood increased by 1.1 points the previous month, income growth increased by 0.5 points, and employment increased by 2.9 points. Reports released by Japan's Cabinet Office on Friday showed that the country's seasonally adjusted Consumer Confidence Index surpassed expectations in September and improved when compared to August. Despite the reading rising by 1.1 points compared to the previous month's data, the figure was seen at 37.8, still below the neutral 50.
Following on from the positive Japanese data this morning the yen has caught a bid against its peers, but this is also safe-haven flows as the perception of risk increases globally.
The US dollar index has stalled at the resistance levels of $94.50 as there has been no resolution to the $1trln bipartisan infrastructure bill. There could be a vote today. However, the US government shutdown has been avoided after President Biden signed a bill as expected. If the US dollar should come off these highs this will be good for the EURUSD and GBPUSD which have both swept lows and stopped weak hands out.
Silver has dropped more than -8% over the course of a month of trading and in the last couple of days also swept some swing lows in the search of buyer’s liquidity. A lot of people would say that the market is manipulated but in reality, a lot of this action is explained in the US 10-year treasury yield, inflation, and US dollar expectations. What this could signal is that the turn is about to happen in the DXY, US10Y, etc. If we get a decent close today above yesterday’s high the next targets for the bulls would be to take the short-sellers stops at $23.20 and then $25.00.
The retail sentiment as shown by the ActivTrader sentiment indicator is very bullish which usually means that the spot price is due a further correction lower.
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