September 11, 2023
As global financial markets brace for potential turbulence, all eyes are on the upcoming release of the US Consumer Price Index (CPI) data, which is set to be released on Wednesday (Sept. 13) . Against a backdrop of economic uncertainty on both sides of the Pacific, investors are closely monitoring key economic indicators and central bank actions for cues on market direction.
US Market Outlook
In the United States, major stock indices have shown signs of stabilization, albeit with feeble gains. Concerns surrounding inflationary pressures and a cautious tech sector have tempered market optimism. The September seasonality pattern, historically weak, is aligning with recent market performance. The VIX, a measure of market volatility, has struggled to move higher, hinting at a lingering sense of uncertainty.
The S&P 500 remains within its Ichimoku cloud pattern on the daily chart. As the Federal Reserve enters a blackout period and with the US Consumer Price Index (CPI) on the horizon, market sentiment is expected to remain cautious. The CPI data release is pivotal for anchoring rate expectations before the next Federal Open Market Committee (FOMC) meeting.
Asian Markets Under Pressure
Across the Pacific in Asia, stock markets are poised for a subdued start. The Nikkei, ASX, and KOSPI indices are showing marginal declines. Market attention is drawn to recent comments from Bank of Japan (BoJ) Governor Kazuo Ueda. His suggestion that the central bank may consider ending negative interest rates has raised the possibility of policy normalization.
However, Governor Ueda has also emphasized patience, tempering any hawkish expectations.
The impact of these slightly hawkish comments is evident in Japan’s 10-year yields, which have reached new highs since 2014. This has narrowed the yield differential with the US, a key driver for the USD/JPY exchange rate. However, expectations for any rate decision before 2024, coupled with the BoJ’s patient stance, suggest limited room for near-term hawkish bets.
US Dollar and Eurozone in Focus
The US dollar has maintained its strength, trading near a six-month high, as US Treasury yields remain firm. Market participants are closely monitoring the US CPI release, as any signs of rising inflation could impact expectations of Federal Reserve rate hikes.
In the Eurozone, economic uncertainties and European Central Bank (ECB) monetary policy decisions are at the forefront. While economic sentiment has deteriorated, ECB President Lagarde’s comments during the upcoming press conference will be closely scrutinized for insights into future policy.