Peak hawkishness again

US equities were stronger again Tuesday, S&P up another 3.1%. The pound rallied further, and oil went up another 2.9%. US10yr yields down 1bp to 3.63%, 2yrs down 1bp to 4.11%.

• More bad news? Yep, you guessed it; US job openings tanked in August, the most since the beginning of the COVID, a further signal the US economy is cooling. 

• All eyes are on the employment data on Friday, which has priced in tremendous one day volatility in the options market. 

• The VIX finally broke and held below 30, helping to cement a short-term top. This theme was seen in SOFR and Eurodollar options, with short straddles and strangles structures grabbing headlines.

•  Oil has received a bid recently, with OPEC looking like they will curb production. Indeed, this would convey the group's concerns over a slowing global economy.

A big miss on US job openings, dropping a little over 1mn in August to the lowest level since June 2021, with declines seen across a broad cross-section of industries. Private quits rate unchanged at 3%. Relative to a pre-covid, the labour market still looks tight, but the significant decline in openings is a helpful move in the right direction. 

So, it is fair to assume that any softer economic leans within upcoming US financial data will be interpreted as early signs of success in the Fed's current tightening cycle, and investors should then be encouraged by the fact the FOMC might not need to follow through with an aggressive rate hike path.

In the wake of the RBA dialling back, a short squeeze and speculation that global central banks will ease their hawkish approach have fueled the move higher in stocks. The convincing risk revival U-turned the USD momentum this week as market pressure points (real rates and the US dollar) continue to ease. And encouragingly, the risk recovery has morphed from a low-quality rebound on Monday to a broad move higher in Cash Markets as Futures and ETF hedges come off. 

And while the writing was "on the wall" yesterday in the wake of the ISM miss and the dovish RBA pivot, positioning is a factor as more-crowded shorts are outperforming.

Nonetheless, investors took relief from the first 'soft' pivot from a major central bank following the recent spike in cross-asset volatility.

Twitter shares surged as Musk revived his deal to buy the social media company. Share jumped 21% after resuming trading following a Bloomberg report that Elon Musk has revived his deal to buy the social media company for $54.20 per share, or $44 bn.

Oil

Oil prices are galloping ahead of what is expected to be an extraordinary production cut by OPEC+, who are reportedly considering slicing as much as 2mb/d for Wednesday's meeting. Russian Deputy Prime Minister Alexander Novak will attend the in-person meeting, giving rise that the partners are preparing for a significant output cut and showing unity.

The actual amount would likely be much lower given that most of OPEC+ are already producing well below quota. Most of the reduction would come from Saudi Arabia, United Arab Emirates, and possibly Kuwait and Iraq.

In addition to the expected production cut, those significant headwinds generated by rising "real rates" and the surging US dollar are reversing tack, providing participants with a gentle up-draft to ride. 

Hence Oil traders have been encouraged by the thought of a convincing OPEC backstop, a softer global rate profile and a soggy US dollar. But importantly for oil bulls, participation is back as USD's parked on the sideline are diving into the front month carry trade.

Gold

Gold broke through the 50-day average thanks to a 10 % rise in silver. The board-based asset recovery catalyzed by market participants diving into peak-rate hike bets powered bullion above the keen $1700, triggering another day of technical action in gold and silver as shorts scramble to cover.

Forex 

G-10 

In the wake of the dovish RBA pivot, the dollar selloff extended further in New York. 

The Bank of England's decision to intervene in the Gilts market worked wonders. Its willingness to act has meant that its physical involvement has been minimal. GBPUSD is within eyeshot of the 1.15 handle, up 11 big figures in just 9 days. 

The 48-hour risk revival as global rates are finding a bit of a base has triggered a broad-based currency recovery. 

And with signs that the US economy is slowing, FX traders will take a dim view of the Fed tightening ferociously into an economy that is starting to spring a few leaks. Hence, FX markets are now on US economic data watch, making Friday Grandaddy of them all Economic data prints, US Non-Farm Payroll, a " big one." 

Asia FX

USDCNH has recovered smartly as interest rate differentials narrow favourably of the Yuan. And as usual, the rally in the Yuan is having a magnetic attraction across the Asia FX basket as all local currencies are rallying in lockstep.

China regulators have taken measures to stabilize financial markets due to the gloomy growth outlook, but a less hawkish global central bank narrative currently encapsulating markets will be music to policymaker's ears as they head into a hugely significant political gathering on October 16

The Thai Bhat rallied on an easing of global financial conditions encouraging so for leisure and travel sectors. If there is a currency that is hoping for an easing of China Covid restriction post-October 16 Chinese Party Congress meeting, its the THB 

The Malaysian Ringgit was laggard yesterday despite positive risk sentiment and surging oil prices. And while the MYR should bounce at the open on broader USD weakness, participation could remain light ahead for Malaysia Budget 2023 on Friday, given uncertainty over fiscal concerns.