Pound Regains Lost Ground But Turmoil Continues

The US Dollar declined for a second consecutive day, but this time it hasn’t triggered bullish price movement in the stock market. Instead both US and Asian stocks declined along with the US Dollar. So what asset has actually increased?

Over the past 24 hours, the best performing assets have been XAU/USD which has increased in value by 2.85% after a decline in both the US Dollar and the stock market. So far, this is a correlation which has followed the theory books.

In addition to gold, the GBP has also increased in value against most other currencies including the US Dollar, Euro, and Yen. The British currency increased in value after it was confirmed that the new Prime Minister, Lizz Truss, will have an emergency meeting with the Office for Budget Responsibility. The Prime Minister is attempting to avoid another crisis as British assets, such as stocks and GILTS, decline significantly. The fear is that the latest tax cuts will increase the risk of government bonds due to the government account deficit.

USD/JPY

The USD/JPY is one of the few major currency pairs which has not seen the US Dollar decline in value. The US Dollar Index has declined from 114.59 to 111.98 over the past 3 days but the Yen was unable to take advantage of this and increase in value as the Japanese Government would have liked. Currently, we can see a clear resistance point at 114.929 which has been in place for 3 weeks now.

USD/JPY 2-hour chart on September 30th

A recession in the US was officially confirmed after two consecutive quarters of GDP in the red zone, which is the official definition of a technical recession. However, it should be noted that most officials disagree that the economy is in a recession, as consumption and the labor market remain strong enough to resist negative factors.

The economic statistics released yesterday continue to show the resilience of the US economy and the strength of the employment sector. The Initial Jobless Claims increased by 193,000, less than the previous 209,000 and the forecast of 215,000, and the Total Claims decreased from 1.376 million to 1.347 million.

Today investors will be looking towards the Core PCE Price Index, which, in simple terms, is an inflation figure that excludes food and energy. This is especially important as energy and food has been one of the main components of this year’s high inflation. Investors will also be watching the FOMC member, Brainard’s speech this afternoon.

Over the next few weeks, traders will specifically be cautious that the Japanese government will not attempt to intervene in the currency market as they did on the 22nd.

S&P500

The S&P 500 increased by 1.75% on Wednesday which gave some hope that the stock market may not continue to crash below the $3,631 level. However, the hope may have been misplaced. The index collapsed again during the latest trading session which has again taken the price below the support level and lower than Wednesday’s price range.

S&P 500 30-minute chart on September 30th

The price was partially brought down by negative news from certain companies such as Apple, Nike, and Advanced Micro Devices, which declined by a whopping 6%. As we already mentioned, Apple confirmed that they will not increase production as they expect lower demand over the next 2 quarters at a minimum, the price of the stock has continued to decline by almost 5%.

Nike stocks significantly declined after trading hours with the current minus measuring 9.36%. One of the largest US companies in the retail market advised that inventory on its balance sheet was up a whopping 44% to $9.7 billion, driven by continued supply chain issues. Investors also fear that this will result in higher prices which may damage sales figures as interest rates continue to rise and inflation remains high.

Over the next two weeks, investors will be concentrating on the NFP figure and especially the CPI. If inflation continues to rise, it can put significant pressure on the stock market.

Quick Summary:

• The S&P 500 drops to a lower price range again.
• Nike stocks decline over 9% after market hours.
• US Dollar down for a second day and gold benefits.
• GBP increases in value against all main competitors as the new PM issues an emergency meeting with the OBR.