US producer price index exceeds expectations

 

Fundamental outlook

 

US producer price index increased 0.4 per cent in September, exceeding expectations. Excluding food and energy, the core index gained 0.4 per cent on a monthly basis, rising 5.6 per cent from a year ago.

US consumer prices rose 0.4 per cent in September, exceeding expectations. On a yearly comparison, inflation gained 8.2 per cent and core consumer prices rose 6.6 per cent.

Dow market closed at 403 points on Friday. Market traders expect the Federal Reserve to tighten the rates again by early November to slow the rising inflation. Choppy markets are expected in 4Q.

Under the former UK Prime Minister Boris Johnson’s administration, corporation tax was set to increase from 19 per cent to 25 per cent. On Friday, Prime Minister Liz Truss scrapped the tax raise but introduced a mini-budget. Market investors interpret the policy as a U-turn in tax cut and this has led to a push in the 30-year yield on Friday. Market analysts expect her days in office to be numbered.

 

Technical forecast

 

US dollar/Japanese yen closed at 148.70 at a 32-year high on Friday. We expect the trend to rise and test 150 before profit-taking emerges in the market. The overall range is expected to be contained from 147.50 to 150 region. Abandon your long-view in case the prices fall beneath 147.50 support.

Euro/US dollar traded in a narrow range last week while traders move away from the market.

This week, we target the range will likely trade lower as the dollar is expected to strengthen again. The overall range is expected to be contained from 0.955 to 0.98. Observe the dollar index (USDX) as the prime lead to euro’s movement.

British pound/US dollar recovered last week but fell on Friday after Truss’ remark on the tax cut plan. We foresee the trend is prone to fall again with 1.14. Downside support is expected at 1.11 but breaking beneath this level will initiate a new downtrend.

WTI Crude prices rose above US$93 per barrel last week and receded to US$85.00 per barrel. The trend has been quite neutral lately. We target an initial range from US$84 to US$90 per barrel but observe for an unexpected break out in either direction.

Crude Palm Oil (FCPO) Futures on Bursa Derivatives rose on Friday driven by higher demand. December 2022 Futures contract settled at RM3,834 per metric tonne on Friday. We predict the trend will likely rise further and climb to RM4,300 per metric tonne as our next target. The downside support remains at RM3,600 per metric tonne in case of a drawdown.

Gold prices dropped last week as the dollar strengthened again. The yellow metal is prone to challenge the US$1,620 per ounce support to form a double-bottom.

Market movements are expected to trade from US$1,620 to US$1,680 per ounce in choppy sentiment. However, if the market heads beneath US$1,620 per ounce, it might lead lower to test US$1,570 per ounce.

Silver prices broke beneath US$19 per ounce on Thursday. The market will likely trade sideways within US$18 to US$19 per ounce while following the gold market’s trend. Traders are reminded to be cautious as the market trend is still volatile and uncertain ahead of the next FOMC.

 

Dar Wong has more than 30 years of trading and hedging experiences in global financial markets. The opinion is solely his own. He can be reached at dar@alaa.sg.

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