MNI US MARKETS ANALYSIS - USD Climb Accelerates, Hits New Cycle Highs

US TSYS: Yld Surge, 2YY Tops 4.2% Overnight

• Markets continue to digest hawkish forward guidance since the Fed hiked 75bp on Wed, the BoE 50bp yesterday. Yield curves little flatter, unwinding small portion of yesterday's bear steepening, 2s10s currently -2.913 at -43.967 (-41.164 high Thu vs. -57.943 low).
• Data focus turns to US PMIs after European PMIs (UK Flash Mfg PMI48.5 better than 47.5 est but still contractionary, services 49.2 vs. 50.0 est; EU Mfg PMI 48.5 vs. 48.8 est;) saw EGBs trade lower on rising prices. US data at 0945ET:
  • S&P Global US Manufacturing PMI (51.5, 51.0)
  • S&P Global US Services PMI (43.7, 45.5)
  • S&P Global US Composite PMI (44.6, 46.1)
  • Fed speak returns after 10 day Blackout:
• Fed Chairman Powell at Fed Listens event at 1400ET, opening remarks unlikely to move markets, but may make iterative remarks tied to Wed's presser.
• Current cross asset snapshot: stocks weaker (SPX -38.0 at 3734.0) crude weaker (WTI -1.92 at 81.57), Gold weaker (-15.05 at 1656.17).

UK: Fiscal Event Marks Major Shift In Conservative Gov'ts Policy Stance

Politically the fiscal event just concluded by Chancellor Kwasi Kwarteng in the House of Commons marks the largest shift in the policy stance of the Conservative party in a generation.

• An economic agenda built around tax cuts, with many of them focused on higher earners, would not have been thinkable under former PM David Cameron and his Chancellor George Osborne's 'austerity' policies, nor Boris Johnson's 'leveling-up' agenda. The former of which focused on lowering gov't spending, while the latter was centered on boosting investment and infrastructure projects in the north of England.
• Bloomberg reports that the cost of the package will be GBP161bn over five years.
• The overt shift to a low-tax stance from the Conservatives could be seen as a risk to the party's seats in the north, where many voters were viewed to have been swayed to vote Conservative for the first time ever by former PM Johnson's lavish spending promises.
• Opinion polling continues to show the Conservatives trailing the main opposition centre-left Labour Party by around 8-10% nationwide. On these figures, a Labour majority gov't or Labour-led coalition would be the most likely outcome of a general election.

FOREX: Dollar on Top, With Greenback Uptrend Intact

• The USD Index remains on top, with the greenback stronger against all othes in G10 and keeping the uptrend intact following Wednesday's Fed decision. This has resulted in further cycle lows for a number of pairs - most notably EUR/USD and GBP/USD, which remain weak headed through to the NY crossover.
• The UK mini budget (also known as the 'Growth Plan') has seen GBP stabilise off the lows, but hold uncomfortably close to multi-decade lows against the USD. The mix of aggressive tax cuts and pro-growth policies has led to a sharp uptick in the Gilt yield curve and implied interest rate hikes over the medium-term, possibly raising further the concerns of a staglationary environment in the UK across the coming few years.
• Bearish trend conditions in GBPUSD remain intact and the pair continues to weaken. The move lower maintains the bearish price sequence of lower lows and lower highs, signalling scope for a continuation. Note that moving average studies are in a bear mode set-up too. The focus is on the 1.1100 handle next.
• Focus turns to Canadian retail sales for July and the prelim September read for US manufacturing, services and composite PMI. The central bank speakers slate sees appearances from ECB's Nagel, SNB's Jordan and Fed's Powell, who speaks at a 'Fed Listens' event.

FX OPTIONS: Expiries for Sep23 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9900(E536mln), $0.9950(E724mln), $0.9986-00(E3.1bln), $1.0150(E1.2bln)
• USD/JPY: Y139.85-00($513mln)
• AUD/USD: $0.6675(A$751mln), $0.6865(A$554mln)
• USD/CNY: Cny6.9500($940mln), Cny7.0000($828mln)

Price Signal Summary - Gilts In Freefall

• In the equity space, S&P E-Minis remain soft. Continued weakness confirms a resumption of the bear cycle that started mid-August. The break paves the way for a move towards 3741.75, the Jul 14 low. The key support at 3657.00, Jun 17 low, has also been exposed. This is an important bear trigger. EUROSTOXX 50 remains soft following the reversal last week from 3678.00, the Jun 13 high and this week’s follow through. Key short-term support at 3423.00, the Sep 5 low has been cleared, the break strengthens bearish conditions and opens 3360.00 next, the Jul 14 low.
• In FX, the EURUSD remains vulnerable and has resumed its downtrend today. The break lower this week confirmed a resumption of the primary downtrend - support at 0.9864, Sep 6 low, was cleared. The focus is on 0.9694, 1.00 projection of the Aug 10 - Sep 6 - 12 price swing. The GBPUSD downtrend remains intact and the pair continues to weaken. The move lower maintains the bearish price sequence of lower lows and lower highs, signalling scope for a continuation. The focus is on 1.1073, 0.764 projection of the Aug 10 - Sep 7 - 13 price swing and 1.1001, 2.00 projection of the Jun 16 - Jul 14 - Aug 1 price swing. USDJPY traded in a volatile manner Thursday. The pullback resulted in a print below 141.75, the 20-day EMA. The trend structure remains bullish and it is too early to tell whether yesterday’s price action is a key reversal day. A daily close below the 20-day EMA and below 140.00 would strengthen a bearish threat. A resumption of gains would refocus attention on 145.00 and beyond. Support is at yesterday’s low of 140.36.
• On the commodity front, Gold is consolidating and the recent pause in the downtrend appears to be a bear flag formation. This pattern reinforces a bearish theme. The recent break of support at $1681.0, the Jul 21 low, confirmed a resumption of the downtrend that started early March. Attention is on $1640.9 next, the Aug 8 2020 low. In the Oil space, a bearish threat in WTI futures remains present. The recent break of support at $84.25, the Jul 14 low, confirmed a resumption of the downtrend that started Jun 8 and marks the end of a broad sideways move that has been in place since mid-July. A continuation lower would open $79.31 next, the Feb 18 low. Key short-term resistance is unchanged at $89.35, the 50-day EMA.
• In the FI space, Bund futures remain in a clear downtrend and the extension lower this week has again confirmed a resumption of the bear leg that started early August. The major support at 140.67, the Jun 16 low (cont), has been cleared. The break strengthens the broader bearish outlook. With 140.00 pierced, attention turns to 138.68, Jan 2014 low (cont). Gilts have resumed bearish activity today as the downtrend accelerates. The break lower maintains the bearish price sequence of lower lows and lower highs. The psychological 100.00 handle has been pierced, attention turns to 97.44 Low Sep 1994 (cont).