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Tech Sell-Off Continues

By Marc ChandlerForexNov 23, 2021 06:33AM ET
Tech Sell-Off Continues
By Marc Chandler   |  Nov 23, 2021 06:33AM ET
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The markets are unsettled.

Bond yields jumped, tech stocks were leading an equity slump, and yesterday's crude oil bounce reversed. Gold, which peaked last week near $1877, was dumped to around $1793.

The tech sell-off in the US carried into the Asia Pacific session, and Hong Kong led most markets lower. The local holiday let Japanese markets off unscathed, though the Nikkei futures were off about 0.4%. Australia and India managed to post minor gains as the MSCI AC Asia Pacific Index fell for the fourth time in five sessions.

Europe's Stoxx 600 slid around 1.5% today, its fourth consecutive decline, but clawed back nearly half the gains  It was the longest retreat in two months. US futures were lower, with the NASDAQ leading the move.

Near 1.64%, the US 10-year yield was at the upper end of this month's range. Last month it reached 1.70%. European bond yields were mostly 4-6 bp higher, and peripheral spreads widened a little.

The dollar was sitting in the middle of the major currencies. The dollar bloc, sterling, and the Norwegian krone, which were the risk-on, levered to growth currencies, were weaker. The euro, yen, and Swiss franc were little changed but firmer. The dollar briefly traded above JPY115.00 in Asia, without Tokyo, before being pushed back. The steady euro took some pressure off most of the regional currencies.

The Turkish lira was in a virtual freefall following President Erdogan's spirited defense of his efforts to drive down rates. There was around 10 lira to the dollar in the middle of November. Today, at its peak, there was about 12.48 lira to the dollar.

Asia Pacific

Over the weekend, Japan expressed willingness to cap its strategic reserves. Press reports indicated yesterday that India was amenable to coordinating a release of some of its oil stocks. South Korea may also participate. It has been under consideration for a couple of weeks, at least, in the US, and China appeared willing to repeat September's release of crude from its reserves.

However,  it seems naïve to have expected OPEC+ to simply stand by. January WTI posted a bearish outside down day ahead of the weekend by trading on both sides of the previous day's range and settling below the previous session's low. Follow-through selling yesterday took it down about $1.20 from the close, but then OPEC+ announced that a coordinated release of the oil could prompt it to reconsider its own plans. It is to meet next week to review its strategy. Through yesterday's low, January WTI had retreated by nearly 11% from the Oct. 25 higher near $83.85. A band of resistance was seen between $78 and $80.

OPEC+ had previously agreed to boost output by 400k barrels a day per month to restore pre-pandemic output levels. That said, not all the members can produce their quota, leading to a shortfall. OPEC+, the IEA, and EIA all seem to agree that supply-demand considerations shift in next year, and the market will once again be in oversupply.

Moreover, OPEC+ argued that the real dislocation was not with oil as its with gas. The US imports about 2.9 mln barrels a day, India, about 4.2 mln, and Japan, about 3.1 mln barrels a day. South Korea imports around 2.5 mln barrels a day. Together it is around 12.7 mln barrels a day of imports. If together, 100 mln barrels are released, about eight days of imports would be covered. This was a high estimate. India, for example, indicated it may release 5 mln barrels.

Australia's flash November PMI was better than expected. Manufacturing edged up to 58.5 from 58.2, while services rose to 55.0 from 51.8. This produced a 55.0 composite reading, a gain from 52.1 in October. Recall, the pandemic and lockdown led weakness in the economy in the May-August period. The composite PMI bottomed in August at 43.3. It has risen for three months but remains well off the peak in April of 58.9.

Separately, New Zealand real retail sales were hit in Q3 by the social restrictions, but the drop was not quite as bad as feared. Real retail sales fell 8.1% after a 3.3% increase in Q2. Economists (Bloomberg median) had anticipated a 10.5% pullback. The RBNZ meets first thing tomorrow and is widely expected to hike 25 bp, to lift the cash rate to 0.75%. There was still a slight bias toward a larger move in the swaps market.

The dollar briefly traded above JPY115.00 for the first time since March 2017. We note that Japanese dealers were on holiday and did not participate in the move. As risk-off sentiment took over, the dollar was sold back to JPY114.50. Resistance in Europe was found near JPY114.80. Note that there is an option for about $980 mln at JPY115.50 that expires tomorrow.

The Australian dollar initially edged lower to almost $0.7210, its lowest levels since Oct. 1 before steadying. A break of $0.7200 signals a retest of the late September low near $0.7170. Initial resistance was seen in the $0.7230-$0.7250 area.

The PBOC was sending plenty of verbal signals that it didn't want to see strong yuan gains, and today's fixing underscored that point. The dollar's reference rate was set at CNY6.3929, wider than usual above the market expectation (Bloomberg) for CNY6.3904. The greenback was firm inside yesterday's range. Caution was advised here as the PBOC could escalate its disapproval.


The flash EMU November PMI was better than expected. The aggregate manufacturing PMI rose to 58.6 from 58.3. The market anticipated a decline. The service PMI rose to 56.6 from 54.6, also defying expectations for a sequentially weaker report. The composite snapped a three-month slide and rose to 55.8 from 54.2. The cyclical peak was in July at 60.2.

A flash release was made for Germany and France. Germany manufacturing slowed slightly (57.6 from 57.8) and held up better than expected (Bloomberg median 56.9). Services actually improved (53.4 from 52.4). The composite rose to 52.8 from 52.0 to end a three-month downdraft after peaking in July at 62.4.

French numbers were even better. The manufacturing PMI rose to 54.6 from 53.6. The service PMI rose to 58.2 from 56.6. The composite improved to 56.3 from 54.7 to snap a four-month fall. Recall that yesterday the Bundesbank warned that the German economy may practically stagnate this quarter and that inflation may approach 6% this month.

The UK's flash PMI was more mixed. The manufacturing PMI had been expected to have slowed but instead improved for the second consecutive month (58.2 from 57.8). Services were nearly as weak as anticipated slipping to 58.6 from 59.1. The composite eased slightly to 57.7 from 57.8, ending a two-month recovery from the June-August soft patch.

Meanwhile, Prime Minister Johnson's rambling speech yesterday hurt people's ears, and in terms of substance, the changes to social care funding that may result in lower-income people having to sell homes to pay for support did not go over well. It is spurring talk of a possible cabinet reshuffle. 

The euro edged to a new low for the third session today, slipping to almost $1.1225 before catching a bid that lifted it back to $1.1275. There is an option for around 765 mln euros at $1.1220 that expires today. The nearby cap was seen in the $1.1290-$1.1310 area. The euro may struggle to sustain upticks ahead of tomorrow's US PCE deflator report (inflation to accelerate).

Sterling met new sellers when it poked above $1.3400. It ground lower in the European session, and fell to almost $1.3355. Note that the low for the year and month was set on Nov. 12, slightly above $1.3350. We saw little chart support below there until closer to $1.3165.


We suspect many pundits exaggerated the link between the renomination of Powell for a second term and the sell-off in US debt and technology shares. First, it was not a surprise. Second, it assumed a substantive difference in the conduct of monetary policy between Powell and Brainard. There isn't. The difference was on regulatory issues and on the role of climate change. Third, the idea that the Fed may accelerate its bond purchases next month was sparked by the high CPI reading on Nov. 10.

Yesterday, Bostic joined fellow Fed President Bullard. Two governors (Clarida and Waller) also seemed to be moving in that direction (Waller may be faster than Clarida). The fact of the matter, nearly all of the high-frequency data for October, including employment, auto sales, retail sales, industrial production, and inflation, came in higher than expected. The US sees the preliminary November PMI today. It is expected to have risen for the second consecutive month after fall June-September.

The reception to yesterday's US two- and five-year note auctions was relatively poor. The higher yields (compared with the previous auctions) did not produce better bid-cover ratios. Today the Treasury comes back with $55 bln seven-year notes and re-opens the two-year floater. Many observers see the debt ceiling constraint being likely an early 2022 problem rather than this year. Still, tomorrow's sale of the four-week bill may be the test. Recall that at last week's auction, the 4-week bill yield doubled to 11 bp.

Europe's virus surge and social restrictions became a market factor last week. Many think that the US was a few weeks behind Europe. The seven-day infliction rate in the US rose 18% week-over-week. Several states, including Colorado, Minnesota, and Michigan, were being particularly hard hit. Nationwide, 59% of Americans were reportedly fully vaccinated. However, it left about 47 mln adults and 12 mln teens unvaccinated. 

The risk-off mood and the drop in oil prices were helping the US dollar extend its gains against the Canadian dollar. The greenback, which started the month below CAD1.24, was pushing close to CAD1.2750 to take out last month's high. A move above here would target CAD1.28 and then the September high near CAD1.2900. Still, the market was getting stretched, and the upper Bollinger® Band was slightly below CAD1.2730.

The risk-off mood did not sit right with the Mexican peso either. The dollar settled above MXN21.00 yesterday, its highest close in eight months. The same forces lifted it to MXN21.1250 today. However, the anticipated gain in September retail sales (0.8% Bloomberg median after a flat report in August) may not give the peso much support if the risk-off continues. The high for the year was set on Mar. 8 near MXN21.6360.

Tech Sell-Off Continues

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Tech Sell-Off Continues

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