S&P 500 continued its downswing without much of a respite even though bonds favored stocks to reach higher than they did one hour before the closing bell. Interestingly, VIX has barely moved in spite of the quite meaningful downside continuation – let alone Wednesday‘s reversal that caught so many off guard. Thankfully not you! Today, we‘re already below my direction-setting level described in these two tweets. USD is up, and much of the forex antidollar plays in disarray (beyond the usual suspect, Japan) – this isn‘t yet a dollar top. That‘s a consequence of Treasuries price action – no top in yields, not enough fresh buyers to make up for the vacated Fed place, is putting and will put even more serious pressure on asset prices. Keep enjoying the lively Twitter feed serving you all already in, which comes on top of getting the key daily analytics right into your mailbox. Plenty gets addressed there, but the analyses (whether short or long format, depending on market action – today short) over email are the bedrock, so make sure you‘re signed up for the free newsletter and that you have Twitter notifications turned on so as not to miss any tweets or replies intraday. Let‘s move right into the charts. S&P 500 and Nasdaq outlook This is still a really bearish S&P 500 chart – not even volume is increasing on the downswing. Both cyclicals and tech are suffering, but the market generals (AAPL and beyond) have still quite some catching to do. After Wednesday, the selling is quite orderly still, no panic yet, but I am unwilling to chase prices here, this Friday – we‘re likely to see a temporary stabilization above 3,730, and quite possibly another buying spree approximately of yesterday‘s potency. Credit markets As stated yesterday, bonds are risk-off, and reflecting foremost the upcoming real economy realities, the inevitable consequence of aggressive tightening while the effects of tightening already in, haven‘t yet played out. It‘s only when TLT turns that we can get some meaningful respite in stocks beyond a few days‘ counter trend upswings here and there – in the week(s) to come.

Summary United States: Whatever It Takes As widely expected, the FOMC raised the target range for the fed funds rate by 75 bps for the third consecutive time. The housing market continues to buckle under the pressure of higher mortgage rates, while the Leading Economic Index has signaled a broader loss of momentum across the economy. Next week: Durable Goods (Tue), Consumer Confidence (Tue), Personal Income & Spending (Fri) International: Bank of Japan's Policy Actions Offset Each Other Aside from the Fed, the central bank that caught the attention of market participants this week was the Bank of Japan (BoJ). As expected, the BoJ left monetary policy settings unchanged; however, the communication around the decision was widely interpreted as dovish. Next week: Central Bank Speakers (Mon-Fri), China PMIs (Thu), Eurozone Inflation (Fri) Interest Rate Watch: Aggressive Fed Path Boosts Inflation-Fighting Credibility The FOMC delivered its third straight 75 bps hike and a hawkish message for rates going forward at its meeting this week. The FOMC now sees it likely the fed funds target range will rise to 4.4% by the of this year and 4.6% by the end of next year as inflation is expected to be more intractable than previously believed. Credit Market Insights: Reading the Pulse of the Corporate Bond Market The Federal Reserve Bank of New York's Corporate Bond Market Distress Index (CMDI) tracks corporate bond market functioning using a variety of metrics from the market at large, including the investment grade and high yield markets. The latest release of the CMDI indicated that the corporate bond market was in good health through August. Topic of the Week: Shot Across the Bow, Japan Intervenes Against Surging Dollar On Thursday, in a surprise move Japan's Ministry of Finance intervened in FX markets to strengthen the yen for the first time since 1998. The beleaguered yen has declined over 20% against the dollar this year, briefly hitting a 24-year low of JPY145.89 on Thursday after BoJ policymakers signaled they plan to keep monetary policy settings accommodative. Read the full report here

With the Fed meeting out of the way, a quieter week is on the horizon, barring of course any flare up of tensions between Russia and Ukraine. Either way, the spotlight will probably fall on the euro as far-right parties are expected to gain ground in Italy’s parliamentary election on Sunday, while preliminary inflation readings will come to the fore at the end of the week. In the US, the highlight will be on the PCE inflation figures, though it’s doubtful whether it will change much regarding the Fed policy outlook.

Daily Currency Update There is plenty to digest as we return from the public holiday in observance of the Queen’s passing with the AUD testing a break below $0.66 US cents. The AUD plunged through key supports in the wake of the FED and FOMC policy update Thursday morning, giving up $US0.6680 to mark fresh intraday and 24-month lows at $US0.6570. As expected, policymakers lifted rates by 75 basis points while significantly revising interest rate forecasts. The Fed’s dot plot implies policymakers will add another 125 points to the Fed Funds cash rate before the year is up, lifting expectations for the peak cash rate to 4.6%. With inflation pressures largely unchecked the Fed seems hell-bent on extending the current tightening cycle deeper into restrictive territory. The maintenance of this aggressive monetary policy program will likely continue to weigh on the AUD as risk appetite sours and the USD enjoys sustained demand both on haven and yield plays. Having slipped below $US0.66 the AUD has clawed back some losses as the furor that followed the Fed policy announcement subsides. Our attentions turn now to US manufacturing and services data while the UK mini budget will afford a key insight into expected tax cuts and widespread deregulation designed to stimulate the embattled British economy. Key Movers There was ample price action across major currencies through trade on Thursday as the furor that followed the Fed’s overtly hawkish policy update subsided. Global rates continued to climb as markets look to adjust interest rate projections following a 50-basis point rate hike from the Bank of England and a stubbornly ultra-easy monetary policy update from the Bank of Japan. After an uptick in inflation pressures earlier this week we highlighted the possibility the BoJ may move to unwind its policy of yield curve control if only to prevent further deterioration in the value of the JPY. The bank’s decision to hold firm and offer little hint of changing course prompted a sharp correction in USD/JPY with the dollar surging back through JP¥145 and marking new highs just shy of JP¥146. The rapid JPY sell-off prompted government officials to intervene in a bid to stabilise the currency and limit speculative buying. For the first time in 34 years, officials stepped in to prop up the value of the yen forcing the USD off JP¥145.89 and back to levels as low as JP¥140.36 before price action stabilised and the pair settled to trade at JP¥142.5. While the move surprised markets, without a shift in BoJ policy or a significant weakening in the USD the impact will likely be short-lived. The USD continues to trade near its 20-year high with the Euro comfortably back below parity and the GBP unable to sustain a recovery back above US$1.13. Our attentions turn now to US manufacturing and services data while the UK mini budget will afford a key insight into expected tax cuts and widespread deregulation designed to stimulate the embattled British economy. Expected Ranges AUD/USD: 0.6570 – 0.6730 ▼ AUD/EUR: 0.6690 – 0.6730 ▲ GBP/AUD: 1.6880 – 1.7120 ▼ AUD/NZD: 1.1280 – 1.1420 ▲ AUD/CAD: 0.8880 – 0.9020 ▲

After a week in which a dozen central banks around the world either tightened policy or resorted to currency intervention, the focus is now on the economy. Just how much of the move was priced in, and how much will economic growth be impacted going forward. So far, tightening has contributed to a stronger dollar, on top of increased risk avoidance supporting safe havens. Purchasing managers are likely to see the first signs of the effects of monetary policy. Whether that's in lower prices implying potentially less inflation in the future, or lower orders implying less growth in the future. Weaker PMIs could start raising bets that monetary policy will start to level off in the near future. The surveys are still being conducted, so we won't see the full effect on manager's thinking until next month. But central bank action was pretty well telegraphed ahead of the start of the survey. What to look out for: Australia  Australia is expected to keep bucking the global trend, with manufacturing PMIs expected to be firmly in expansion, although stumbling a bit. The services sector is expected to remain under pressure through the winter, and slower tourism activity. Australian Manufacturing PMI expected at 53.2 compared to 53.8 prior. Services PMI expected to expand modestly to 50.8 from 50.2 prior. France As usual, France is the first major EU country to report PMIs, and is likely to set the tone for the shared currency unless there is a major deviation with later data. The high cost of energy in France has been weighing on the economic outlook coupled with the ECB recently starting to raise rates. Both are likely to be on the minds of managers when they answer the survey. French September Preliminary Manufacturing PMI is forecast to fall just barely into contraction at 49.8 compared to 50.4 prior. Services PMI is expected to remain just barely in expansion at 50.5 compared to 51.2 prior. Germany Recent positive news in Germany on the energy front isn't expected to lift businesses' spirits all that much. With energy prices still high despite the country well ahead of target on filling up its reserves, executives are worried about which plants will be idled next due to high operating costs. German September Preliminary Manufacturing PMI is expected to fall further into contraction to 48.3 from 49.1 prior. Services PMI is expected to perform even worse, dropping to 46.0 from 46.9 prior. UK The British survey was conducted after PM Truss announced the price cap, so we could see if that has any effect on business optimism. However, the details have yet to be announced, so the impact might be minimal. UK Preliminary Manufacturing PMI is expected to improve modestly to 47.5 from 47.3 prior. Services PMI is expected to fall to 50.0 compared to 50.9 prior.

The Bank of England rate decision sees UK avoid 75bp move seen elsewhere, with Truss energy policy expected to lessen inflationary pressures. Markets head lower, as geopolitical and monetary policy concerns hurt sentiment “Today has seen another bout of downside for stock markets throughout Europe and the US, with geopolitical and economic concerns providing a drag on risk assets once again. On a week dominated by central banks, it was always going to be difficult to envisage a scenario where traders emerge with a positive outlook. Volatility has come from a variety of sources, with the aftereffects of yesterday’s FOMC monetary policy meeting coming into play alongside a Russian nuclear war warning, BoJ JPY intervention, and a BoE rate decision. ” BoE take cautious approach in battle against inflation   “The Bank of England have taken a more cautious approach to monetary policy today, with the 50-basis point hike falling short of the 75bp move seen at the ECB and Fed. The spread of votes saw almost half of the nine members vote for either 75 or 25 basis point hikes, highlighting the significant degree of uncertainty over what needs to be done in the face of recessionary and inflationary pressures. However, the downward revision to inflation expectations (peaking at 11% rather than 13%) does highlight a feeling that Liz Truss and Kwasi Kwarteng could limit the impact of rising gas prices, with tomorrow’s mini budget providing a focal point for UK investors. Unfortunately, while an energy cap could also limit inflation, the BoE see this measure as risking higher inflation down the line as disposable income drives up consumption. Thus what can be relief for consumers now, could result in rates remaining elevated for a longer time as inflation becomes entrenched. ”