BabyPips.com U.S. Session Recap

PipDiddy · September 28, 2018, 1:10am

U.S. Session Recap: Dollar Bulls Regain Upper Hand, CAD Lifted by Poloz & NAFTA Optimism

The U.S. dollar was able to overtake the rest of its forex peers to snatch the lead by the end of the session while the Loonie was close behind thanks to NAFTA positivity and higher crude oil.

Towards the end of the session and after tense negotiations, the Italian government was finally able to unveil its budget plans, although the drama may be far from over.

U.S. core durable goods orders up 0.1% vs. 0.4% forecast in Aug
Headline durable goods orders rose 4.5% vs. 1.9% consensus
U.S. initial jobless claims at 214K vs. 208K forecast, 202K previous
U.S. final GDP for Q2 unchanged at 4.2% as expected
Final GDP price index also unchanged at 3.0% as expected
U.S. preliminary wholesale inventories up 0.8% vs. 0.3% forecast
U.S. goods trade deficit widened from $72B to $75.8B vs. $70.6B estimate
Fed head Powell: Central bank done with forward guidance, watch data instead
Italian gov’t agrees on budget deficit of 2.4% of GDP vs. 1.6% expected

Major Events/Reports:

Mixed U.S. data, yields up

Uncle Sam’s figures actually came in a mix of green and red, but dollar traders seemed to focus on the upside surprises.

In particular, headline durable goods orders posted an impressive 4.5% gain versus the expected 2.9% increase in August while the earlier reading was revised to show a smaller 1.2% decline. Components of the August report revealed that the gains were mostly spurred by orders for transportation equipment.

Stripping off these volatile items yielded a core durable goods orders increase of merely 0.1% versus the 0.4% consensus in the same month. Furthermore, looking only at non-defense capital goods orders minus aircraft shows a 0.5% drop mostly due to lower purchase of computers and electronic products.

Meanwhile, the goods trade deficit widened from $72 billion to $75.8 billion versus the consensus of a $70.6B shortfall, signaling weaker export activity. Pending home sales sank 1.8% compared to expectations of a 0.2% drop on low inventory, marking its eighth consecutive monthly decline.

Nonetheless, U.S. bond yields were higher by the end of the session:

2-year yield is up 1.2 basis points to 2.8269%
5-year yield is up 1.2 basis points to 2.9563%
10-year yield is up 0.6 basis points to 3.0536%

U.S. equity indices closed in positive territory as well:

Dow 30 index was up 54.65 points to 26,493.93 (+0.21%)
Nasdaq is up 51.60 points to 8,041.97 (+0.65%)
S&P 500 index is up 8.03 points to 2,914.00 (+0.28%)

NAFTA hopes lifted again

Just when it seemed that all hope was lost for a NAFTA deal being signed anytime soon, BOC Governor Poloz shared some positive sentiments.

In his speech about digital technologies at the Atlantic Provinces Economic Council dinner, the BOC head honcho gave a few notes on policy and trade talks. He cited that the central bank will continue to hike
gradually to a more neutral level as higher interest rates will be warranted to reach the inflation target.

His meatier remarks came during the Q&A session when reporters mostly asked NAFTA-related questions. Poloz put things in context by saying that Canada’s dependence on the U.S. has been trending lower for the past 15 years but still expressed optimism that an agreement in some form can be reached soon.

Canadian PM Trudeau also maintained an optimistic outlook, telling reporters on his way to a cabinet meeting:

“The Americans are finding that the negotiations are tough because Canadians are tough negotiators, as we should be. But a good, fair deal is still very possible. We won’t sign a bad deal for Canadians.”

Italian gov’t agrees on higher spending

After a lot of back and forth, Italian government officials finally agreed on a 2019 budget deficit of 2.4% of the country’s GDP, much higher than Tria’s 1.6% figure and the earlier 0.8% target.

Both Di Maio and Salvini hailed this as a victory as their insistence to include basic income and tax cuts part of their election promises was granted. However, the budget drama might not be over as the European Commission has yet to approve (or reject) these spending plans next month.

Now this 2.4% budget deficit waaay beyond the spending limits set by Brussels, and my guess is that Italy’s creditors won’t be happy about the country writing checks it can’t cash.

Major Market Mover(s):

USD

The dollar made its way ahead of the pack as U.S. bond yields climbed despite mixed economic data.

USD/JPY advanced from 112.84 to a high of 113.47; USD/CHF rallied from .9702 to a high of .9784; EUR/USD slumped from 1.1719 to 1.1639, and GBP/USD is down to 1.3075.

CAD

The Loonie was also in a good spot, likely drawing some support from higher crude oil prices and upbeat remarks from BOC Governor Poloz.

USD/CAD sank from 1.3082 to a low of 1.3016 but pulled up to 1.3050; CAD/JPY climbed from 86.36 to a high of 87.15; EUR/CAD is down from 1.5303 to 1.5170, and GBP/CAD fell to 1.7048.

Watch Out For:

11:30 pm GMT: Tokyo core CPI y/y (another 0.9% increase expected)
11:30 pm GMT: Japanese unemployment rate (no change from 2.5% eyed)
11:50 pm GMT: Japanese preliminary industrial production (1.5% rebound expected)
11:50 pm GMT: Japanese retail sales (2.2% gain expected, 1.5% previous)
1:30 am GMT: Australian private sector credit (another 0.4% gain expected)

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PipDiddy · October 2, 2018, 12:59am

U.S. Session Recap: Loonie Edges Higher, GBP Boosted by Brexit Compromise Rumors

The NAFTA replacement deal a.k.a. USMCA continued to enjoy the spotlight throughout the New York session, with the Loonie getting an additional boost from rising crude oil prices.

The British pound also had its share of gains on talks that the U.K. government might be willing to compromise to strike a Brexit deal.

Canadian Markit manufacturing PMI down from 56.8 to 54.8
U.S. ISM manufacturing PMI dipped from 61.3 to 59.8 vs. 60.1 forecast
U.S. construction spending up 0.1% vs. 0.5% forecast, 0.2% previous
New Zealand NZIER business confidence index down from -20 to -30
U.K. PM May open to compromise on Irish border backstop issue?
Chinese banks closed for the holiday
RBA monetary policy statement coming up

Major Events/Reports:

Some risk-taking on USMCA

Wall Street kicked off the last quarter of the year on a positive note thanks to the USMCA (United States-Mexico-Canada Agreement) being signed, sealed, and delivered. Now it doesn’t roll off the tongue quite as smoothly as NAFTA does, but investors seem chipper about it!

Dow 30 index is up 192.90 points to 26,651.21 (+0.73%)
S&P 500 index is up 10.61 points to 2,924.59 (+0.36%)
Nasdaq is down 9.05 points to 8,037.30 (-0.11%)

According to the joint statement issued by U.S. Trade Representative Lighthizer and Canadian Foreign Minister Freeland:

USMCA will give our workers, farmers, ranchers, and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region.

In a statement at the White House, the POTUS also mentioned that the “measures will support many – hundreds of thousands – American jobs.” Canadian PM Trudeau acknowledged that this removes several uncertainties but admitted that they had to make some difficult compromises.

On China, Trump said that it was still “too soon” to talk about a trade deal since they’re still waiting for the latest set of tariffs to kick in and give the U.S. some leverage in negotiations.

WTI crude oil hits $75 per barrel

Black Crack prices were also on stronger footing, with WTI crude oil climbing back to the $75 per barrel area and Brent crude oil hitting $85 per barrel – its highest level in nearly four years.

Analysts point to anticipation for the next round of U.S. sanctions on Iran, which would target their oil exports, as the likely factor putting downside pressure on supply expectations. According to a survey by Bloomberg, the OPEC pumped 30K more barrels of crude oil in September as higher output from majority of the cartel members outweighed the drop of 140K barrels from Iran.

The USMCA was also seen as positive news for the commodity price, as part of the deal lets Mexico buy more crude oil from Uncle Sam.

U.K. open to Irish border compromise?

Some signs of concession are being seen in Brexit talks as headlines are indicating that No. 10 might have a few more suggestions to work around the Irish border backstop issue.

You see, talks have been at a deadlock as neither the U.K. nor the E.U. seemed willing to budge on this key component of the deal. But according to a senior British official, the U.K. might be willing to give in to keeping the border between the British mainland and Northern Ireland free of trade checks but would need the E.U. to keep the kingdom temporarily part of the customs regime.

Comments from Brexit Secretary Raab on how there might be a deal in sight also brought some volatility to the table. Some think that concessions from the U.K. could pave the way for more discussions, but E.U. officials have previously reiterated that it’s gonna have to be a backstop deal or no deal.

Of course on the U.K. side of things, approval from lawmakers might also be tough to secure, and all eyes and ears will still be on PM May’s speech to close the Tory conference tomorrow.

Major Market Mover(s):

CAD

The Loonie continued to rally across the board, lifted by the USMCA announcement earlier on and getting another boost from rising crude oil.

USD/CAD slumped from 1.2807 to a low of 1.2782; CAD/JPY surged from a session low of 88.82 to a high of 89.14; EUR/CAD is down to a low of 1.4795, and GBP/CAD fell from a high of 1.6805 back to the 1.6670 area.

GBP

Sterling was also in good spirits thanks to speculations that the U.K. might compromise on the Irish border issue. However, the gains were short-lived as traders realized that an actual deal hasn’t been struck
yet.

GBP/USD popped up from 1.3038 to a high of 1.3116; GBP/JPY jumped from 148.38 to a high of 148.87; EUR/GBP spiked down to a low of .8864, and GBP/NZD is up to 1.9751.

Watch Out For:

Chinese banks closed in observance of National Day
4:30 am GMT: RBA monetary policy statement (Here’s what to expect.)
5:00 am GMT: Japanese consumer confidence index (dip from 43.3 to 43.0 eyed)

This post first appeared here:

PipDiddy · October 3, 2018, 1:10am

U.S. Session Recap: Dollar Ends Mixed Despite Powell’s Optimism

A bit of risk aversion was still in play throughout the New York session, but the dollar barely took advantage of safe-haven flows. Upbeat remarks from Fed Chairperson Powell hardly gave the U.S. currency much bullish direction either.

Some profit-taking action weighed on the yen early in the session, but it managed to pare most of those losses against the commodity currencies before the closing bell.

Meanwhile, European currencies remained under bearish pressure, but sterling managed to drift slightly higher on U.K. officials’ remarks.

New Zealand GDT auction yielded a 1.9% drop in dairy prices, -1.3% previous
Fed head Powell: U.S. outlook “remarkably positive”
Powell: Not seeing impact of tariffs on inflation data so far
Powell: Global growth under pressure but still healthy
Italy’s Deputy PM Di Maio: Not turning back from 2.4% deficit target
Australia’s AIG services index up from 52.2 to 52.5

Major Events/Reports:

Remarks from Italy’s Di Maio

After strong remarks from Borghi and Conte earlier in the day, it was Italian Deputy Prime Minister and 5-Star Movement leader Luigi Di Maio’s turn to share his thoughts on the budget.

For newbies just tuning in, the Italian government recently finalized their 2019 budget but their spending plans are likely to be rejected by EU officials since these go way beyond agreed-upon limits. My buddy Forex Gump has more on why Italy’s budget is a big deal.

In a radio interview, Di Maio stressed that they’re not backing down on their budget plans, saying:

“We are not turning back from the 2.4% target.We will not backtrack by a millimeter.”

He even pinned the blame on leaders of France and Germany for wanting the Italian government to fail, as he claimed their hard line stance on the budget has led to a sharp selloff in Italy’s stocks and bonds.

Powell stays optimistic

In his speech about the outlook for employment and inflation at the National Association for Business Economics Annual Meeting, Fed Chairperson Powell reiterated some of his upbeat views shared in earlier rate statements.

He started off by mentioning that unemployment is near a 20-year low and that inflation is running close to the central bank’s 2% target, adding that these favorable conditions are likely to continue:

“From the standpoint of our dual mandate, this is a remarkably positive outlook.”

Most of his speech focused on the dynamics of inflation and employment, most notably the Philips Curve. In summary, he pointed out that the combination of low inflation and very low unemployment shows that these are “extraordinary times.”

During the Q&A, when asked on the impact of tariffs on inflation, Powell clarified that they’re not seeing any effects on data so far.

Major Market Mover(s):

JPY

The yen returned a chunk of its gains from the earlier session but managed to pare losses versus higher-yielders later on and remained strong versus the dollar.

USD/JPY slid from 113.86 to a low of 113.52; EUR/JPY pulled up from 130.72 to a high of 131.51; NZD/JPY rebounded from 74.71 to 75.12 then fell back to 74.83, and AUD/JPY bounced to 81.89 but fell back to 81.67.

GBP

Sterling got a modest lift on signs of support from former London mayor Boris Johnson for U.K. PM May’s government, even after throwing a bit of shade on the Chequers plan.

Brexit minister Raab also expressed willingness to listen to other ideas from the EU, particularly a technological solution to the Irish border issue.

GBP/USD pulled up from a low of 1.2940 to 1.2996 before cruising sideways; GBP/JPY ticked up from 147.20 to a high of 147.85; EUR/GBP held on to the .8900 mark, and GBP/AUD bounced from a low of 1.8015 to 1.8059.

Watch Out For:

12:00 am GMT: New Zealand ANZ commodity prices (-1.1% previous)
Chinese banks closed in observance of National Day

This post first appeared here:

PipDiddy · October 4, 2018, 1:02am

U.S. Session Recap: Dollar Lifted by Upbeat Data, Hawkish Fed & Higher Yields

Dollar domination was the name of the game as it drew support from a combination of hawkish Fed remarks, rising U.S. bond yields, and upbeat economic data.

In particular, leading jobs indicators turned out much stronger than expected, sending positive vibes ahead of this week’s NFP release.

ADP non-farm employment change up from 168K to 230K vs. 185K forecast
U.S. Markit final services PMI upgraded from 52.9 to 53.5 in September
U.K. Brexit Minister Raab: Aiming for a deal in November
U.S. ISM non-manufacturing PMI jumped from 58.5 to 61.6 vs. 58.0 consensus
EIA crude oil inventories up 6.8M barrels vs. estimated 1.1M gain
Fed head Powell: Very happy with where the economy is
Powell: Fed to gradually raise rates to ensure inflation stays tame
FOMC official Mester: Gradual pace in hiking still appropriate
FOMC official Barkin: Watching five metrics to assess economic potential

Major Events/Reports:

Impressive U.S. data

Uncle Sam’s latest batch of reports blew competition out of the water as it signaled that the economy might be in for even stronger days ahead.

The ADP non-farm employment change reading, which some consider as a preview of the official NFP report, jumped from an upgraded 168K to 230K in September versus expectations at 185K. Jobs gains were broad-based across industries and company sizes.

Meanwhile, the ISM non-manufacturing PMI also printed a stellar reading of 61.6 from the earlier 58.5 figure instead of dipping to the consensus at 58.0. Underlying data revealed that the jobs component surged from 56.7 to 62.4 to reflect a strong pickup in services sector hiring, which accounts for a huge chunk of overall employment.

Other components such as business production, new orders, supplier deliveries, prices, and imports also showed gains for the month, signaling that activity and outlook for the industry is robust.

Lastly, the Markit version of the services sector PMI enjoyed an upgrade from the initially reported 52.9 figure to 53.5, reflecting a stronger pace of industry expansion. However, this was lower compared to the 54.8 figure in August and is its weakest level since the start of the year.

On a less downbeat note, its employment component still managed to impress with job creation at its fastest pace in over four years.

Hawkish Fed remarks

Fed head honcho Powell reiterated most of his comments from an earlier speech, but the latest ones seemed to carry more weight as these were underscored by data. It also helped that this positive outlook was echoed by a handful more hawkish remarks from his FOMC peers.

Powell highlighted how inflation is almost at their 2% goal and that unemployment is at its lowest level in 20 years, adding that he is very happy about where the economy is. He also mentioned how the Fed would keep gradually raising rates to ensure that inflation stays tame.

During the Q&A, Powell acknowledged that there was no need for low interest rates anymore, citing:

“The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore. They’re not appropriate anymore.”

Dollar traders also chomped on that bit where Powell suggested that rates might go beyond neutral:

“Interest rates are still acommodative, but we’re gradually moving to a place where they will be neutral. We may go past neutral, but we’re a long way from neutral at this point, probably.”

Prior to Powell’s speech and the U.S. data dump, FOMC voting member Barkin also had a number of positive things to say. In particular, he listed five metrics that he’s currently watching to assess economic potential, namely business investment, productivity growth, compensation growth for job stayers, durable goods prices, and the yield curve. He concluded:

“Growth is solid, unemployment is low and inflation is at target. The challenge is not so much today, but rather ensuring that growth continues.”

FOMC voting member Mester also noted that she doesn’t see the risk of inflation overheating and that the gradual pace of hiking remains appropriate. The rest of her speech mostly focused on community banking and reinvestment while voting member Brainard also spoke mainly on the payments sector.

OPEC and Russia to boost output?

During the session, there were headlines that the OPEC and Russia are willing to increase output in order to keep a lid on prices, possibly giving in to pressure from U.S. President Trump.

A report on Reuters indicated that the oil-producing nations struck a private agreement ahead of their meeting in Algiers with other cartel members. Sources revealed that Saudi Arabia told U.S. representatives that they would pump more barrels gradually and could keep increasing output if their customers asked for more oil.

However, Black Crack prices seemed to shrug off the news, along with the larger than expected build in U.S. stockpiles as the EIA reported a jump of 8.0 million barrels in inventories.

WTI crude oil held on to $76.20 per barrel (+1.30%)
Brent crude oil cruised at $85.91 per barrel (+0.66%)

Major Market Mover(s):

USD

The scrilla was the king of pips as dollar bulls likely started pricing in positive expectations for the NFP release. The generally upbeat outlook among Fed officials and the climb in U.S. bond yields to record highs also gave a boost.

USD/JPY advanced from 113.82 to a high of 114.55; EUR/USD sank from 1.1568 to a low of 1.1476; GBP/USD slumped from 1.3006 to 1.2943, and AUD/USD is testing the .7100 support.

AUD & NZD

This comdoll duo found themselves behind the rest of their forex peers as they caved to dollar strength.

AUD/JPY sank from 81.39 to 81.24; EUR/AUD advanced from a low of 1.6123 to a high of 1.6178; AUD/CHF is down to .7038, and GBP/AUD rose to a high of 1.8236.

NZD/JPY fell from a high of 74.75 to a low of 74.43; EUR/NZD ticked up from 1.7491 to 1.7665; NZD/CHF sank to .6446, and GBP/NZD is up to the 1.9900 handle.

Watch Out For:

Chinese banks still closed in celebration of National Day
1:30 am GMT: Australia’s trade balance (surplus to narrow from 1.55B AUD to 1.43B AUD)

This post first appeared here:

PipDiddy · October 5, 2018, 1:58am

U.S. Session Recap: GBP in the Lead, Aussie & Kiwi Still Reeling

Risk-off vibes from the earlier session carried on for the rest of the day, pushing commodity currencies much lower even as the dollar was on shaky footing.

The Loonie joined its comdoll buddies on the losers’ bench, dragged lower by a slump in crude oil, downbeat Canadian data, and NAFTA concerns from farmers.

Sterling was able to hold on to its gains and go for a few more, thanks to more positive Brexit-related updates. The yen also kicked higher a few hours into the session, likely taking advantage of dollar weakness despite higher yields.

U.S. initial jobless claims at 207K vs. 214K forecast, 215K previous
Canadian Ivey PMI down from 61.9 to 50.4 vs. 62.3 forecast
U.S. factory orders up 2.2% vs. 2.3% forecast in August
U.S. July factory orders revised from -0.8% to -0.5%

Major Events/Reports:

More Brexit updates

What’s a trading day without a fresh round of Brexit-related headlines? Following a couple of rumors that circulated in the previous session, it was reported that Irish PM Varadkar is urging U.K. PM May to publish plans for the Irish border backstop “as soon as possible.”

As it turned out, Varadkar wanted enough leeway to “respond to it in a meaningful way” as the deadline looms, explaining:

“We want there to be decisive progress at the October summit, so that allows us to seal a deal in November.”

Meanwhile, European Council President Donald Tusk echoed these sentiments in saying that they remain ready to put a “Canada+++” deal on the table, which many hope would contain concessions on some security and foreign policy issues. He explained:

“The EU wants a relationship with the UK that is as close and special as possible. From the very beginning, the EU offer has been not just a Canada deal, but a Canada plus plus plus deal. Much further-reaching on trade, on internal security and on foreign policy cooperation.”

Former London mayor Boris Johnson, as well as former Brexit secretary Davis, gave this idea the thumbs-up as conservative Brexiteers piled on the pressure for May to consider an alternative to the Chequers proposal.

Upbeat U.S. data

Uncle Sam followed through on the previous day’s batch of stronger than expected reports, printing another set of figures in the green that were enough to shore up Fed tightening prospects.

Factory orders in August showed a 2.2% gain, a notch higher than the 2.1% consensus and a strong rebound over the earlier read, which was already upgraded from a 0.8% drop to just a 0.5% decline. Components of the August report revealed that the gains were spurred by stronger demand for aircraft once more, overshadowing the dips in business equipment purchases.

Initial jobless claims came in at 207K, lower than the earlier 215K figure and the estimated 214K reading. With that, the number of first-time claimants of unemployment benefits are hovering close to their lowest level in 49 years.. Heck, the internet hadn’t even been invented then!

Yields up, stocks down

U.S. yields ticked higher once more, and this has been attributed to a sharp selloff in Treasuries likely stemming from yet another round of upbeat U.S. data. The yield on the benchmark 10-year note surged to 3.232%, its seven-year high.

Expectations of another Fed interest rate hike hit equities hard:

Dow 30 index is down 200.91 points to 26,627.48 (-0.75%)
Nasdaq is down 145.57 points to 7,879.51 (-1.81%)
S&P 500 index is down 23.90 points to 2,901.61 (-0.82%)

Keep in mind that leading jobs indicators have mostly hinted at a strong NFP outcome and that Fed head Powell has been chipper about economic prospects during his recent testimonies.

Major Market Mover(s):

GBP

The pound held on to its lead throughout the session, getting another kick higher from indications that the EU remains open to exploring alternatives to the Irish border backstop proposal.

GBP/USD kept climbing from 1.2981 to a high of 1.3042; GBP/JPY held on to the 148.50 area despite the selloff in other yen pairs; EUR/GBP slumped to a low of .8843, and GBP/AUD is up to the 1.8400 handle.

Commodity Currencies

The comdoll gang found themselves at the bottom of the forex heap as risk aversion extended its stay in the financial markets.

AUD/USD slumped from .7086 to a low of .7069; NZD/USD slid from .6511 to .6481; USD/CAD popped up from 1.2866 to a high of 1.2938; EUR/AUD is up to a high of 1.6271; EUR/NZD advanced from 1.7691 to 1.7772; GBP/CAD rose to a high of 1.6826, and GBP/NZD surged past the 2.0000 handle.

JPY

The lower-yielding yen managed to snatch some safe-haven flows away from the Greenback despite higher U.S. yields as dollar traders might be easing up ahead of the NFP release.

A few trade-related jitters on Mike Pence’s remarks against China also didn’t help the dollar’s cause. Before the end of the session, though, the Japanese currency returned some of these gains.

USD/JPY tumbled from 114.21 to a low of 113.63 before pulling up to 113.86; EUR/JPY fell from 131.39 to a low of 130.76 then bounced to 131.09; AUD/JPY dropped from 81.02 to a low of 80.38, NZD/JPY fell from 74.22 to 73.66, and CAD/JPY is down to a low of 87.93.

Watch Out For:

Chinese banks still closed for National Day
12:00 am GMT: Japanese average cash earnings y/y (dip from 1.6% to 1.3% expected)
1:30 am GMT: Australia’s retail sales (0.3% gain expected after earlier flat reading)
5:00 am GMT: Japanese leading indicators (gain from 103.9% to 104.3% expected)

This post first appeared here:

PipDiddy · October 9, 2018, 1:05am

U.S. Session Recap: Dollar and Yen Higher on Risk-Off Flows Despite Holidays

Not even the market holidays in the U.S. and Canada were able to stop major currencies from chalking up noteworthy moves, with the yen mainly taking advantage of risk-off action.

U.S. banks closed on Columbus Day
Canadian banks closed on Thanksgiving Day
Fed official Bullard: Rates won’t have to rise much higher
U.K. BRC retail sales monitor down 0.2% y/y in Sept, +0.2% previous

Major Events/Reports:

EU proposal on Irish border checks

Senior officials familiar with Brexit talks shared that negotiators are looking into the idea of moving customs checks “away from the Irish border” in order to settle the deadlock on the backstop.

This could involve trade controls being implemented closer to the source rather than the destination of goods, probably an attempt by the EU to strike a compromise with the DUP which is against a border in the Irish sea.

Note that Brexit negotiators from both parties are under pressure to come up with some form of agreement ahead of the summit next week. Another suggestion is to reduce the scale of checks from 100% to 30%
over the next couple of years.

More risk-off flows

The gloomy mood from the earlier trading session carried on for the most part of the day as there were no major catalysts to shift sentiment during the U.S. hours.

Dow 30 index managed to score 39.73 points to 26,468.78 (+0.15%)
S&P 500 index is down 1.14 points to 2,884.43 (-0.04%)
Nasdaq is down 52.50 points to 7,735.95 (-0.67%)

Crude oil was in the red for the most part of the day but was able to get a bit of support from a report reflecting a drop in stockpiles at the Cushing storage hub. Apart from that, expectations of shutdowns in Gulf states owing to Hurricane Michael also dampened the supply outlook.

WTI crude oil dipped to a low of $73.07 per barrel then pulled up to $74.29 per barrel
Brent crude oil found support at $82.66 per barrel then recovered to $83.91 per barrel

Gold was also in the red as dollar strength is likely chewing on the precious metal’s gains. Still, analysts expect this safe-haven asset to stay afloat on account of geopolitical risks from Italy, Brexit, and emerging markets.

Major Market Mover(s):

JPY

The Japanese currency was the main beneficiary of risk-off flows for the session as it even managed to outpace the U.S. dollar.

Perhaps the scrilla found reason to pause on its recent rally when Fed official Bullard mentioned in Bloomberg interview that rates won’t have to rise much higher to keep inflation in check.

USD/JPY sank from 113.37 to a low of 112.81 before pulling up to 113.10; EUR/JPY slipped further from 130.14 to a low of 129.52; GBP/JPY dropped from 148.06 then pulled up to 147.97, and AUD/JPY fell to the
80.00 handle.

GBP

The pound was able to pare its session losses before the closing bell tolled, thanks to reports that the EU is considering moving trade controls away from the Irish border.

GBP/USD pulled up from a low of 1.3028 to a high of 1.3098; EUR/GBP resumed its slide from .8796 to .8778; GBP/AUD bounced off 1.8450 to a high of 1.8508, and GBP/CAD is up from 1.6932 to 1.6973.

Watch Out For:

12:30 am GMT: Australia’s NAB business confidence index (previous reading of 4)

This post first appeared here:

PipDiddy · October 10, 2018, 1:28am

U.S. Session Recap: Pound Recovers, Dollar Slumps on Falling Bond Yields

The Greenback found itself in negative territory as bond yields returned their earlier gains, possibly on profit-taking. Meanwhile, the British pound was able to get back on its feet, thanks to reports suggesting that a Brexit deal might be ready by next week.

U.S. NFIB Small Business Index down from 108.8 to 107.9 vs. 108.9 forecast
Canadian housing starts fell from 199K to 189K vs. 203K consensus
U.S. IBD/TIPP Economic Optimism Index up from 55.7 to 57.8 vs. 54.6 estimate
Dow Jones report: U.K. and EU might have a Brexit deal by MondayI
MF cut global growth forecasts, downgraded estimates for U.S. and China
Trump: Fed hiking rates too fast

Major Events/Reports:

Brexit deal ready by next week?

Market watchers got their hopes up for a Brexit deal soon as a Dow Jones report suggested that the U.K. and the EU could shake on it by Monday next week.

Citing unidentified diplomats, the report suggested that both parties are settling their differences on the Irish border backstop issue, which is a key factor in getting the divorce agreement done and dusted.

Furthermore, remarks from Irish minister Coveney fueled optimism as he downplayed the odds of a “no deal” Brexit. He did express some doubts that U.K. proposals will be enough but shared that the EU is showing willingness to adjust, possibly leading to some clarity over the next six weeks.

Coveney did clarify that November might be a more reasonable timeline for signing on a Brexit deal, explaining:

“What we do know is that the talks process has intensified this week on trying to find a way forward on the backstop but I suspect November will probably be needed as well as October to get agreement on that but we’ll know an awful lot more next Monday and Tuesday.”

He also reminded that a “no deal” situation could bring carnage, so that’s comforting.

U.K. Brexit minister Raab also had some positive things to say, confirming that negotiations have intensified and that they continue to engage with the EU on the backstop proposal. However, he did reiterate that the U.K. won’t accept anything that threatens its constitutional integrity and that they are continuing preps for a “no deal” outcome.

Bond yields retreat

The big story for the session was the drop in U.S. bond yields, with many pointing to how these returned most of their strong gains to record highs from earlier on.

U.S. 5-year yield sank 1.9 basis points to 3.0505%
U.S. 10-year yield fell 3 basis points to 3.2025%
U.S. 30-year yield is down 3.9 basis points to 3.3641%

Bargain prices on bonds after the steep selloff last week may have coaxed buyers into a shopping spree, dragging bond yields down in the process. (Wondering how this affects currency prices? Make sure you check out this lesson on bond prices and yields!)

Some also blame the IMF downgrades on global growth forecasts, as well as its estimates for the U.S. and China, on account of the ongoing trade war as the reason for the slump in outlook and therefore U.S. bond yields.

It didn’t help that Trump is once again back to criticizing the Fed for hiking rates too quickly, seeding doubts that the central bank could keep up its pace of tightening. The POTUS said:

“Well, I like to see low interest rates. The Fed is doing what it thinks is necessary but I don’t like what they’re doing because we have inflation really checked, and we have a lot of good things happening. I just don’t think it’s necessary to go as fast.”

Major Market Mover(s):

GBP

Sterling had a reversal of fortunes from the earlier session when it was down in the dumps as revived optimism for a Brexit deal lifted its spirits.

GBP/USD recovered from a session low of 1.3034 to a high of 1.3149; GBP/JPY bounced off 147.35 to a high of 148.74; EUR/GBP edged lower to the .8750 area, and GBP/AUD rebounded to a high of 1.8543.

USD

The Greenback lagged behind its peers as it faced headwinds from falling U.S. bond yields. The faster you rise, the harder you fall!

USD/JPY fell from 113.33 to a low of 112.86; EUR/USD popped up from 1.1432 to a high of 1.1504; AUD/USD bounced from a low of .7054 to a high of .7115, and USD/CAD slumped back to 1.2938.

Watch Out For:

11:50 pm GMT: Japanese core machinery orders m/m (-3.9% expected, +11.0% previous)
1:10 am GMT: FOMC official Williams’ speech at the Central Banking Forum
6:00 am GMT: Japanese preliminary machine tool orders (+5.1% previous)

This post first appeared here:

PipDiddy · October 11, 2018, 1:22am

U.S. Session Recap: Risk Aversion in Play, JPY Leads While Comdolls Sink

Risk aversion kicked into high gear during the New York session, yet the safe-haven dollar barely took advantage despite higher U.S. bond yields. Wall Street saw a bloodbath in equities, with indices chalking
up more than 3% in losses.

Instead, the lower-yielding Japanese yen found itself on top while the higher-yielding commodity currencies took the biggest hits, with the Loonie at the very bottom of the pile.

Canadian building permits up 0.4% vs. 0.5% forecast
U.S. headline PPI up 0.2% in September as expected, -0.1% previous
U.S. core PPI also up 0.2% in September as expected , -0.1% previous
U.K. NIESER GDP estimate predicts another 0.2% growth figure
U.S. final wholesale inventories up 1.0% vs. 0.8% forecast
Barnier: Much of withdrawal deal already in agreement with U.K.
Fed official Evans: Could pause with hikes once rates reach 3%

Major Events/Reports:

Risk aversion extends its stay

Global equity markets were already in the red during the earlier session, yet seller still put the pedal to the metal as the trading day went on. Market analysts pinned the blame on higher U.S. bond yields stemming from stronger tightening expectations, likely weighing on business and consumer spending down the line.

U.S. stock indices were down more than 3% for the session, with the tech sector rout accounting for most of the losses that dragged the S&P 500 on its largest one-day fall since February.

Dow 30 index is down 831.83 points to 25,598.74 (-3.15%)
S&P 500 index is down 94.66 points to 2,785.68 (-3.29%)
Nasdaq is down 315.97 points to 7,422.05 (-4.08%)

However, the POTUS assured that these moves were just corrections, once again throwing shade on the Fed for hiking rates too quickly. Fed official Evans did suggest that they might pause with tightening once interest rates hit 3%.

Bond yields were mostly higher for the session before bond-buying took place later on and snapped up those gains.

Gold ticked slightly higher on risk-off flows while crude oil took hits despite expected supply disruptions from Hurricane Michael along the Gulf coast. It didn’t help Black Crack’s cause that the EIA lowered its global demand forecast by 60K barrels per day this year, although it did hike estimates for 2019.

Brexit deal within reach?

On a less downbeat note, EU negotiator Barnier suggested that a Brexit deal might be done by next Wednesday as the U.K. is in agreement with 80-85% of the divorce terms. He hinted:

“Negotiations with the UK continue this week intensively, day and night, in the goal set by the leaders of the 27 that the agreement is ‘in reach’ at the time of the European Council of 17 October, next Wednesday.”

According to Barnier, this would be possible only if PM May is willing to drop some key demands involving the Irish backstop border. He reiterated:

“Our proposal tries to help the UK in managing the negative fallout of Brexit in Northern Ireland in a way that respects the integrity of the UK.”

Major Market Mover(s):

JPY

Yen pairs found themselves deep in the red as the Japanese currency was the main beneficiary of safe-haven flows, outpacing the U.S. dollar even with a rebound in yields.

USD/JPY sank from 113.20 to 112.27; EUR/JPY fell from a high of 130.50 to a low of 129.24; GBP/JPY slid from 149.09 to a low of 147.86; AUD/JPY is down to 79.30, and NZD/JPY tumbled from 73.18 to 72.48.

CAD

The comdoll gang hung out on the losers’ table for almost the entire trading day, with the oil-related Loonie chalking up the largest declines of ’em all.

USD/CAD popped up from 1.2964 to 1.3057; CAD/JPY plummeted from 87.36 to test the 86.00 handle; EUR/CAD climbed from 1.4910 to a high of 1.5054, and GBP/CAD rallied to 1.7235.

Watch Out For:

11:50 pm GMT: Japanese PPI y/y (dip from 3.0% to 2.9% expected)
12:00 am GMT: Australia’s MI inflation expectations (4.0% previous)
5:00 am GMT: BOE Governor Carney’s speech in IMF annual meeting
G20 Summit to kick off today

This post first appeared here:

PipDiddy · October 12, 2018, 12:41am

U.S. Session Recap: Another Day in the Red for Stocks, Dollar Stumbles

Risk aversion was evidently in play for stocks and commodities, but the forex picture painted a different story with the dollar behind the pack and the comdolls in the lead.

U.S. headline CPI up 0.1% vs. projected 0.2% gain in Sept
U.S. core CPI also printed 0.1% uptick vs. 0.2% consensus
Initial jobless claims at 214K vs. 207K forecast
EIA crude oil inventories up 6M barrels vs. 2.3M forecast
PM May reportedly briefed her cabinet that Brexit deal is close
Rumors of formal meeting between Trump and China’s Xi dismissed by Kudlow
New Zealand Business NZ manufacturing index down from 52.0 to 51.7

Major Events/Reports:

Downbeat U.S. data

Uncle Sam’s reports all came in the red but surprisingly, the disappointing figures generated a sigh of relief from the markets as these led tightening expectations to take a step back.

Headline CPI for September came in at a meager 0.1% versus the estimated 0.2% gain and the earlier 0.2% increase while the core figure also came in at 0.1%. Components of the report revealed that slowing costs of rent and lower energy prices weighed on inflation.

On a year-over-year basis, this translates to a 2.3% headline CPI reading for the month, down from August’s 2.7% figure. Core CPI is up 2.2% from the same period last year, just a couple of notches above the Fed’s inflation target.

Meanwhile, initial jobless claims accelerated from the earlier 207K reading to 214K for the latest reporting week, also higher than the consensus at 207K.

Bond yields spike, equities sink

Investors continued to price in more Fed rate hikes, leading to another selloff in bonds and therefore more gains in bond yields. Wondering what the heck is going on? Here’s a primer on government bonds for you.

Wall Street was actually in a cheery mood early in the session as rumors swirled that Trump will have a formal meeting with Chinese President Xi, possibly clearing up trade issues. However, the optimism faded when economic adviser Larry Kudlow mentioned in an interview that no such meeting has been arranged.

Dow 30 index is down 545.91 points to 25,052.83 (-2.13%)
S&P 500 index is down 57.31 points to 2,728.37 (-2.06%)
Nasdaq is down 92.99 points to 7,329.06 (-1.25%)

Analysts also pointed out that part of these declines were spurred by profit-taking ahead of the release of quarterly earnings from a handful of financial companies. Gold was able to take advantage of safe-haven flows and dollar weakness while crude oil took more hits.

The precious metal climbed to $1,224.01 per troy ounce (+2.36%)
WTI crude oil dipped to $70.85 per barrel (-3.85%)

Major Market Mover(s):

AUD & NZD

The Aussie and Kiwi held on to their gains and chalked up a few more during the U.S. session even as risk-off flows weighed on other higher-yielding assets. Perhaps higher gold prices lifted the positively-correlated Aussie while the Kiwi is playing its anti-dollar card.

AUD/USD popped up from .7090 to a high of .7130; AUD/JPY climbed from 79.52 to a high of 80.15 but retreated to 79.90; EUR/AUD is down to 1.6273, and GBP/AUD fell to 1.8567.

NZD/USD advanced from .6488 to .6533; NZD/JPY climbed from 72.85 to a high of 73.37 then fell back to 73.17; EUR/NZD is down to 1.7760, and GBP/NZD is down to a low of 2.0275.

USD

The scrilla was stuck at the bottom of the forex heap, along with its lower-yielding buddies, the franc and the yen. In usual Trump fashion, the POTUS reiterated his bit on how the Fed’s hikes are “out of control” while Kanye praised him for being the best president of all time. Of all time!

USD/JPY pulled up to 112.54 after the CPI release then resumed its slide to a low of 111.83; USD/CHF hit a high of .9923 then fell back to .9900; EUR/USD ticked higher to 1.1592, and GBP/USD bounced off 1.3200
to 1.3233.

Watch Out For:

12:30 am GMT: RBA Financial Stability Review
12:30 am GMT: Australian home loans m/m (-0.9% expected, +0.4% previous)
Tentative: Chinese trade balance (smaller surplus of 85B CNY from earlier 180B CNY expected)
4:30 am GMT: Japanese tertiary industry activity index (0.3% increase expected, 0.1% previous)

This post first appeared here:

PipDiddy · October 16, 2018, 3:46am

U.S. Session Recap: U.S. Retail Sales Disappoint, BOC Survey Lifts CAD

The Greenback slowed from its earlier slide despite weaker than expected retail sales figures and another drop in U.S. equities. The franc and Kiwi continued to take advantage of dollar weakness while the Loonie got a boost from an upbeat BOC Survey.

U.S. headline retail sales up 0.1% vs. 0.7% forecast in Sept
U.S. core retail sales down 0.1% vs. 0.4% forecast
Empire State manufacturing index up from 19.0 to 21.1 vs. 20.4 consensus
U.S. business inventories up by 0.5% as expected, 0.7% previous
Italian PM Conte: Cabinet has approved 2019 budget, sent to Brussels
U.K. PM May: Britain will not be left in limbo after Brexit
BOC Business Outlook Survey: Investment intentions and futures sales to rise
New Zealand quarterly CPI up 0.9% vs. 0.7% forecast, 0.4% previous

Major Events/Reports:

U.S. retail sales miss

Americans weren’t in such a spending mood last month as both headline and core retail sales fell short of estimates. The former printed another meager 0.1% uptick versus the projected 0.7% gain while the latter dipped 0.1% instead of rising by 0.4%.

Components of the report revealed that a huge drop in spending in restaurants and bars mostly due to Hurricane Florence led the declines, offsetting a rebound in motor vehicle sales that month.

Removing autos, gas, and building supplies shows some bright spots, with spending on furniture, electronics and appliances notably higher in September.

On a more cheery note, the Empire State manufacturing index beat expectations by jumping from 19.0 to 21.1 versus the projected 20.4 figure to reflect a faster pace of industry expansion. Business inventories came in line with expectations of a 0.5% uptick in August, although the earlier figure was revised to show a higher buildup of 0.7%.

Upbeat BOC survey

Rate hike expectations for the Bank of Canada were revived after the central bank released its Business Outlook Survey for Autumn 2018.

Firms expect sales to increase further and, coupled with capacity constraints, investment intentions also rebounded to high levels. To top it off, price pressures are expected to grow at a faster pace, partly
boosted by cost gains from tariffs.

Keep in mind that firms were surveyed prior to the USMCA being signed around the end of the previous month. This suggests that businesses might be even more optimistic with their sales and investment outlook now that the trade uncertainty has been lifted. The survey also noted:

“A majority of firms anticipate strong US growth over the next year, frequently attributing it to tax reforms, higher government spending and a strengthening energy sector.”

With that, market participants might be pricing in a BOC interest rate hike by the time policymakers have their huddle on October 24.

PM May’s speech

It looks like the U.K. government won’t be backing down on its Irish border backstop demands even as the clock is winding down for them to reach a Brexit deal with the EU.

Keep in mind that the EU Summit will be held in the latter part of this week, and many are hoping that both sides could retract their claws in order to shake on a divorce agreement.

In her testimony, PM May reiterated that they won’t agree to “anything that threatens the integrity of our United Kingdom” explaining:

“The EU still requires a ‘backstop to the backstop’ – effectively an insurance policy for the insurance policy. And they want this to be the Northern Ireland-only solution that they had previously proposed.”

No. 10’s spokesperson shared that she has spoken with EU leaders ahead of this summit, including French President Macron, German Chancellor Merkel, and Dutch PM Rutte.

May also reiterated that she wanted to make sure that the temporary customs arrangement would be indeed temporary:

“People are rightly concerned that what is only meant to be temporary could become a permanent limbo – with no new relationship between the UK and the EU ever agreed.”

Stocks down, commodities up

A weak performance in the tech sector weighed on equity indices at the start of the trading week while brewing tensions with Saudi Arabia added to investors’ jitters.

Dow 30 index closed 89.44 points down to 25,250.55 (-0.35%)
Nasdaq is down 66.15 points to 7,430.74 (-0.88%)
S&P 500 index is down 16.34 points to 2,750.79 (-0.59%)

Gold picked up on these safe-haven flows and dollar weakness. Crude oil edged higher on speculations that the rift with Saudi on the disappearance of journalist Jamal Khashoggi might lead to export sanctions.

WTI crude oil rose to $71.68 per barrel (+0.48%)
Brent crude oil is up to $80.76 per barrel (+0.41%)
Gold is up to $1,226.29 per troy ounce (+0.70%)

Major Market Mover(s):

CAD

The Loonie snagged quick gains as BOC tightening expectations were lifted by the Autumn 2018 Business Outlook Survey. Crude oil rebounded on Saudi Arabia tensions as well.

USD/CAD fell from a high of 1.3052 to a low of 1.2954; CAD/JPY found support at the 85.50 area and jumped to a high of 86.07; EUR/CAD sank from 1.5123 to 1.5047, and AUD/CAD is down to .9253.

Watch Out For:

12:30 am GMT: RBA monetary policy meeting minutes (Review their latest rate decision here.)
1:30 am GMT: Chinese CPI y/y (gain from 2.3% to 2.5% expected)
1:30 am GMT: Chinese PPI y/y (dip from 4.1% to 3.7% expected)

This post first appeared here:

PipDiddy · October 17, 2018, 1:08am

U.S. Session Recap: Risk Appetite Returns But Dollar Mixed, JPY Falls Behind

Higher-yielders got back on their feet as New York session traders were in a much better mood thanks to upbeat earnings and economic data. Because of that, the lower-yielding yen found itself behind the pack.

Sterling also pared some of its intraday gains as the spotlight returned to Brexit, with a lot of uncertainty still in play ahead of the EU Summit.

U.S. industrial production up 0.3% vs. 0.2% forecast, 0.4% previous
U.S. capacity utilization rate steady at 78.1% vs. 78.2% consensus
New Zealand GDT dairy auction yielded 0.3% drop in prices
U.S. JOLTS job openings up from 7.08M to 7.14M in Aug vs. 6.90M forecast
EU to offer Brexit transition extension of one year?
Tusk: No grounds for optimism in Brexit talks before EU Summit
Trump: “My biggest threat is the Fed”
U.S. equity indices post more than 2% in gains

Major Events/Reports:

Return of risk-taking?

Wall Street traders woke up on the right side of the bed, greeted by positive earnings figures from the likes of Goldman Sachs and Netflix, as well as stronger than expected economic data.

Dow 30 index is up 547.87 points to 25,798.42 (+2.17%)
S&P 500 index is up 59.13 points to 2,809.92 (+2.15%)
Nasdaq is up 214.75 points to 7,645.49 (+2.89%)

The JOLTS jobs report also got some credit for putting investors in good spirits, as the August reading came in at 7.14 million versus the estimated dip to 6.90 million. Note that the July figure also enjoyed an upgrade from 6.94 million to 7.08 million, reflecting employment opportunities abound and hinting at sustained hiring gains in the months ahead.

The U.S. industrial production figure also came in slightly better than expected at 0.3% versus the estimated 0.2% uptick while capacity utilization held steady at 78.1%. Meanwhile, the housing market also reported an improvement with the NAHB index up from 67 to 68 as expected to signal stronger builder confidence.

With this shift in sentiment, gold returned its previous gains while crude oil advanced, also getting a boost from expectations of supply constraints. Keep in mind that there is tension brewing between the U.S. and Saudi Arabia on the disappearance of journalist Jamal Khashoggi, so the latter might not be willing to give in to Trump’s demands to increase output.

Gold fell to $1,224.08 per troy ounce (-0.27%)
WTI crude oil ticked higher to $71.86 per barrel (+0.10%)

Brexit extension buzz

According to a report on Financial Times, EU negotiator Barnier might be willing to extend the Brexit transition period by a year to accommodate a “two-tier backstop” solution.

Citing remarks from EU diplomats, the report revealed that Barnier told officials from 27 member states that they are ready with new proposals to reach a Brexit deal by next month. One of these is an extension of the transition period by a year, which would give the parties more time to iron out the customs checks in Northern Ireland.

According to one of its sources, these concessions would be offered only if all the other parts of the Withdrawal Agreement are reached. Another diplomat stated that the extension is an indication of how the EU can be flexible to help the U.K.

Meanwhile, a separate report from German newspaper Frankfurter Allgemeine Zeitung also suggested that the EU is offering to let the U.K. stay in the bloc beyond the transition period.

On a less upbeat note, European Council President Tusk said that there are “no grounds for optimism” on Brexit talks leading up to the EU Summit. He reiterated that he will press U.K. PM May for “concrete proposals to break the impasse” since goodwill won’t be enough to secure a deal.

Major Market Mover(s):

JPY

The Japanese currency slumped across the board as traders dumped their lower-yielding holdings to chase riskier assets.

USD/JPY rose from 111.99 to a high of 112.26; EUR/JPY climbed from 129.67 to 130.29 then retreated to 129.85; CAD/JPY is up from 86.38 to 86.90; AUD/JPY rallied to 80.19, and NZD/JPY rose to the 74.00 handle.

GBP

Sterling erased most of its intraday gains as Brexit pessimism returned ahead of the EU Summit this week. It didn’t help that there are also rumors that the November special Brexit Summit might be canceled.

GBP/USD retreated from 1.3231 to 1.3170; EUR/GBP bounced back to the .8800 area; GBP/AUD dipped from 1.8565 to 1.8441; GBP/NZD is down to 2.0035, and GBP/CAD fell to 1.7057.

Watch Out For:

11:30 am GMT: Australia’s MI leading index m/m (0.1% previous)

This post first appeared here:

PipDiddy · October 18, 2018, 12:59am

U.S. Session Recap: Dollar Boosted by Hawkish FOMC Minutes

The Greenback widened its lead against its peers as the minutes of the latest FOMC meeting highlighted further tightening prospects. On the flip side, higher-yielding commodity currencies gave up ground as the idea of higher borrowing costs spurred risk-off flows.

U.S. building permits dipped from 1.25M to 1.24M vs. 1.27M forecast
U.S. housing starts down from 1.27M to 1.20M vs. 1.22M consensus
Canadian manufacturing sales down 0.4% vs. expected 0.6% drop
U.K. CB leading index down 0.2% vs. earlier flat reading
EIA crude oil inventories up 6.5M barrels vs. projected 1.6M increase
FOMC minutes: “Further gradual increases” in rates consistent with growth
EU official: Leaders ready to finalize Brexit deal as negotiations get close
Another EU official: Not enough progress on Brexit has been achieved
PM May open to extending Brexit transition period?
Special Brexit Summit in November still in limbo
U.S. refrains from branding China as a currency manipulator

Major Events/Reports:

FOMC minutes

Dollar bulls found reason to charge as the transcript of the latest FOMC policy huddle confirmed that the central bank has more interest rate hikes up its sleeve.

Policymakers mostly agreed that “further gradual increases” in borrowing costs “would most likely be consistent” with the U.S. economy’s pace of growth, inflation, and employment. Furthermore, officials noted that this would balance the risk of tightening too quickly or too slowly.

Recall that there was a lot of hubbub over the removal of the “accommodative” bit in the September statement, and it turns out that “almost all” committee members thought it was time to do so. However, a couple of FOMC members signaled that they would “not favor adopting a restrictive policy stance in the absence of clear signs of an overheating economy and rising inflation.” Any guesses who?

EU Summit jitters

Market watchers continued to keep close tabs on remarks from EU officials as Brexit deal discussions in the summit are taking place.

In her speech to EU counterparts, U.K. PM May hinted that they’re open to extending the two-year transition period by a year in order to have more time to iron out trade issues, particularly in the Irish border. But while she expressed confidence in a good outcome and called for “courage, trust, and leadership” on both sides, many pointed out that she hasn’t offered fresh proposals as European Council President Tusk demanded.

Sources present in the summit also gave mixed intel, with one citing that leaders are ready to finalize the divorce terms as negotiations are getting close and another noting that “not enough progress has been achieved.”

In addition, the prospect of a special Brexit summit in November is still in limbo as the leaders are waiting to see decisive progress before arranging another get-together. Word on the street is that Germany and France are already making preps for a “no deal” situation.

Risk appetite wobbles

U.S. stocks took hits as the drop in energy prices and the prospect of higher borrowing costs weighed on investors’ outlook.

Dow 30 index closed 91.74 points down to 25,706.68 (-0.36%)
Nasdaq is down 2.79 points to 7,642.70 (-0.04%)
S&P 500 index is lower by 0.71 points to 2,809.21 (-0.03%)

Crude oil chalked up another day in the red as the EIA inventories report revealed a larger than expected increase of 6.5 million barrels, despite the closures of some refineries in the Gulf Coast during Hurricane Michael. Gold was slightly weaker as well.

The precious metal is down to $1,223.07 per troy ounce (-0.11%)
WTI crude oil fell to $70.05 per barrel (-0.27%)

Major Market Mover(s):

USD

The scrilla was in a positive mood even before the release of the FOMC minutes as bulls were likely looking forward to seeing more hawkish remarks from policymakers.

USD/JPY climbed from 112.09 to a high of 112.72; EUR/USD sank from 1.1576 to 1.1498; GBP/USD initially climbed to a session high of 1.3149 then fell to 1.3100, and USD/CHF is up to .9952.

CAD

The comdoll gang found themselves deep in negative territory once more, with the Loonie being the biggest loser of ’em all. Weaker crude oil prices on the heels of a larger than expected EIA inventory build and the beef with Saudi Arabia were also dragging factors.

USD/CAD climbed from 1.2969 to 1.3026; CAD/JPY retreated from 86.63 to a low of 86.17; EUR/CAD held on to the 1.5000 mark, and AUD/CAD bounced off .9234 to .9261.

Watch Out For:

12:30 am GMT: Australian employment change (15.2K expected, 44K previous)
12:30 am GMT: Australia’s unemployment rate (no change from 5.3% expected)
12:30 am GMT: Australia’s NAB quarterly business confidence index
12:30 am GMT: BOJ Governor Kuroda’s testimony

This post first appeared here:

PipDiddy · October 19, 2018, 1:51am

U.S. Session Recap: Risk-Off Flows Return, USD Recovers But JPY Snags Lead

The U.S. dollar made quite a comeback during the New York session when risk-off flows returned and pulled higher-yielders back down. However, it was the Japanese yen that was the king of pips for the session.

Canada’s ADP non-farm employment change down from 42.7K to 28.8K
Philly Fed index dipped from 22.9 to 22.2 vs. 19.7 forecast
U.S. initial jobless claims at 210K vs. 211K consensus, 215K previous
U.S. CB leading index up from 0.4% to 0.5% as expected
New Zealand visitor arrivals fell by 1.9% after earlier 2.8% gain
FOMC member Quarles: Gradual rate hikes appropriate
Fed official Bullard: Weak inflation means Fed shouldn’t hike further
Bullard: Current pace of tightening could increase recession risk
Chinese data dump coming up

Major Events/Reports:

Another risk-off day

Investors were unable to keep up their positive spirits from the earlier session as financial markets gave in to another round of risk aversion. U.S. equity indices closed more than 1% lower:

Dow 30 index is down 327.23 points to 25,379.45 (-1.27%)
Nasdaq is down 157.56 points to 7,485.14 (-2.06%)
S&P 500 index is down 40.43 points to 2,768.78 (-1.44%)

Gold resumed its climb as the precious metal banked on safe-haven demand while crude oil slid on the internal OPEC report that warned of further declines. U.S. yields were slightly lower as well.

Gold rose to $1,225.11 per troy ounce (+0.28%)
WTI crude tumbled to $68.70 per barrel (-0.15%)
U.S. 5-year yield down to 3.025% (-0.05%)
U.S. 10-year yield down to 3.177% (-0.05%)

A number of factors are being blamed for the rout, including brewing tensions with Saudi Arabia, expectations of weaker growth from China, higher U.S. borrowing costs on more Fed tightening, warnings on Italy’s budget, and the lack of progress in Brexit talks. Phew!

Mixed Fed commentary

A couple of Fed officials gave testimonies and shared a bit about their policy bias, with FOMC voting member Quarles supporting the view that gradual hikes are appropriate.

During his speech at the Economic Club of New York luncheon, Quarles noted that the U.S. economy is in a good spot and that there are reasons to be optimistic about an even higher growth rate. When it comes to inflation, he pointed out that it may be a faulty indicator of a broader economic cycle, citing:

“[A] problem does arise if the Fed remains reliant on inflation as our only gauge of the economy’s position relative to its potential.”

Fed official Bullard, on the other hand, wasn’t feeling as chipper about economic prospects as he highlighted weak inflation as a reason that rate hikes should pause. He even warned that keeping up the current pace of tightening could increase the risk of a recession!

Although Bullard isn’t part of the FOMC committee this 2018, note that he will be one of the voting members next year. His latest remarks suggest that he’ll be sitting with the dovish fellas by then.

In his comments to reporters, Bullard reiterated that the Fed’s current policy is “about right” and that higher rates aren’t really necessary to prevent asset bubbles. Furthermore, he mentioned that he’s not seeing evidence of productivity growth that could lead to more upside surprises.

Major Market Mover(s):

USD

The dollar managed to get back on its feet after a downbeat performance in the earlier session, likely getting support from safe-haven demand and positive medium-tier data.

In particular, the initial jobless claims report highlighted progress in the jobs market as the number of first-time claimants fell to its lowest level since 1973.

EUR/USD turned from 1.1523 then fell to 1.1456; GBP/USD retreated from 1.3132 to 1.3022; USD/CHF recovered from .9928 to a high of .9967 but pared most of these gains later on, and AUD/USD fell back to the .7100 handle.

JPY

The lower-yielding yen surged to the top spot, taking advantage of risk-off flows and the dip in U.S. bond yields.

USD/JPY is down from a high of 112.54 to a low of 112.08; EUR/JPY slid from 129.64 to 128.52; GBP/JPY tumbled to a low of 146.11; CAD/JPY dropped from 86.27 to a low of 85.78, and AUD/JPY is down to 79.65.

Watch Out For:

2:00 am GMT: Chinese Q3 GDP (dip from 6.7% to 6.6% expected)
2:00 am GMT: Chinese fixed asset investment (no change from 5.3% expected)
2:00 am GMT: Chinese industrial production (drop from 6.1% to 6.0% expected)
2:00 am GMT: Chinese retail sales (no change from 9.0% expected)
6:30 am GMT: BOJ Governor Kuroda’s testimony

This post first appeared here:

PipDiddy · October 23, 2018, 12:36am

U.S. Session Recap: Loonie Stays in the Lead, GBP Falls Further Back

Loonie traders seem to be looking forward to the BOC rate decision this week as the Canadian currency held on to the top spot even while crude oil was mostly unchanged.

On the other hand, sterling was still behind its peers as the possibility of a “no deal” Brexit is looming and the U.K. government couldn’t seem to get its act together.

Canadian wholesale sales down 0.1% vs. projected 0.1% uptick
Australia’s CB leading index up 0.2% after earlier 0.1% increase
Italian Deputy PM Di Maio: There’s still time to discuss budget on EC rejection
Canadian Foreign Minister Freeland: U.S. steel tariffs are unjustified and illegal
U.K. PM May: Four steps must be taken to get Brexit deal done
May: Not committed to extending transition period but preferable to backstop

Major Events/Reports:

U.K. PM May’s speech

The clock is ticking for the U.K. to strike an agreement with the EU to avoid a “no deal” Brexit, so PM May is rallying up confidence on the home front with her speech in the House of Commons.

No. 10 reiterated that she needs more time to “deliver the Brexit that the British people voted for” and explained that there are four steps that must be taken in order to seal the deal:

A firm legally-binding commitment to the EU-UK temporary customs arrangement
An option to extend the implementation period as an alternative to the Irish border backstop
An option for the U.K. to leave at will and not be locked into any arrangement
Full access for all of Northern Ireland businesses to Great Britain

PM May didn’t seem sold on the idea of extending the transition period by a year either but stated that this would be preferable to a backstop, citing:

“There are some limited circumstances in which it could be argued that an extension to the implementation period might be preferable if we were certain it was only for a short time.”

Earlier on, Brexiter Steve Baker withdrew an amendment to the Northern Ireland bill which would’ve made it illegal for the U.K. to agree to a Northern Ireland-only backstop. This keeps more options open for PM May in case the EU refuses to back down on its Irish border demands.

Some risk-on flows

It was a data-light session, so gains and losses in the financial markets were limited while traders looked ahead to other top-tier events in the week.

U.S. indices were mixed, with the Nasdaq getting a boost from the tech sector rally:

Dow 30 index is down 126.93 points to 25,317.41 (-0.50%)
S&P 500 index is down 11.90 points to 2,755.88 (-0.43%)
Nasdaq is up 19.60 points to 7,468.63 (+0.26%)

Gold returned some of its safe-haven gains while crude oil cruised sideways.

Gold is down to $1,226.07 per troy ounce (-0.35%)
WTI crude oil is holding steady around $69.15 per barrel (+0.01%)

Major Market Mover(s):

CAD

The Loonie managed to edge out most of its rivals and secure the top spot during the New York session, likely as traders are positioning ahead of the BOC decision.

USD/CAD fell from a session high of 1.3127 to a low of 1.3099; CAD/JPY bounced off 85.90 to 86.13; EUR/CAD inched down from 1.5063 to 1.5017; GBP/CAD retreated to 1.6984, and AUD/CAD fell to.9265.

GBP

Sterling carried on with its slide as PM May’s speech failed to spur confidence that the U.K. government can secure a good Brexit deal.

GBP/USD fell from 1.3005 to consolidate around 1.2970; GBP/JPY is down from 147.57 to 146.23; EUR/GBP popped up to .8850, and GBP/CHF slid to 1.2916.

Watch Out For:

3:00 am GMT: RBA Assistant Gov. Bullock’s speech
4:30 am GMT: RBA Assistant Gov. Debelle’s speech
5:00 am GMT: Japan’s BOJ core CPI y/y (0.5% previous)

This post first appeared here:

PipDiddy · October 24, 2018, 8:07am

U.S. Session Recap: Dollar Tosses and Turns in Choppy Session, Kiwi Still Behind

Choppy market conditions extended their stay in the financial markets during the New York session, with some degree of risk aversion going on. A bit of confidence was restored in the latter part, however, as a couple of Fed officials shared their optimistic outlook in their speeches.

Even so, the lack of top-tier economic releases left traders wary of other potential catalysts, possibly from updates on Brexit talks or Italy’s budget. Crude oil was still in a weak spot as lower demand forecasts and Saudi’s pledge to boost supply weighed on prices.

Richmond manufacturing index down from 29 to 15 vs. 25 forecast
Fed official Bostic: Another interest rate hike possible this year
Bostic: Headwinds from trade uncertainty or market volatility won’t throw economy off-track
Fed official Kaplan: Rates should be moving to neutral territory
Kaplan: Unemployment falling but at a slowing pace
Republican lawmaker Brady to work with Trump on middle-class tax cuts

Major Events/Reports:

Risk-taking stumbles then recovers

Market sentiment seemed to be all over the place during the U.S. hours as risk-off vibes from the earlier session carried over. Stocks got knocked down but got back up again (You are never gonna keep me down) as the earnings outlook weighed but Fed optimism and more tax cut prospects came in play.

Dow 30 index fell to a low of 24,768.79 then recovered to 25,191.43 (-0.50%)
S&P 500 index pared its losses to 15.19 points at 2,740.69 (-0.55%)
Nasdaq is down 31.09 points to 7,437.54 (-0.42%)

Crude oil was still on slippery footing thanks to Saudi Arabia’s pledge to boost supply to make up for the effect of U.S. sanctions on Iran. Gold managed to score safe-haven gains:

Gold is up to $1,230.45 per troy ounce (+0.69)
WTI crude oil futures fell to $66.02 per barrel (-4.47%)

Analysts also pinned the blame for market jitters on the upcoming U.S. elections amid uncertainty when it comes to trade war with China. Yields were mostly lower as investors sought the safety of bonds.

Later on, riskier assets clawed their way up from their intraday lows, likely on Fed optimism, stronger prospects of more tax cuts, and some profit-taking.

Mostly positive Fed remarks

A handful of Fed officials had testimonies scheduled throughout the session, but surprisingly perma-dove Kashkari didn’t share any of his policy thoughts for now.

As for FOMC official Bostic, who has also previously had a dovish tilt, another interest rate hike could be in the cards before the end of this year. He did acknowledge that there are headwinds from trade uncertainty and market volatility but assured these won’t put the economy or the Fed off-track. After all, there are tailwinds from tax reform and fiscal stimulus.

Bostic said:

“Unless the data talk me out of it, I view a continued, gradual removal of policy accommodation as appropriate until we get to a neutral policy rate. There is little reason to keep our foot on the gas pedal.”

Meanwhile, Fed official Kaplan who is not a voting member this year cautioned that growth could slow in the next couple of years. He pointed out that unemployment is falling at a slower pace and that rising wage pressures won’t cause runaway inflation. Still, he noted that the Fed should carry on with its gradual move to neutral policy.

Times report on Brexit transition

The spotlight turned back to Brexit towards the latter part of the session as The Times reported that it got a leaked version of the U.K. government’s Brexit transition plan.

The report revealed that the U.K. would have the sole option to extend the transition period beyond 2020 in case the implementation plan for the Irish border isn’t ready by then.

However, a Downing Street spokesman clarified later on that this isn’t the final decision yet. He reiterated PM May’s remarks that an extension of the implementation period won’t be necessary and that the U.K. government won’t accept a position could find itself locked in an “alternative, inferior arrangement.”

Major Market Mover(s):

USD

The scrilla appeared to be tracking U.S. stocks as it also fell earlier in the session before pulling up on mostly upbeat Fed rhetoric and a slight recovery in risk-taking.

USD/JPY slipped to a low of 111.95 then bounced back to 112.47; EUR/USD hit a high of 1.1494 then retreated to 1.1472; GBP/USD fell from 1.3045 to a low of 1.2980, and USD/CHF bounced from .9940 to a high of .9962.

JPY

The yen was off to a running start as risk-off flows were in play but it wound up returning some of those gains before the session closed.

EUR/JPY fell to 128.22 then pulled up to 129.01; GBP/JPY bounced off 145.30 to 146.10; AUD/JPY recovered from 79.05 to 79.75, and CAD/JPY rebounded to 85.97.

Watch Out For:

12:30 am GMT: Japanese flash manufacturing PMI (gain from 52.5 to 52.6 expected)

This post first appeared here:

PipDiddy · October 25, 2018, 1:32am

U.S. Session Recap: CAD Boosted by BOC Hike, Risk-Off Flows Lift JPY

The bloodbath in U.S. equities was the stuff of headlines, keeping risk aversion in play and lifting the lower-yielding Japanese yen. The Loonie managed to break free from the selloff, though, as the BOC hiked rates and signaled room for more tightening.

On the flip side, the pound and euro still found themselves far behind as Brexit-related troubles lingered.

U.S. Markit flash services PMI up from 53.5 to 54.7 vs. 54.1 forecast
U.S. Markit manufacturing PMI up from 55.6 to 55.9 vs. 55.4 estimate
BOC hiked interest rates from 1.50% to 1.75% as expected
BOC removed “gradual” in referring to future policy tightening
U.S. new home sales down from 585K to 553K vs. 627K consensus
U.S. EIA crude oil stockpiles up 6.3M barrels vs. projected 3.6M gain
BOC Gov. Poloz: Every one of our meetings is live
Poloz: Economy is at its capacity and no longer needs stimulus
BOC Wilkins: Risks are two-sided and we’ll be data-dependent
Fed Beige Book: Economic activity expanded with growth modest to moderate
Beige Book: Labor shortages linked to higher wages, tariffs still a concern
FOMC official Mester: U.S. underlying economy is strong, inflation expectations stable
FOMC official Bostic: Fed’s view to let economy stand on its own

Major Events/Reports:

BOC statement and presser

As widely expected, the Bank of Canada hiked interest rates by 0.25% from 1.50% to 1.75% on account of solid growth and inflation, as well as an upbeat economic outlook.

Their official statement highlighted how it’s fun to stay at the USMCA as this removes trade uncertainty in North America, although it also pointed out risks from the spat between the U.S. and China. As for Canada itself, projections for business investments and exports have been upgraded despite dips in commodity prices.

The BOC also acknowledged that inflation dipped last month but pinned this on temporary factors, adding that it could continue to stay close to the 2% target well until 2020. Of particular interest to Loonie bulls was the removal of “gradual” when it comes to future monetary policy adjustments, spurring speculations that the BOC could tighten at a faster than expected pace.

During the presser, BOC head honcho Poloz clarified that every one of their meetings is live, downplaying market expectations that they might act only every other meeting. He also mentioned:

When it comes to dropping “gradual,” Poloz explained:

Meanwhile, Senior Deputy Governor Carolyn Wilkins admitted that weaker crude oil prices is shaving off a bit from Canada’s growth but added later on that it is also a function of how U.S. fiscal policy continues. She also reiterated the central bank’s dependence on data:

Wall Street in the red

Over in the U.S., the mood was less cheery as another tumble in tech stocks due to weaker earnings and forecasts pulled equity indices to negative territory for the year.

Dow 30 index is down 608.01 points to 24,583.42 (-2.41%)
S&P 500 index is down 84.59 points to 2,656.10 (-3.09%)
Nasdaq is down 329.14 points to 7,108.40 (-4.43%)

It didn’t help that investors were still worried about geopolitical risks stemming from Brexit issues and Italy’s budget, the upcoming U.S. mid-term elections, and tensions with Saudi Arabia. Downbeat U.S. new home sales added bearish pressure as well. Yikes!

To top it all off, Fed tightening expectations also loomed like a dark cloud over business investment and consumer spending thanks to mostly hawkish remarks from FOMC members Mester and Bostic, along with an upbeat Beige Book.

Major Market Mover(s):

JPY

The Japanese yen was the main beneficiary of risk-off flows as it managed to snatch some safe-haven flows away from the U.S. dollar.

USD/JPY slumped from 112.72 to 112.02; EUR/JPY tumbled from the 128.50 area to a low of 127.65; GBP/JPY fell from 145.58 to 144.32; AUD/JPY slid to the 79.00 levels, and NZD/JPY is down to 72.94.

CAD

Thanks to the BOC hike and optimism, the Loonie scored immunity from most of the risk-off moves that dragged the rest of the higher-yielding currencies deep in the red.

However, the Loonie had trouble holding on to most of these gains as it caved to profit-taking and nearly non-stop declines in the markets.

USD/CAD fell from 1.3094 to a low of 1.2968 but bounced back to 1.3017 before the session ended; CAD/JPY popped up from 86.02 to 86.69 then retreated back to 86.27; EUR/CAD slipped to 1.4777, and GBP/CAD is down to 1.6813.

Watch Out For:

11:50 pm GMT: Japanese SPPI y/y (dip from 1.3% to 1.2% expected)

This post first appeared here:

PipDiddy · October 26, 2018, 1:14am

U.S. Session Recap: A Bit of Risk-Taking Returns But GBP Still Far Behind

Traders seemed to be in a much better mood throughout the session, allowing equities to recover from the earlier slide and the higher-yielding Aussie to stay in the top spot.

The safe-haven dollar didn’t join its lower-yielding buddies, the franc and the yen, in losing ground as it cashed in on higher bond yields and euro weakness. Meanwhile, the pound still lagged far behind as Brexit jitters lingered.

U.S. headline durable goods orders up 0.8% vs. expected 1.3% slide
U.S. core durable goods orders posted 0.1% uptick vs. estimated 0.5% gain
Chinese CB leading index up 0.7% from earlier 1.2% increase
ECB presser: Draghi highlighted risks coming from Italy and Brexit
Draghi: No reason to doubt confidence in inflation
U.S. goods trade deficit widened from $75.5B to $76B vs. $74.9B forecast
U.S. pending home sales up 0.5% vs. projected 0.1% dip
Italian PM Salvini: Gov’t preparing countermeasures if spreads keep widening
U.S. Q3 advanced GDP reading due later

Major Events/Reports:

ECB presser

In his prepared statements ahead of the ECB press conference, head honcho Draghi acknowledged that the latest batch of economic data has been weaker than expected but isn’t cause for concern. After all, the figures are still in line with “an ongoing broad-based expansion of the euro area economy and gradually rising inflation pressures.”

Draghi also expressed confidence that the underlying strength of the economy continues to support their inflation expectations and that risks remain broadly balanced. He did point out that downside risks are coming from “trade protectionism, emerging markets, and financial market volatility.”

During the Q&A, the ECB Governor reiterated that the weakening momentum as shown by recent data doesn’t signal a downturn and added that the central bank has “no reason to doubt confidence in inflation.”

When asked about Italy, Draghi admitted that the Governing Council didn’t have a big discussion on the budget matter yet but assured that they have fiscal tools to utilize if needed. On Brexit, he said:

“The ECB is monitoring Brexit talks, but as time goes by without an agreement, will have to prepare for a hard Brexit.”

Some risk-on flows

Stocks and commodities chalked up a bit more green throughout the day, carrying on from the positive performance in the previous trading session. Positive earnings data and some bargain-hunting led these rebounds.

Dow 30 index is up 401.13 points to 24,984.55 (+1.63%)
Nasdaq is up 209.94 points to 7,318.34 (+2.95%)
S&P 500 index is up 49.47 points to 2,705.57 (+1.86%)

Gold returned some of its safe-haven winnings while crude oil held its ground.

The precious metal is down to $1,231.76 (-0.37%)
WTI crude oil ticked up to $67.08 per barrel (+0.67%)

Major Market Mover(s):

AUD

The Aussie held on to most of its gains from the earlier session and went for more as the risk-on flows carried on.

AUD/USD bounced from .7071 to a high of .7100 but retreated to .7081; AUD/JPY climbed from 79.50 to 79.77; EUR/AUD fell from 1.6093 to a low of 1.6050, and AUD/CAD popped back up from .9225 to a high of .9276.

EUR & GBP

The shared currency ticked higher on Draghi’s confident inflation assessment and his not-so-worried view on Italy but eventually slipped when the discussion turned to hard Brexit preps.

Sterling continued to bleed throughout the day as the clock keeps ticking closer to a “no deal” Brexit.

EUR/USD jumped to 1.1433 then tumbled back down to 1.1356; EUR/JPY hit a high of 128.40 then slumped to 127.72; EUR/GBP is up to .8870; EUR/NZD fell back to 1.7425, and EUR/CAD fell from 1.4930 to 1.4870.

GBP/USD slid from 1.2903 to a low of 1.2797; GBP/JPY slid from 144.86 to 144.02; GBP/AUD is down to 1.8111, and GBP/CHF fell to 1.2818.

Watch Out For:

11:30 pm GMT: Japanese Tokyo core CPI y/y (no change from 1.0% expected)
U.S. Q3 advanced GDP reading due later

This post first appeared here:

PipDiddy · October 30, 2018, 12:41am

U.S. Session Recap: Trade Tensions Revive Risk-Off Flows, JPY Recovers

Just when it seemed that all was fine and dandy in the financial markets, risk aversion popped its ugly head back in when geopolitical troubles and trade tensions came in play.

U.S. core PCE price index up 0.2% vs. 0.1% forecast, 0.0% previous
U.S. personal income up 0.4% as expected in Sept
Aug personal income figure upgraded from 0.3% to 0.5%
U.S. personal spending up 0.2% vs. 0.4% forecast
Aug personal spending figure upgraded from 0.3% to 0.4%
German Chancellor Merkel won’t be seeking re-election as CDU chair
U.K. budget included tax cuts and easing of welfare curbs
Hammond: Brexit deal needed to end U.K. austerity
U.K. to impose new sales levy on big tech firms
More U.S. tariffs on Chinese imports in the works?

Major Events/Reports:

Trade tensions resurface

Higher-yielding currencies and equities started the New York session on a positive note, carrying on from the upside momentum in the earlier trading session. However, those rallies came to a halt when it was reported that the U.S. stands ready to impose another round of tariffs on China if talks between Trump and Xi Jinping fail.

According to unnamed sources interviewed by Bloomberg, another set of tariffs worth as much as $257 billion could be announced by December should next month’s pow-wow be unable to ease trade tensions. Two people familiar with the matter added that, after a 60-day public comment period, these trade measures could take effect by February next year.

Lost track of how much the U.S. or China has on the line? Make sure you read our U.S.-China trade war primer right here!

Risk-off flows hit U.S. equities once more:

Dow 30 index is down 245.39 points to 24,442.92 (-0.99%)
Nasdaq closed 116.92 points down to 7,050.29 (-1.63%)
S&P 500 index is down 17.44 points to 2,641.25 (-0.66%)

Commodities were also broadly lower:

WTI crude oil fell to $66.74 per barrel (-0.13%)
Gold also slid to $1,229.11 per troy ounce (-0.24%)

Mostly upbeat U.S. data

Uncle Sam’s latest economic figures turned out mostly in the green, keeping Fed tightening expectations in play – not really a plus for risk-taking either.

Personal spending advanced 0.4% as expected in September, even as personal income fell short with a 0.2% uptick versus the estimated 0.4% gain. August figures saw upgrades, with personal spending revised higher from 0.3% to 0.5% and personal income revised from 0.3% to 0.4%.

However, this also reveals that the pickup in personal income was the slowest in 15 months and that savings fell to their lowest level since December 2018. Analysts say that this is a sign that the impact of tax cuts has peaked and that higher borrowing costs are starting to creep in, casting doubts on whether or not the strong pace of consumer spending can be sustained.

Meanwhile, the core PCE price index or the Fed’s rumored preferred measure of inflation ticked up by 0.2% versus the 0.1% forecast in September. This brings the annual reading right smack in line with the 2% Fed target.

U.K. Autumn Forecast Statement

British Finance Minister Philip Hammond unveiled the latest budget for the U.K. during the HM Treasury’s Autumn Forecast Statement. This contained tax cuts for households and eased welfare curbs for poorer working families, as well as a new sales levy on big tech companies.

Hammond also assured that the period of austerity in the U.K. could end, provided that a Brexit deal can be struck with the EU. Talks have been anything but productive lately, so no pressure there. He stated:

“When our EU negotiations deliver a deal, as I am confident they will, I expect that the ‘Deal Dividend’ will allow us to provide further funding.”

Still, the Treasury aims to get as much as 400 million GBP per year with the revenue tax on tech giants like Google and Amazon. Of course a chunk of this will be used to finance higher spending on defense and infrastructure and adjustments in income tax thresholds.

Major Market Mover(s):

USD

The dollar was able to stay well-supported throughout the session, lifted by risk-off action and sustained Fed tightening expectations.

USD/JPY advanced to a high of 112.54 then dipped to 112.46; EUR/USD fell to 1.1377; USD/CHF rose from .9995 to a high of 1.0025, and AUD/USD slipped to a low of .7049.

JPY

The lower-yielding yen managed to recoup some of its earlier losses thanks to the return in risk-off flows as the session rolled along.

AUD/JPY turned from 79.64 then fell back to 79.34; CAD/JPY retreated from 85.90 to 85.56; EUR/JPY fell from a high of 127.29 to 127.80, and NZD/JPY dropped to 73.32.

GBP

Sterling edged mostly lower on the release of the U.K. budget as Finance Minister Hammond unveiled a tighter-than-expected budget.

GBP/USD dipped from 1.2835 back to the 1.2800 mark; EUR/GBP kept climbing to .8901; GBP/CHF sank further to 1.2827, and GBP/JPY slid from 144.40 to 143.83.

Watch Out For:

12:30 am GMT: Australian building approvals (3.9% rebound expected after earlier 9.4% slide)
2:00 am GMT: RBA Assistant Gov. Bullock’s speech

This post first appeared here:

PipDiddy · October 31, 2018, 12:53am

U.S. Session Recap: Consumer Confidence Boosts Dollar, AUD & NZD in the Lead

The market mood was a bit more positive in the U.S. session thanks to a rally in equities and stronger than expected consumer confidence data. Easing trade war concerns likely contributed to the rebound in risk as well.

Some of the gains might also be attributed to month-end profit-taking, but commodity currencies managed to stay ahead of the pack for the rest of the session.

U.S. S&P/CS Composite HPI up 5.5% vs. 6.0% forecast, 5.9% previous
U.S. CB consumer confidence index up from 135.3 to 137.9 in Oct
BOC Governor Poloz: Rates will need to rise to achieve inflation target
BOC official Wilkins: Wage gains to accelerate
OPEC and partners to cut oil production after U.S. elections?
New Zealand building consents down 1.5% after earlier 6.8% gain

Major Events/Reports:

Upbeat U.S. consumer confidence

It turns out Americans are still feeling optimistic about the economy and financial conditions as the October CB consumer confidence index jumped from 135.3 to 137.9, outpacing the consensus at 136.3.

This marks the index’s 18-month high and signals that spending could stay supported in the months ahead. After all, consumers are more likely to spend than keep their hands in their pockets if they’re confident that the economy could keep chugging on.

Components of the report revealed that the expectations index, which is based on the short-term outlook for income, business, and labor conditions, advanced from 112.5 to 114.6. However, jobs expectations turned out mixed as the proportion expecting more jobs in the months ahead decreased while those anticipating fewer jobs also decreased.

Hawkish BOC remarks

BOC head honcho Poloz and Senior Deputy Governor Wilkins testified before the House of Commons Standing Committee on Finance, sharing their thoughts on economic developments and future policy actions.

In his opening statement, Governor Poloz mostly reiterated his views during the BOC decision, citing that the Canadian economy has shown solid momentum and broad-based growth. He also pointed out that inflation is running close to target but warned that risks from trade and household debt remain.

But what drew bulls’ attention was Poloz’s remarks on how policy remains stimulative despite their latest rate hike, adding:

“The policy rate will need to rise to neutral to achieve our inflation target. That said, the appropriate pace of increases will depend on our assessment at each fixed announcement date of how the outlook for inflation and related risks are evolving.”

Meanwhile, BOC official Wilkins acknowledged that the Canadian economy is strong and that businesses were finalizing investment plans. She also mentioned that households are adjusting to higher rates and that wage growth could accelerate.

Risk-on moves

Some risk-on flows stayed in play for the most part of the session on easing trade jitters after Trump expressed optimism for a “great deal” with China earlier on. Wall Street also chalked up decent gains, buoyed by a pickup in chip and transport shares.

Dow 30 index is up 431.72 points to 24,874.64 (+1.77%)
S&P 500 index is up 41.38 points to 2,682.63 (+1.57%)
Nasdaq is up 111.36 points to 7,161.65 (+1.58%)

Gold returned some of its safe-haven shine but crude oil was also lower on speculations that the OPEC might cut production after the U.S. elections.

Major Market Mover(s):

USD

Stronger than expected U.S. consumer confidence allowed the Greenback to flex its muscles as this hinted that spending and growth could stay supported in the foreseeable future.

USD/JPY advanced from 111.69 to 113.04; USD/CHF is up to 1.0052; EUR/USD edged further down from 1.1381 to 1.1346, and GBP/USD is down to the 1.2700 handle.

Commodity Currencies

The Aussie and Kiwi stayed supported as trade war fears ebbed for the time being while the Loonie got a boost from hawkish BOC remarks.

AUD/USD climbed from .7087 to a high of .7118; NZD/USD rose to a high of .6574; USD/CAD is down to a low of 1.3108, AUD/JPY advanced to 80.30; NZD/JPY rallied to the 74.00 levels, and CAD/JPY recovered to 86.20.

Watch Out For:

12:50 am GMT: Japanese preliminary industrial production m/m (0.3% dip expected, 0.2% uptick previous)
1:30 am GMT: Australian quarterly CPI (gain from 0.4% to 0.5% expected)
1:30 am GMT: Australia’s trimmed mean CPI (dip from 0.5% to 0.4% expected)
2:00 am GMT: Chinese official manufacturing PMI (drop from 50.8 to 50.6 expected)
2:00 am GMT: Chinese official non-manu PMI (dip from 54.9 to 54.7 eyed)
Tentative: BOJ monetary policy statement
6:00 am GMT: Japanese consumer confidence index
6:00 am GMT: Japan’s housing starts y/y (-0.7% expected, +1.6% previous)

This post first appeared here:

PipDiddy · November 1, 2018, 12:52am

U.S. Session Recap: Pound Lifted by Brexit Deal Hints, Dollar Still Supported

The British pound had one of its better days in a long time as Brexit minister Raab hinted of a deal being ready by November 21. A bit of risk appetite and month-end profit taking also came into play, yet the Greenback managed to stay in the green.

U.S. ADP non-farm employment change up 227K vs. 188K forecast in Oct
September U.S. ADP figure downgraded from 230K to 218K
Canadian economy grew 0.1% in Sept. vs. projected flat GDP reading
Canada’s RMPI fell 0.9% vs. projected 0.5% decline
Canada’s IPPI posted 0.1% uptick instead of staying flat
U.S. employment cost index up 0.8% in Q3 vs. 0.7% consensus, 0.6% previous
Chicago PMI slipped from 60.4 to 58.4 vs. 60.1 forecast
BOC Governor Poloz repeated that rates will need to keep rising
EIA crude oil inventories up 3.2M barrels vs. 3.6M forecast, 6.3M previous
OPEC: October output increased 390K barrels per day
Brexit minister Raab in letter: “Expect 21 November to be suitable” in finalizing deal
Brexit ministry spokesperson: No set date for EU negotiations to conclude

Major Events/Reports:

Risk-taking carries on

Positive vibes from the earlier trading session continued throughout the U.S. hours, with upbeat earnings data boosting equity indices.

Dow 30 index is up 241.12 points to 25,115.76 (+0.97%)
S&P 500 index is up 29.11 points to 2,711.74 (+1.09%)
Nasdaq is up 144.25 points to 7,305.90 (+2.01%)

Gold chalked up another day in the red as it returned more safe-haven gains from earlier on. However, crude oil was also on the losing end as a Reuters survey revealed that OPEC output jumped by 390K barrels per day despite production constraints in Iran and Venezuela. Crude oil stockpiles rose 3.2 million barrels, slightly slower than the estimated 3.6 million gain and the earlier 6.3 million increase.

Mostly upbeat U.S. data

Another day, another set of positive U.S. reports. Dollar bulls might be bracing themselves for a strong NFP read as the ADP non-farm employment change beat expectations.

The October report showed jobs growth of 227K, way above the 188K forecast, but the earlier reading was downgraded from 230K to 218K. Gains were broad-based across all industries, led by the hospitality, trade and leisure sectors.

However, analysts pointed out that the numbers signal more benefits for larger employers as they can offer competitive wages and benefits compared to smaller businesses.

Also in labor market news, the employment cost index for Q3 came in better than expected at 0.8% versus the estimated 0.7% increase and the earlier 0.6% gain, reflecting higher wages.

On the flip side, the Chicago PMI turned out weaker than expected as it slid from 60.4 to 58.4 to reflect a slower pace of industry growth versus the consensus of a dip to 60.1. Components revealed that this third consecutive monthly decline was spurred by a lower level of new orders.

Brexit deal ready next month?

Brits got their hopes up that a Brexit deal would be finalized before the end of November as Brexit Minister Raab wrote in his letter to Hilary Benn, Chairman of the U.K. Parliament Brexit Select Committee:

“I would be happy to give evidence to the Committee when a deal is finalized, and currently expect 21 November to be suitable.”

This was underscored by his remarks assuring that “while obstacles remain, it cannot be beyond us to navigate them” and that they have “resolved most of the issues.”

However, his department soon clarified that the November 21 date was merely a suggestion, adding:

“There is no set date for the (EU) negotiations to conclude. The 21st November was the date offered by the Chair of the Select Committee for (Raab) to give evidence.”

Major Market Mover(s):

GBP

Sterling was already in good spirits in the earlier session then got an extra boost from Raab’s hint that a Brexit deal would be ready by November 21. Of course most of these quick gains were returned when U.K. officials clarified that this wasn’t a set date.

Cable spiked to a high of 1.2830 then fell swiftly back to 1.2750; GBP/JPY popped up to 145.13 then retreated to 143.89; EUR/GBP dipped to .8842 then pulled up to .8860, and GBP/CHF retreated from a high of 1.2892.

Watch Out For:

1:30 am GMT: Australian trade balance (1.17B AUD expected, 1.60B AUD previous)
1:30 am GMT: Australia’s import prices q/q (1.1% gain expected, 3.2% previous)
2:45 am GMT: Chinese Caixin manufacturing PMI (dip from 50.0 to 49.9 eyed)
6:30 am GMT: Australian commodity prices y/y (4.8% previous)

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