Here are the latest developments in global markets:
- FOREX: Dollar/yen was standing at 112.13 (+0.23%), slowly recouping losses recorded on Friday, while the dollar index was moving sideways around 96.41 ahead of the US core PCE inflation index due later today. Euro/dollar was fluctuating weak around the 1.1400 mark (+0.08%) after Merkel’s Conservatives (CDU) won regional elections in the Western state of Hesse on Sunday, but with surprisingly small support. The coalition SPD partners performed even worse, leading them to question their cooperation with Merkel’s party. The SPD is now planning to create a new roadmap to measure progress in national government, which will be reviewed next year. According to a Spiegel editor, Merkel may not run for another term as the head of the CDU party. Pound/dollar made little progress on Monday, inching up to 1.2846 (+0.12%). In the antipodean currencies, kiwi/dollar added 0.60% to its performance after five straight days of lackluster moves, while aussie/dollar was lacking direction at 0.7095. Dollar/loonie retreated by 0.14%. In emerging markets, Mexicans voted against a $13bln new airport project supported by the new President, sending the peso down by 1.0% against the dollar. On the other hand, the Turkish lira and the South African rand were higher by more than 1.0%.
- STOCKS: European stocks were considerably higher at 1050 GMT. The pan-European STOXX 600 rebounded by 1.66% after dropping to new 22-month lows on Friday. The blue-chip Euro STOXX 50 surged by 1.50%. The German DAX 30 climbed by 2.08%, the French CAC 40 rose by 1.20% after a delayed open due to technical issues, while the Italian FTSE MIB was the best performer, advancing by 2.67%. The UK’s FTSE 100 jumped by 1.8% after the British HSBC bank, the largest in Europe in terms of assets, said that its pre-tax profits in the third quarter were higher by 28% compared to the same period a year ago. In Asia, equities closed mostly lower with Chinese stocks losing 2-3.0%. In the US, futures tracking S&P 500, Dow Jones and Nasdaq 100 were holding moderate gains, pointing to a notably higher open.
- COMMODITIES: Oil prices were in negative territory a few days before the second round of US sanctions against Iranian oil exports take effect (November 4). Concerns over the recent sell-off in stock markets as well as fears about a global growth slowdown, especially in China, were holding sentiment downbeat. WTI crude and the London-based Brent were last seen at $67.16/barrel (-0.61%) and $77.15/barrel (-0.61%) respectively. In precious metals, gold returned to $1,229/ounce after hitting five-month highs at $1,243 on Friday, but the short-term picture remains bullish overall.
Day ahead: US core PCE and UK Autumn Budget due; German politics also in focus
US releases and most notably the core PCE price index will be the highlight on Monday’s economic calendar, with the unveiling of the Autumn Budget in the UK also attracting attention. More broadly, investors will keep a close eye on any developments in stocks, Brexit, the trade conflict, and Italy’s fiscal standoff with the EU. German politics could also prove crucial for sentiment, particularly in European assets, following reports that Chancellor Merkel may step down as leader of her CDU party.
On the data front, the US core PCE index for September – the Fed’s preferred inflation gauge – is due out at 1230 GMT, alongside personal income and spending data for the same month. Forecasts are generally upbeat, suggesting the core PCE rate is likely to have stayed unchanged at 2.0% in yearly terms, exactly in line with the Fed’s inflation goal. Meanwhile, income is expected to have risen by 0.3% on a monthly basis, the same pace as previously, while spending is projected to have accelerated to 0.4% from 0.3% in August. An overall strong set of data could heighten further market expectations around a potential Fed rate hike in December, currently priced in with a 75% probability according to the Fed funds futures, and thereby benefit the dollar. The opposite holds true as well.
In the UK, Chancellor Hammond will deliver the Autumn Budget to Parliament at approximately 1500 GMT. While this is typically more of a formality, things may be different this time as the DUP party – that is propping up Theresa May’s government – has threatened to vote against this budget if left unsatisfied by May’s stance on the Irish border. Separate reports suggest that even some Conservative Brexiteers may follow suit and vote down the budget, in protest over the PM’s Brexit policies. If indeed the budget is rejected, that could signal that any deal PM May brokers with the EU may suffer a similar fate, and potentially spell more trouble for the pound. On the other hand, an approval may be seen as a vote of confidence in May, implicitly reducing the odds for an early election, and thereby triggering a relief bounce in sterling.
In euro land, the single currency continues to wrestle with conflicting narratives. On the bright side, Italy narrowly avoided a credit downgrade by the S&P last week, while Italian press is reporting the government may trim its 2019 spending a little, in a sign that a prolonged standoff with the EU may be avoided. That said, news that German Chancellor Merkel may not run for re-election as leader of her CDU party are likely keeping a lid on euro optimism.
As for the speakers, Chicago Fed President Charles Evans (non-voting FOMC member in 2018) will step up to the rostrum at 1245 GMT.
