Rates: Fed chair Powell strikes note of caution
US stock markets couldn’t hold on to opening gains, sliding throughout the session and pulling US yields lower as well. Fed chair Powell said he is very positive about the US economy, but for the first time stroke a note of caution on growth abroad and the housing market. US eco data will probably confirm his bullish view on the current state of the economy today.
Currencies: dollar eases of recent top
There were plenty of topics with potential to move global USD trading yesterday. In the end, the dollar lost slightly ground off this week’s peak. However, the global picture on the US currency hasn’t changed. Sterling hardly profited as UK PM May convinced her Cabinet on a Brexit deal. GBP traders are already counting down to the vote in Parliament
The Sunrise Headlines
- US stock markets couldn’t hold on to opening gains and closed yesterday’s session with marginal losses. Asian stock markets opened in green with the exception of Japan. China outperforms on trade talk progress with the US.
- UK PM May won approval of her ministers for the brexit draft deal. However, many ministers are in discontent proving that it will be fiercely contested in Parliament. A special EU-brexit summit will be held Nov 25.
- Bill Pascrell, a key US Democrat, threatened that the USMCA (the new trade agreement with Canada and Mexico, or Nafta 2.0) needs some changes if the Trump administration wants to secure the support from Democrats .
- Fed chairman Powell repeated the very strong state of the US economy but added that the Fed sees potential headwinds including slowing growth abroad. He also warned for a slowing housing industry and high corporate debt levels.
- Australia printed a solid market report. Net employment gained 32.8k in October, primarily driven by full time jobs (+42.3k). The unemployment rate remained unchanged at 5.0%, but the participation rate rose to 65.6%.
- EU’s trade commissioner Malmström said she is working on a list of US goods that would face retaliatory measures if the US proceeded with import tariffs on EU cars. The move comes after renewed tariff threats of US President Trump.
- Today’s US eco calendar heats up with US & UK retail sales, Philly Fed business outlook, empire manufacturing survey and weekly jobless claims. ECB Coeuré, Praet, de Guindos and multiple Fed governors speak.
Currencies: Dollar Eases Of Recent Top
Dollar eases of recent top
There were multiple topics with potential to move global FX/USD trading yesterday, including EMU and US data, Brexit, Italy, the oil price, global equity volatility and, last but not least a speech of Fed chairman Powell. The dollar slightly outperformed early in the session, but lost momentum later. US CPI and wage data were a bit softer than expected. UK PM May surpassing a first hurdle in the Brexit process also could be considered a tentative euro positive. That said, there was again no unequivocal directional trend in the dollar, with several ‘erratic’ intraday swings. EUR/USD finished the day at 1.1310. USD/JPY closed at 113.63. In a speech overnight, Fed Chairman Powell was pleased with the current state of the US economy, but admitted that there are risks to (global) growth. For now, there is little reason to change expectations on the Fed rate hike path. The reaction of the USD is limited. Asian equities initially traded soft but currently mostly show modest gains. The Aussie dollar is propelled by yet another strong labour report. AUD/USD is changing hands in the 0.7275 area. A tentative easing of global market tensions is maybe a slightly negative for the dollar. EUR/USD trades in the 1.1135 area. USD/JPY also fails to profit and trades near 113.50. Later today, several ECB and Fed governors will speak. The US eco calendar is well filled with the Empire manufacturing survey, the Philly Fed business outlook, retail sales and the jobless claims. US data are expected constructive/solid and we have no reason to expect really negative surprises. Oil and global market sentiment remain wildcards. For now, the impact of both factors on the dollar is ambiguous. The usual inverse correlation between the dollar and oil isn’t that strong on a daily basis. Yesterday, we had a neutral bias on the dollar (EUR/USD), expecting more erratic trading in the 1.11/1.15 trading band. We maintain that view. In somewhat longer perspective we see more downside risks in EUR/USD due to ongoing eco divergence and potential event risk.
Yesterday, PM May defended the text of an EU-UK Brexit deal at Cabinet meeting. The UK PM at least surpassed this hurdle. The market reaction was modest as investors realize that the ultimate battle will be fought in Parliament, probably early December. The outcome remains highly uncertain. Today, UK Oct retail sales are expected modest (0.2% M/M) despite a poor September reading. We stay neutral on EUR/GBP. After the recent rally, market positioning probably became more neutral (less sterling short). So, further GBP-gains might be modest
EUR/USD returns back above 1.13 but global picture on USD hasn’t changed
