Action Insight

Dollar is trying to regain upside momentum in early US session after positive economic data. But it's being overwhelmed by Sterling and struggles against Euro. US Employment cost index rose 0.7% in Q3, in line with expectation. Meanwhile, in annualized term, employment cost rose 2.5%, hitting a nine-year high. Wages as 70% of employment cost rose 0.7% in Q3 while benefits rose 0.8%. Steady rise in labor costs and wage is supportive to more rate hike by Fed to prevent the economy from being overheating. S&P Case-Shiller 20 cities house price rose 5.9% yoy in August.

BOJ again voted 8-1 to leave the monetary policies unchanged in October. The targets for short- and long-term interest rates stay at -0.1% and around 0%, respectively while the guideline for JGB purchases remains at an annual pace of about 80 trillion yen. Again, BOJ revised lower its inflation forecasts for FY 2017 and FY 2018 but maintained that for FY 2019. The central bank upgraded the GDP growth outlook for FY 2017 while leaving others unadjusted. The new member was the lone dissent as he voted against the yield curve control measure for two meetings in a row. He judged that 'monetary easing effects gained from the current yield curve were not enough for 2% inflation to be achieved around fiscal 2019'. At the press conference, Governor Kuroda defended the yield curve control policy and the +2% target. As he suggested, the 'main objective is to achieve 2% inflation and stably maintain price growth at that level. There's no change to our view that monetary policy must be guided to achieve this objective' and there is no need to change the yield targets'.

The Japanese Yen traders mildly firmer this week and maintains gains after BoJ stands pat and lowers inflation forecast. Risk appetite recedes as traders are preparing for big events like BoE and NFP later in the week. Also, markets could be a bit disappointed by news that US will adopt a phased approach in the tax cuts. Meanwhile, disappointing Germany inflation is weighing down global yield slightly, and bond traders turned a bit more cautious ahead of Eurozone CPI today. Meanwhile, Sterling remains firm as markets await BoE rate hike. Aussie, Kiwi, Euro ad Swiss Franc are the softer ones.

Dollar is trading mixed in early US session despite positive economic data. Personal income rose 0.4% in September, up from 0.2% and met consensus. Spending jumped solidly by 1.0%, above expectation of 0.9%. Headline PCE accelerated to 1.6% yoy while core PCE was unchanged at 1.3% yoy. However, the greenback is weighed down, especially against Yen, by news that Special Prosecutor Robert Mueller launched the first charge on Russian probe. Paul Manafort, a former campaign manager for President Donald Trump, was indicted on 12 counts including "conspiracy against the United States."

The forex markets opened the week rather steadily. Euro recovers mildly as there was no escalation in Catalonia tension. sacked regional president Carles Puigdemont remained calm and called for peaceful "democratic opposition" the Madrid's takeover. Dollar pares back some more of recent gains as markets await an eventful week. It's repeatedly reported that US President Donald Trump favors Fed Governor Jerome Powell for the job of Fed Chair after Janet Yellen's term expires early next year. And Powell is seen as sone one who will speed up the pace of tightening. But it's far from being certain as some unnamed persons close to Trump were quote saying he changes his minds everyday.

Dollar closed broadly higher last week, and closed as the strongest as boosted by a couple of factors. Firstly, House approved Senate's version of budget blueprint, and cleared an important procedural step for getting the tax cuts done by the end of the year. Secondly, markets responded positively to news that Fed chair Janet Yellen is out of the race for a renewal. Instead, Fed Governor Jerome Powell and Stanford University economist John Taylor are now the front runners. Powell is reported to be slightly more favored by US President Donald Trump and is seen as a less hawkish candidate. But after all, there is still a possibility of Powell/Taylor combination for chair/vice of Fed. And either one seems to be more welcomed by the markets than Yellen. Thirdly, Q3 GDP came in at an impressive 3% annualized growth, despite the impacts of hurricanes.

Dollar's rally extends in early US session after stronger than expected data. GDP grew a solid 3.0% annualized in Q3, beating expectation of 2.6%. More importantly, taking into consideration of the impacts of the hurricanes, growth was just 0.1% below prior quarter's 3.1% annualized. That's very impressive. Meanwhile, GDP price index rose 2.2%, much higher than prior quarter's 1.0% and expectation of 1.8%. barring any disastrous developments ahead, a December rate hike now seems more likely than ever. And indeed, based on yesterday's pricing, fed fund futures were already indicating 95.2% chance of another 25bps hike in federal funds rate to 1.25-1.50%.

Dollar surged overnight and remains firm in Asian session today. ECB's dovish tapering is seen as a key factor driving the greenback higher. But more importantly, another step was taken forward as House passed Senate's versions of the budget bill. That procedural path is now cleared to move on to US President Donald Trump's tax cuts. Staying in the currency markets, commodity currencies remain the weakest ones for the week. Aussie's selloff accelerated after CPI miss earlier this week and weighed further down by PPI miss today. Canadian Dollar remains weak as post cautious BoC statement selloff continues. Euro, while weak, is trading mixed only.

ECB announced the plan to reduce asset purchase next year. In line with the majority of market participants had anticipated, the central bank would trim the size of buying by half, to 3B euro per month, in the first nine months of 2018, "or beyond, if necessary". It added that stimulus measures would be implemented "in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim". The single currency dropped after the announcement, on profit-taking. The policy rates stayed unchanged, with the main refinancing rate, the marginal lending rate and the deposit rate at 0%, 0.25% and -0.40% respectively.

Euro drops sharply after ECB announced the tapering plan as the markets expected. But traders seem to be unhappy with the cautious tone in the statement. Meanwhile, Dollar remains generally firm, as supported by solid job data. Also, markets are getting more convinced that either Powell or Taylor will be taken as the next Fed chair. Elsewhere, Canadian and Australian Dollar are both trying to recovery yesterday's losses. But not much strength is seen against Dollar yet.

Euro recovers overnight against Dollar and remains generally firm this week. It's just overpowered by Sterling which was shot up by strong Q3 GDP data. ECB policy decision and press conference will be the main highlight for today. The central bank is widely expected to announce recalibration of its EUR 60B a month asset purchase program, after it expires by the end of this year. The general consensus is that ECB will half the program to EUR 30B per month, but give it a 9-month extension till end of September 2018.

Showing genuine concerns over the downside risks to inflation, BOC indicated it would be more 'cautious' over future rate hike decisions. In the concluding statement, policymakers stressed that 'while less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate'. The tone in this October appears more dovish than previous ones, likely resulting from recent developments of disappointing progress in NAFTA negotiations, household debt levels and appreciation of Canadian dollar. USDCAD jumped about +1% after the announcement.

Sterling is the star performer today as stronger than expected GDP data boosts the chance of November BoE rate hike. Euro and Dollar are not too far behind though. The common currency is supported as German Ifo business climate hit record high. That clears another hurdle for ECB to announce tapering of asset purchase tomorrow. Meanwhile, Dollar also remains firm on tax plan hope and expectation of December Fed hike. Data from US are also Dollar supportive. Headline durable goods orders rose 2.2% in September versus expectation of 1.0%. Ex-transport orders rose 0.7% versus expectation of 0.5%. Meanwhile, Aussie remains the weakest one as selloff accelerates after CPI data. Canadian Dollar is also soft ahead of BoC rate decision.

The 19th National Congress of the Chinese Communist Party culminated with the announcement of the new Politburo Standing Committee (PSC) - the group of officials leading the country in the coming five year. Five out of seven members of the previous PSC were replaced, with only President Xi Jinping and Premier Li Keqiang staying in power. The five new members are Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji and Han Zheng.

US equities surged to new record highs again while treasury yields jumped as tax plan and Fed chair position continued to be the theme that drove the markets. The developments also took Dollar generally higher. DOW closed up 167.80 pts or 0.72% at 23441.76, hitting all time high. S&P 500 and NASDAQ gained 0.16% and 0.18% too but lagged DOW in the record runs. 10 year yield jumped 0.030 to close at 2.406, above 2.396 key resistance, which is see as a bullish signal. TNX could now be heading to retest 2.621 high made back in December.

Dollar and Euro are both trading firm today. The greenback is supported by hope of passing Republican's tax plan by the end of the year. US President Donald Trump will visit Senate Republicans for lunch today for talks on tax cut. Meanwhile, Solid PMI data fro Eurozone supports that case for ECB to announce tapering later this week. New Zealand Dollar trades broadly lower as markets react negatively to the labor led coalition's policies. Yen and Aussie follows closely and as the second and third weakest.

Once again securing a super majority (two-third of seats) in the snap election on October 22, Japan's LDP/ Komeito coalition would continue to lead the lower house, possibly until 2021. The landslide victory indicates that PM Shinzo Abe would likely be re-elected for a third presidential term in the LDP next year, allowing him to push forward his political and economic policies with a stronger mandate. There are several reasons for the rally in Nikkei and USDJPY after the election outcome. Just like the previous elections we have seen before, the stock market and currency of a country usually weaken amidst of political uncertainty. Re-election of the ruling party has removed of uncertainty at least in the near-term. This bodes well for the stock market and currency. Unlike other currencies which tend to rise on lessened uncertainty, Japanese yen fell on diminished demand for safe-haven asset. Another reason for the rise in Japanese stock market and yen was expectations of lengthy monetary easing by BOJ. Meanwhile, widening US-Japan yield spread would also continue to support USDJPY in the medium term.

Dollar trades generally lower in quiet markets today. Economic data released this week so far are generally shrugged off by traders. The more important events are BoC and ECB meeting, as well as UK and US GDP. Waiting for the key events, traders seem to be spending their time on speculating who will US President Donald Trump nominate for the post of Fed chair. Current Fed chair Janet Yellen is still in the race and would provide status quo stability. But it's clear that Yellen is never a favorite of Trump. Fed Governor Jerome Powell is seen as the favorite by bookies, as he has knowledge of Fed and monetary policy. Stanford University economists John Taylor is so far the dark horse. Former Fed governor Kevin Warsh and White House economic advisor Gary Cohn are out of the race already

Euro is trading broadly lower today as markets are awaiting the highly anticipated ECB meeting later in the week. The common currency is even weaker than the Japanese Yen, which gapped down after Japanese election. Prime Minister Shinzo Abe's coalition retained absolute majority in the parliament, paving him the way to push for strong fiscal and monetary stimulus. Meanwhile, Dollar is generally firmer today with support from hope on tax cut/reform in the US. New Zealand Dollar and Sterling are also among the strongest ones.

Nikkei surges today while Yen tumbles on landslide victory of Prime Minister Shinzo Abe's Liberal Democratic Party (LDP) at the snap election on Sunday. At the time of writing, Nikkei is gaining over 1% and more than 220 pts. On the other hand, Yen is trading broadly lower. Removing political uncertainty is a key factor in lifting Japanese stocks. Meanwhile, continuation of ultra-loose monetary policies under Abenomics is a factor pressuring Yen. The forex markets are a bit mixed in initial trading, with Sterling leading the way up. Euro and Swiss Franc are slightly lower, following Yen.