Dollar strikes back as 10-yr yield breaks key resistance, Gold eyes key support

    Dollar is trying to make a come back with strong rally in US treasury yield, as also confirmed by the steep fall in gold. 10 year yield is trading up 0.145 at 0.965 at the time of writing. Technically, the strong break of near term channel resistance is a clear sign of upside acceleration. More importantly, 0.957 key resistance is violated too. Focus will now be on two things. Firstly, could TNX sustain above 0.957? Secondly could TNX breaks through 1% handle with conviction? If both happens, chance for a Dollar come back would increase.

    As for gold, the rejection from 1973.58 resistance retains near term bearishness. Focus is indeed back on 1848.39 support in Gold. Firm break there will resume the whole decline from 2075.18. In the bigger picture. Firm break of 1848.39 would raise that chance that fall from 2075.18 is a medium term correction, correcting the whole up trend from 1160.17. In that case, we might see gold falling further to 55 week EMA (now at 1737.56). We’ll see how gold, yield and Dollar interacts ahead.

    DOW future up 1500 pts as coronavirus vaccine now 90% effective, AUD/JPY soars

      Sentiments are given a massive boost after Pfizer and BioNTech said today that their COVID-19 vaccine is now over 90% effective. The companies have began manufacturing the vaccine already, before knowing whether it would be effect, to save time to help fighting the pandemic that has plagued the world since February. They expect to produce up to 50 million doses to protect 25 million people this year. 1.3 billion doses of the vaccine are expected in 2021.

      At the time of writing, DOW future is up nearly 1500 pts. 10-year yield is up 0.0982 at 0.913. FTSE is up 4.81%. DAX is up 5.49%. CAC is up 6.62%. Yen’s selling finally takes off, with AUD/JPY breaking a key near term resistance at 76.52, which indicates completion of the correction from 78.46. Retest of this high should be seen next.

      Eurozone Sentix dropped to -10, coronavirus containment has negative impacts on recovery

        Eurozone Sentix Investor Confidence dropped to -10.0 in November, down from -8.3, but beat expectation of -14.0. Current Situation Index, ticked down from -32.0 to -32.3. But Expectations Index dropped form 18.8 to 15.3, hitting the lowest since May.

        Sentix said, the coronavirus containment measures taken by European governments are “not only a human burden for citizens”, but also have a “negative impact on the economic recovery process”. The so-called “lockdown light” has so far had little effect on investors’ assessment of the situation. The decline in expectation could be worst if not for better international situation. Also, ECB’s further easing may also had a positive effect on inventors.

        Full release here.

        Bank of France estimate -4% GDP loss in Oct, -12% in Oct on pandemic restrictions

          Bank of France said the outlook for November is “on the whole oriented clearly downwards”, but in a more differentiated and limited way than during the first round of coronavirus restrictions earlier this year.

          The loss of GDP in October, comparing to normal pre-pandemic level is estimated at around -4%, just slight deterioration from September’s -3.5%. For November, GDP loss is estimated to be around -12%. The figures were much better than the -31% loss in GDP recorded in April.

          Full release here.

          Reuters Tankan manufacturing rose to -13, still well below pre-pandemic level

            The Reuters Tankan sentiment index for Japanese manufacturers improved to -13 in November, up from October’s -16. That’ marked improvement over the cyclic low of -46 registered back in June. However, the index remained negative for the 16th straight months since August 2019. It’s also staying well below February’s pre-pandemic level at -5.

            Non-manufacturing index was up slightly to -13, from October’s -16. Improvement over May’s low of -36 is less drastic. It’s, nonetheless, still the 9th straight month of negative reading since March.

            Overall, the data suggested that the Japan economy is still struggling to shake off the drag from the pandemic crisis.

            BoJ members concerned with prolonged fight against coronavirus

              In the Summary of Opinions at BoJ’s October 28/29 monetary policy meeting, it’s noted that “the fight against COVID-19 may be prolonged”. The central bank “should avoid brining a premature end to its current monetary policy responses”. BoJ should “exercise utmost vigilance against the possibility of a sudden change in financial markets and make policy responses flexibly when necessary”

              Additionally, one member warned that “if economic recovery is delayed, credit risk might materialize, leading to a risk on the financial system side.” It’s “top priority” to ensure corporate financing and sustain employment”. Also, BoJ should “further look for ways to enhance the sustainability” of ETFs and J-REITs purchases.

              “If COVID-19 spreads again and economic activity is pushed down, the CPI could stay in negative territory for a protracted period and deflation might take hold.”

              Full summary of opinions here.

              Canada job market grew 83.6k in Oct, unemployment rate ticked down to 8.9%

                Canadian job market grew 83.6k in October, above expectation of 59.0k. Most of the growth came from full-time work at 69k. Unemployment rate ticked down slightly by 0.1% to 8.9%.

                Full release here.

                US NFP grew 638k in Oct, unemployment rate dropped to 6.9%

                  US non-farm payroll employment grew 638k in October, above expectation of 600k. Unemployment dropped sharply to 6.9%, down from 7.9%, well below expectation of 7.7%. Labor force participation rate also rose 0.3% to 61.7%. Average hourly earnings rose just 0.1% mom, below expectation of 0.2% mom.

                  Full release here.

                  RBA SoMP: Interest rates have been lowered as far as it makes sense

                    In the Statement on Monetary Policy, RBA noted that ” despite the somewhat better recent outcomes in Australia, the recovery was expected to be extended and bumpy”. Hence, “to further support the recovery and complement the significant support coming from fiscal policy, the board therefore decided to introduce a further package of measures.”.

                    The measures announced on Tuesday included reduction in cash rate target and 3-year AGS yield target to 0.10%. Bedsides, measures include purchases of AUD 100B of government bonds of maturities from 5 to 10 years for the next 6 months.

                    On interest rate, RBA said “interest rates have been lowered as far as it makes sense to do so in the current environment… The board considers that there is little to be gained from short-term interest rates moving into negative territory and continues to view a negative policy rate as extraordinarily unlikely.”

                    “At its future meetings, the board will be closely monitoring the impact of bond purchases on the economy and on market functioning, as well as the evolving recovery from the pandemic, including the outlook for jobs and inflation,” the statement noted.

                    In the new economic projections, RBA expected a shallower GDP contraction of -4% in the year ended 2020. But 2021 GDP rebound was kept unchanged at 5%. Unemployment rate would peak lower at 8% this year (versus 10%) and drop back to 6.5% by the end of 2021 (versus 6.5%). 2020 inflation was revised down to 0.50% then climb back to 1.0% in December 2021 (unchanged).

                    Full SoMP here.

                    Fed Powell: Policymakers discussed the asset purchase program

                      In the post meeting press conference, Fed Chair Jerome Powell said “the recent rise in new Covid-19 cases, both here in the United States and abroad, is particularly concerning.” Outlook remains “extraordinarily uncertain”.

                      He said that “the fiscal policy actions that have been taken thus far have made a critical difference.” “Even so, the current economic downturn is the most severe in our lifetimes,” he added. “We’ll have a stronger recovery if we can just get at least some more fiscal support, when it’s appropriate and at the size Congress thinks is appropriate.”

                      Powell also indicated that FOMC members have discussed the asset purchase program. “We understand the ways in which we can adjust the parameters of it to deliver more accommodation if it turns out to be appropriate,” he said. The minutes could reveal more details about that discussions, which would be interesting.

                      Fed keeps interest rate and QE unchanged. Full statement

                        Fed keeps interest rate and QE unchanged. Below is the full statement.

                        Federal Reserve Issues FOMC Statement

                        The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

                        The COVID-19 pandemic is causing tremendous human and economic hardship across the United States and around the world. Economic activity and employment have continued to recover but remain well below their levels at the beginning of the year. Weaker demand and earlier declines in oil prices have been holding down consumer price inflation. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

                        The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.

                        The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. In addition, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

                        In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.

                        Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Patrick Harker; Robert S. Kaplan; Loretta J. Mester; and Randal K. Quarles. Ms. Daly voted as an alternate member at this meeting.

                         

                        US initial jobless claims dropped to 751k, continuing claims dropped to 7.3m

                          US initial jobless claims dropped -7k to 751k in the week ending October 31, slightly above expectation of 746k. Four-week moving average of initial claims dropped -4k to 787k.

                          Continuing claims dropped -538k to 7285k in the week ending October 24. Four-week moving average of continuing claims dropped -827k to 8245k.

                          Full release here.

                          EU downgrades 2021 GDP forecast, second wave dashes hope for quick rebound

                            In the Autumn European Economic Forecast, European Commission revised up 2020 GDP projection to -7.8% contraction (up from -8.7%). Though, 2021 GDP growth projection was revised down to 4.2% (form 6.1%). Growth is projected to slow further to 3.0% in 2022. Inflation projection was left unchanged at 0.3% for 2020 and 1.1% for 2021. Inflation is expected to climb further to 1.3% in 2022. Unemployment rate is projected to be at 8.3% in 2020, 9.4% in 2021 and 8.9% at 2022.

                            Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said: “This forecast comes as a second wave of the pandemic is unleashing yet more uncertainty and dashing our hopes for a quick rebound. EU economic output will not return to pre-pandemic levels by 2022.”

                            Paolo Gentiloni, Commissioner for Economy, said: “After the deepest recession in EU history in the first half of this year and a very strong upswing in the summer, Europe’s rebound has been interrupted due to the resurgence in COVID-19 cases. Growth will return in 2021 but it will be two years until the European economy comes close to regaining its pre-pandemic level. In the current context of very high uncertainty, national economic and fiscal policies must remain supportive, while NextGenerationEU must be finalised this year and effectively rolled out in the first half of 2021.”

                            Full report here.

                            Eurozone retail sales dropped -2.0% mom in Sep, EU down -1.7% mom

                              Eurozone retail sales dropped -2.0% mom in September, worse than expectation of -1.2% mom fall. The volume of retail trade decreased by -2.6% mom for non-food products, by -1.4% mom for food, drinks and tobacco and by -0.2% mom for automotive fuels.

                              EU retail sales dropped -1.7 mom. Among Member States for which data are available, the largest decreases were observed in Belgium (-7.4% mom), France (-4.5% mom) and Germany (-2.2% mom). The highest increases in the total retail trade volume were registered in Bulgaria (+2.8% mom), Portugal (+1.9% mom) and Romania (+1.7% mom).

                              Full release here.

                              Also released in European session, Germany factor order rose just 0.5% mom in September, well below expectation of 2.6% mom. Swiss SECO consumer climate dropped to -13 in Q4, down from -12, but was slightly better than expectation of -14. UK PMI construction dropped to 53.1, down form 56.8, missed expectation of 55.0.

                              BoE revised down 2020 GDP contraction to -11%, but sees strong rebound afterwards

                                In the Monetary Policy Report, BoE lowered the four-quarter GDP forecasts for 2020 Q4 to -11%, down from -5.4%. Stronger rebound was expected afterwards. Four-quarter GDP growth is revised to 11% (up from 6.2%) in 2021 Q4 and 3.1% (up fro 2.3%) in 2022 Q4.

                                CPI inflation for 2020 Q4 was revised up to 0.6% (from 0.3%). 2021 Q4 inflation was revised up to 2.1%, from 1.8%. 2022 Q4 inflation was revised down slightly to 2.0% (from 2.1%).

                                Unemployment rate is notably lower for 2020 Q4 at 6.3% (revised down from 7.5%). Though, It’s projected to rise to 6.7% in 2021 Q4 (revised up from 5.0%), then fall back to 4.9% in 2022 Q4 (revised up from 4.5%).

                                Full MPR here.

                                BoE expands QE by GBP 150B, Q4 GDP to contract on Covid

                                  BoE voted unanimously to keep Bank Rate unchanged at 0.10% as widely expected. The government bond purchases problem is expanded the target stock of purchased UK government bonds by additional GBP 150B, taking to the total to GBP 875B. The central bank will “continue to monitor the situation closely” and “stands ready to take whatever additional action is necessary”.

                                  Also, BoE “does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

                                  It’s noted in the statement that there has been a “rapid rise in rates of Covid infection and increased severity of restrictions as response. Covid development will lead to a “decline in GDP in 2020 Q4”. Economic outlook remains “unusually uncertain”, depending on the pandemic and measures, as well as post Brexit new trading arrangements.

                                  Full statement here.

                                  Hong Kong HSI surges on optimism over US-China relations

                                    Hong Kong stocks responded exceptionally well to US election results, which could an indication on optimism over US-China relations going forward. This week’s rally suggests that rise from 23124.25 is the third led of the pattern from 21139.16. Test of 26782.61 resistance should be seen next. Firm break there will confirm resumption of the whole rise from 21139.16.

                                    Nevertheless, the price actions from 21139.26 are still rather corrective looking. Firm break of 55 week EMA would be a sign of medium term reversal. Yet, the key resistance level lies in long term channel resistance (now at around 27500). Reactions to this resistance could reflect the real development in US-China relations, after the initial honey moon period.

                                    NASDAQ and S&P 500 ready to resume record run, riding on election results

                                      The US stock markets responded to US elections result in very bullish way. NASDAQ, in particular, shone with 3.85% gain while S&P 500 also added 2.21% overnight. Both indices are set to resume the record runs.

                                      NASDAQ’s consolidation from 12074.06 looked completed with three waves to 10822.557, after breaching 55 day EMA twice. Retest of 12074.06 could bee seen soon, probably next week. Sustained break there would confirm resumption of the long term up trend. Next medium term target is tentatively seen as at 61.8% projection of 6631.42 to 12074.06 from 10822.57 at 14186.12.

                                      Similar picture is seen in S&P 500. Consolidation form 3588.11 could have completed with three waves to 3233.94. Upside breakout could be seen soon. Firm break of 3588.11 will confirm resumption of long term up trend. Next target is seen as at 61.8% projection of 2191.86 to 3588.11 from 3233.94 at 4096.82.

                                      Australia trade surplus widened to AUD 5.63B as imports tumbled

                                        Australia exports of goods and services rose 4% mom to AUD 33.7B in September. Imports dropped -6% mom to AUD 28.1B . Trade surplus widened to AUD 5.63B, up from AUD 2.62B, above expectation of AUD 3.70B.

                                        Full release here.

                                        New Zealand ANZ business confidence ticked lower to -15.6, activity outlook also steady

                                          Preliminary reading of New Zealand ANZ Business Confidence in November showed slight improvement to -15.6, up from October’s -15.7. Own Activity outlook dropped slightly to 4.6, down from 4.7. Looking at some details, export inte3ntions improved from -3.5 to 0.0. Investment intentions dropped from 1.9 to -3.3. Employment intentions rose from -2.5 to -1.4. Inflation expectations rose from 1.38 to 1.55.

                                          ANZ said, “now that the wage subsidy has wound up and the lost summer for tourism looms large, business resilience will be tested. But it’s fair to say the starting point looks much more positive than looked likely a few months ago.”

                                          Full release here.