Markets
Investors already forgot about yesterday’s FOMC meeting by the time of the European opening bell. Justifiably so given the US central bank’s unsurprising message. They remained sidelined, obviously pointing to downside risks stemming from rising COVID-infections which eat into US savings. Fed Chair Powell renewed his call on fiscal stimulus to come to the rescue. While the jury is still out on the next US President, odds continue favouring Democrat challenger Biden who took narrow leads in the states of Pennsylvania and Georgia. The more states Joe Biden carries, the lower the probability that legal battles/recounting can influence the overall outcome. This prospect of less uncertainty weighted on US Treasuries today which started underperforming after the October US payrolls report. The US economy added 638k jobs (vs 580k consensus), private sector growth (+906k) more than erasing the census-related drop in federal government jobs. The unemployment rate fell from 7.9% to 6.9%, but would have been 0.3 percentage point higher if all workers were classified correctly. More encouraging signs came from a rising labor force participation rate (61.7% from 61.4%). Beneath the surface, there’s still some reason to worry though. The number of long-term unemployed (>27 weeks) rose to its highest level since early 2014 (3.56mn), the total number of jobs remains some 10 million below the start of the year and recent, explosive, COVID-19 infections suggest tough weather ahead. The US yield curve bear steepens with yields rising by 0.8 bps (2-yr) to 7.6 bps (30-yr). German yields add 1.1 bp to 2.3 bps, the curve shifting in similar fashion. The move in Bunds coincided with the fall in US Treasuries. The payrolls report and Biden gains improved risk sentiment in general with European indices erasing (small) opening losses and US equity futures turning north.
Whatever the trading theme these days; the dollar suffers. It’s no different today. The easy way out is to blame positive risk sentiment and ignore the US eco beat and higher US yields (50/50 inflations expectations & real rates) USD/JPY holds below the 104 mark following yesterday’s technical break. The trade-weighted dollar drifts further to the 91.45 range bottom and YTD low. EUR/USD tested 1.1881 resistance, but a break higher didn’t occur yet. Sterling can’t build on yesterday’s solid post-BoE performance despite the positive risk environment. EUR/GBP returns north of 0.9050.
News Headlines
Canadian employment growth decelerated from +378.2k in September to +83.6k in October, beating a +75k estimate. An additional 69.1k full-time jobs were created compared to a 14.5k increase in part-time employment. The unemployment rate unexpectedly declined further from 9% to 8.9% even as the participation rate inched higher and to 65.2%, nearing the pre-pandemic level of 65.5% in February. The loonie couldn’t profit despite dollar weakness. USD/CAD trades sideways just north of 1.30 support.
France expects an improvement in trade relations under a Biden presidency, its trade minister Riester said. Incumbent president Trump imposed tariffs on French wines and threatened with levies on champagne and handbags over a 3% revenue tax France imposed on tech giants. The US and France would be more aligned sustainable development and multilateral cooperation, Riester added.
Australian government officials have advised their exporters to reduce reliance on China and start exploring other markets. Tensions between Australia and China rose over the past months after the former called for an inquiry into the origin of the Covid-19 outbreak in Wuhan. China already imposed tariffs on Australian barley and restricted beef imports. Government officials don’t expect bilateral relations to recover soon.
