Risk-on trading returns
Risk-on sentiment continued to navigate markets during late European trading hours on Thursday as worries about the energy crisis took the back seat for the time being and the risk of a government default in the US was expected to be ease today after Democrats showed willingness to raise the debt ceiling to December on the Senate floor.
Following complaints that Russia is holding back its energy supplies, mainly from Europe, Vladimir Putin said that his government is ready to boost exports to stabilize the rally in energy prices, with WTI oil retreating to a one-week low of $74.96/barrel before correcting slightly higher. An unexpected increase in US weekly crude inventories on Wednesday also weighed on oil prices.
The inflation drama and the fiscal debate in the US, which is a key barrier to Biden’s massive 4 trillion budget, will probably keep spooking investors for the remainder of the year, though a temporary relief was enough to lift stock markets today after an aggressive sell-off during the previous days.
The pan-European STOXX 600 accelerated by 1.2%, with basic materials leading the rally, while the S&P 500, Nasdaq 100, and Dow Jones are also pushing for an equivalent reward.
Dollar index holds near one-year high; jobless claims beat forecasts
In FX markets, risk-sensitive currencies such as the aussie and the kiwi outperformed across the board, but the former has yet to step above the nearby 0.7300 – 0.7325 resistance area against the US dollar, while the latter cannot celebrate its progress either since it is still fluctuating below the 70.00 bar.
Despite the build on risk sentiment, the greenback managed to hold on to its gains, and even approach yesterday’s one-year high of 94.49. Perhaps the positive surprise in the private ADP employment report on Wednesday secured some support under the king dollar on Wednesday, brightening prospects for Friday’s nonfarm payrolls report, and therefore raising the odds for bond tapering as soon as next month.
Initial jobless claims for the week ending October 2 aided optimism for the US economy as well, declining to 326k from 362k previously and closer to September’s low of 310k. The forecast was for a softer pullback to 348k. Despite that, the data did not cause a significant reaction in dollar, with dollar/yen remaining stable around 111.50 for the second consecutive day.
Comments from Japan’s new Prime Minister earlier in the day have likely provided support to the yen after the PM warned that a falling currency may elevate import costs.
Euro holds bearish position; pound slightly up
In European currencies, the battered euro remained trapped in a bearish game, last seen at 1.1551 and near the 15-month low of 1.1528. Unlike the Fed, the ECB is not planning to cut its traditional bond purchases. Instead, it is studying a new bond-buying program to complement the existing APP scheme in order to prevent any negative shocks when the emergency pandemic purchases expire in March.
The pound is in a slightly better position today, marking an intra-day high of 1.3610 versus the dollar. Earlier in the day, BoE chief Huw Pill admitted that “the magnitude and duration of the transient inflation spike is proving greater than expected”, increasing the odds for a tighten monetary policy, although he signaled sharp actions will be avoided on the rate front.
