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Global market watch - 17th October 2017

The Greenback traded up to a one-week high versus both Euro and Swissy, a 5-day peak against Sterling and Yen, a 4-day high in its pairing with the Aussie Dollar, and was sideways with the Mexican Peso after USDMXN hit a 5-month peak yesterday. Indeed, the Dollar was broadly stronger but sideways with the Loonie overnight. The Buck was supported by reports that US President Donald Trump was favoring hawkish Stanford Economist John Taylor as the next Federal Reserve Chair.  Trump will meet Yellen on Thursday as part of his search for a new candidate for her position.

We had US Import Prices MoM data which was a touch higher than expected at +0.7% compared to the +0.6% expected/previous.  We have US Industrial Production MoM along with the Capacity Utilization Rate later this morning.  FOMC Members Dudley and Kaplan are speaking tomorrow morning.

While the Buck was higher against many of its rivals, the Canadian Dollar managed to stay sideways as oil prices continued to trade higher overnight.  There is no top tier economic data for Canada today, but we do have Bank of Canada (BoC) Governing Council Member Carolyn A. Wilkins speaking this afternoon.  All eyes are on the key Canadian CPI MoM and Retail Sales MoM data Friday morning ahead of the BoC meeting next week.

The single currency fell to a one week low versus the US Dollar despite on target Eurozone Final CPI and Core CPI were on target as the German and Eurozone ZEW Surveys were both worse than anticipated.  In addition, the fact that the difference between the headline CPI of 1.5% and Core CPI of 1.1% is largely driven by energy prices in Europe where the European Central Bank (ECB) key Minimum Bid Rate is still 0.0% reflects relatively soft inflation.  In addition, the 10-year German Bund has slid about 0.10% to 0.37%, in contrast to the current 2.30% US 10-year Treasury yield, as it seems policymakers are in no rush to wind down asset purchases in any significant way.  Further, ECB Vice President Vitor Constancio stated, at an event in Lisbon, frankly “monetary policy, even when recalibrated, will continue to keep a very accommodative stance,” which certainly does not imply and significant ECB tightening in the near future. Traders will be looking to European Central Bank President Mario Draghi’s speech tomorrow for guidance ahead of the ECB monetary policy announcement next week.   

The Pound fell  to a 5-day low versus the Buck today after trading to a two-week peak yesterday, despite UK CPI YoY hitting a 5-yeqar high at 3.0% as the Core figure remained stable at an impressive 22.7% YoY as well. While PPI Input MoM, RPI YoY, and HPI YoY were below target, the impressive UK CPI number overrides these. Bank of England (BoE) Governor Carney said in his speech today that UK inflation has not peaked, also reaffirming that the BoE is close to its first interest rate hike in over 10 years. He continued to express that EU banks are not ready for a hard Brexit yet, then followed up to address inequalities in gender pay.  

That said, Sterling did fall on US Dollar strength combined with an earlier report by Bloomberg that Brexit negotiations could be set to break down. Sterling later recovered most of those losses, with analysts saying that although the headline triggered a reaction to sell the pound, there was nothing new in the report that should have a lasting impact.  There is some strong concern that there will be no agreement between the UK and EU by the deadline, and recent domestic politics in the UK are causing further uncertainty both in this process and generally.

The Australian and New Zealand Dollars weakened overnight as the rally on upbeat Chinese data lost momentum. In addition, while oil prices ticked up, copper and gold fell. The Reserve Bank of Australia (RBA) Meeting Minutes reflected their belief that growth “increased gradually” on low rates, but did state that they were watchful of indebted consumers struggling with low wage growth.  Australian New Motor Vehicle Sales fell to -0.5% with the last release revised down from 0.0% to -0.1% also, which somewhat supports the RBA apprehension over consumer spending. 

The Yen weakened to a 5-day day low in its pairing with the Buck on reports that US and North Korean diplomats may meet in Moscow later this week combined with higher US Treasury yields.  Traders expect Shinzo Abe will remain as Japan’s Prime Minister after the general election on Sunday. His ruling LDP party have a strong lead in the polls although worth noting that a lot of voters are still undecided.

The Swiss Franc fell to a one-week low as it followed the Euro softer against the broadly higher US Dollar.

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