Market Roundup
- Specs boost USD net longs to highest since late January, EUR net shorts most since late July, 109k, JPY net longs lowest since July, 36.9k.
- Offshore CNY to fresh six-year low vs USD, 6.7842, PBOC fix 6.7690.
- BoJ frets about the real estate lending boom, watchful of bubble risk – Reuters.
- Japan Oct Mfg PMI 51.7, best in nine months, Sept 50.4, new orders and new export orders up to 51.3 (49.6), the first expansion in nine months, 53.1 (51.1).
- Japan Sept trade surplus Y498.3 bln, Y341.8 bln forecast, exp -6.9% y/y, imp -16.3%, -10.4/-16.6% forecast, exports to US -8.7%, China -10.6%, Asia -8.4%.
- Japan Sept crude import volume -4.6% y/y, LNG -3.5%, thermal coal +3.5%.
- UK could slash corporation tax to 10% if EU blocks Brexit trade deal- Sunday Times.
- Britain’s banks to reveal solid Q3 results, warn of Brexit storm ahead.
- Acting Spain PM Rajoy on course to secure the second term, end the 10-month deadlock, Socialsts vote 139-96 to abstain in a vote against acting PM, clear way for minority conservative government – Reuters.
- Risks rising in Italy December 4 constitutional reform referendum, polls show “no” vote up, Ipsos 54-46, Fitch Italy outlook to negative – Reuters.
- Italy - EU shouldn’t reject its budget, criticizes Hungary wall policy.
- BoC Gov Poloz – Canada has room to run deficits – Global TV, Reuters.
- Hedge funds’ bullish bets on US oil at new high, best since July ’14 – CFTC.
- Iraq – Should be exempted from OPEC output freeze, output to continue to rise next year – Reuters.
Economic Data Ahead
- (0300 ET/0700 GMT) France Oct PMI Mfg - flash, 50.0 forecast; last 49.7.
- (0300 ET/0700 GMT) France Oct PMI services - flash, 53.0 forecast; last 53.3.
- (0300 ET/0700 GMT) France Oct PMI composite – flash, 52.2 forecast; last 52.7.
- (0330 ET/0730 GMT) Germany Oct PMI Mfg - flash, 54.3 forecast; last 54.3.
- (0330 ET/0730 GMT) Germany Oct PMI services - flash, 51.5 forecast; last 50.9.
- (0330 ET/0730 GMT) Germany Oct PMI composite – flash, 53.3 forecast; last 52.8.
- (0400 ET/0800 GMT) Eurozone Oct PMI Mfg - flash, 52.6 forecast; last 52.6.
- (0400 ET/0800 GMT) Eurozone Oct PMI services - flash, 52.4 forecast; last 52.2.
- (0400 ET/0800 GMT) Eurozone Oct PMI composite – flash, 52.8 forecast; last 52.6.
- (0400 ET/0800 GMT) Italy Sep trade balance - non-EU – flash; last E2.13 bln surplus.
- (0830 ET/1230 GMT) The United States Sep Chicago Fed national activity index; last -0.55.
- (0945 ET/1345 GMT) United States Oct Markit PMI Mfg – flash, 51.6 forecast; last 51.5.
Key Events Ahead
- N/A China Communist Party Plenum (till Thursday), NZ Labor Day holiday.
- (0530 ET/0930 GMT) Germany E1.5 bln 12-month Bubill auction.
- (0600 ET/1000 GMT) Belgium E1.5-2.8 bln 1.0/1.0/3.75% 2026/31/45 OLO auctions.
- (0850 ET/1250 GMT) France E3.3-3.7/0.9-1.3/1.0-1.4 bln 3/6/12-month BTF note auctions.
- (0905 ET/1305 GMT) St Louis Fed Bullard speaks at Fayetteville conference.
- (1200 ET/1600 GMT) ECB/Austria CB Nowotny speaks in Vienna.
- (1215 ET/1615 GMT) SNB Chair Jordan speaks in Basel.
- (1330 ET/1730 GMT) Chicago Fed Evans speaks at University Club of Chicago luncheon.
- (1530 ET/1930 GMT) BoC Gov Poloz, DepGov Wilkins parliamentary testimony
FX Beat
DXY: The dollar gained across the board on increasing expectations that the U.S. Federal Reserve will raise interest rates this year. The greenback against a basket of currencies rose to 98.71, having touched a near 8-month high of 98.85 earlier in the session.
EUR/USD: The euro declined, extending losses for the fifth consecutive session, as the dollar strengthened on rising expectations of U.S. interest rate hike. The European Central Bank left interest rate unchanged last Thursday and slashed any speculation that the ECB was set to taper its 1.7 trillion euro asset-buying programme. Markets now expect the central bank to ease further in December. The major trades 0.15 percent lower at 1.0867, having touched previous sessions’ 7-month low of 1.0859 earlier in the day. Investors now await preliminary manufacturing PMI figures from the Eurozone and the U.S. for further cues on the pair. Immediate resistance is located at 1. 0926 (5-DMA), a break above could take it till 1.0972 (10-DMA)/ 1.1000. On the downside, support is seen at 1.0850, a break below could drag it till 1.0820.
USD/JPY: The dollar gained, reversing most of its previous session losses after hawkish comments from Federal Reserve officials prompted investors to price in an interest rate increase this year. Data from the CFTC showed on Friday that speculators raised their bets on the U.S. dollar for a fourth straight week, while interest rates futures implied about a 70 percent probability that the Fed will hike interest rates in December. The value of the dollar's net long position rose to $18.44 billion in the week ended Oct. 18, hitting highest since late January, as compared to $14.72 billion the prior week. Data released overnight showed Japan's trade balance rolled to a surplus of 498.3 billion yen, versus the median estimate of a 341.8 billion yen surplus. The major trades 0.1 percent higher at 103.92, attempting to extend gains above the 104.00 handle. Investors will closely watch Fed official's Dudley, Bullard, Evans and Powell speeches for fresh clues on U.S. monetary policy outlook. Immediate resistance is located at 104.40, a break above targets 104.65/105.00. On the downside, support is seen at 103.50, a break below could take it near 103.20.
GBP/USD: Sterling declined below the 1.2200 handle, as investors expect the Britain's economy to suffer from a firm stance by the European Union in negotiations on Brexit. The major initially rose as the economy is surprisingly robust, however, PM May's hard-line and hard Brexit rhetoric weighed on markets sentiment. Sterling trades 0.2 percent lower at 1.2199, extending losses for the fourth consecutive session. In absence of relevant events from the UK docket, the focus will remain on Fed speaks and U.S. preliminary manufacturing PMI, ahead of BoE Gov Carney's speech due tomorrow. Immediate resistance is located at 1.2330, a break above could take it over 1.2370/ 1.2400. On the downside, support is seen at 1.2100, break below targets 1.1900. Against the euro, the pound was trading 0.15 percent lower at 89.06 pence.
AUD/USD: The Australian dollar steadied after declining to a 4-day low on Friday as growing expectations of a year-end rate hike by U.S. Federal Reserve boosted the greenback. The major rose to a 6-week high of 0.7734 last Thursday, however, it declined as downbeat employment report showed a drop of 53,000 full-time jobs in September. The Aussie trades 0.15 percent up at 0.7616, after closing last week 0.1 percent lower. Markets now await Australia's consumer price report due this week, which is likely to show underlying inflation rose around 0.4 percent for the third quarter and 1.6 percent for the year. Immediate support is seen at 0.7587 (Previous Session Low), a break below could drag it till 0.7530. On the upside, resistance is located at 0.7624 (20-DMA), a break above targets 0.7650.
NZD/USD: The New Zealand dollar edged up, attempting a minor recovery after declining from a more than 2-week high of 0.7265. However, the recovery seems to be fragile as the U.S. dollar continues to rise on Fed interest rate hike expectations, amid holiday-thinned trading. Moreover, the ongoing weakness in the Yuan, after the Chinese central bank set PBOC fix weaker, will undermine the bid tone around the Kiwi. The major trades 0.1 percent up at 0.7169, pulling away from a low of 0.7143 hit last Friday. In absence of relevant economic releases, the pair will continue to track overall market sentiment, ahead of speeches from the Fed officials.
Equities Recap
Asian shares were marginally higher, as the dollar traded near 8-month highs as latest comments from Federal Reserve official strengthened expectations of a rate hike by year-end.
MSCI's broadest index of Asia-Pacific shares outside Japan edged up 0.1 percent.
Tokyo's Nikkei rose 0.29 percent at 17,234.42 points, Australia's S&P/ASX 200 index declined 0.46 percent to 5,405.50 points and South Korea's KOSPI was trading 0.5 percent lower at 2,042.86 points.
Shanghai composite index advanced 1.2 percent at 3,126.72 points, while CSI300 index was trading 1.2 percent higher at 3,369.22 points.
Hong Kong’s Hang Seng was trading 0.4 percent down at 23,475.57 points. Taiwan shares fell 0.2 percent to 9,322.50 points.
Commodities Recap
Crude oil prices declined as U.S. drillers stepped up work and after Iraq stated that it wanted to be exempt from any production cut deal by the OPEC to balance the market. International benchmark Brent crude was trading 0.7 percent lower at $51.54 per barrel at 0402 GMT, hovering towards a 1-week low of $51.11 hit in the previous session. U.S. West Texas Intermediate crude also declined by 0.8 percent to $50.57 a barrel, nearing a 1-week low of $50.19 touched on Friday.
Gold prices edged down, after gaining in their first weekly gain in four last week, with markets cautiously waiting for further hints on the timing of the U.S. interest rate hike. Spot gold was 0.2 percent down at $1,263.70 an ounce at 0407 GMT, after ending almost flat at $1,266.07 in the prior session. U.S. gold futures fell 0.02 percent to $1,267.50.
Treasuries Recap
The 10-year U.S treasury yield stood at 1.7312 percent lower by 0.009 bps, while 5-year was 0.001 bps down at 1.2429 percent.
The Australian government bonds gained as investors poured into safe-haven instruments amid losses in riskier assets including equities and crude oil. The yield on the benchmark 10-year Treasury note fell nearly 3 basis points to 2.277 percent, the yield on 15-year note dipped 2-1/2 basis points to 2.643 percent and the yield on 5-year slid 1 basis point to 1.943 percent.
The Chinese 10-year bond yields recovered from decade low following gains in the equity market. China’s stocks opened on a solid note, climbing more than 1 percent and flirted around nine-month high. The yield on the benchmark 10-year bonds rose 3-1/2 basis points to 2.694 percent, the long-term 30-year bond yield also jumped 3-1/2 basis points to 3.117 percent and the yield on the short-term 2-year bonds climbed more than 1 basis point to 2.313 percent.
