Dollar Lower After Retail Sales Awaits FOMC Minutes OANDA Market Beat Podcast

OANDA Senior Market Analyst Alfonso Esparza reviews the major upcoming market news, macro analysis and economic indicator releases that will impact currencies, stocks other asset classes.

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Live FX Market Analysis – 16 October 2018 (Video)

It’s been another turbulent week in FX markets with last week’s sell-off suitably spooking investors, Saudi Arabia causing a stir following allegations of murder at its embassy in Turkey, Brexit talks stalling and Italy risking the wrath of the European Commission after submitting its budget. Senior Market Analyst Craig Erlam discusses all of these and more in this week’s webinar.

Craig also gives his live analysis on EURUSD (16:37), GBPUSD (18:09), EURGBP (20:05), AUDUSD (21:56), USDCAD (24:25), GBPCAD (29:37), NZDUSD (30:14), USDJPY (31:05), GBPJPY (31:50) and EURJPY (32:40).

The buck cannot find a bid

Tuesday October 16: Five things the markets are talking about

The ‘big’ dollar came under pressure yesterday and is finding it difficult to gain much traction this morning as investors taking profit on U.S assets outweighs concerns about Italy, Brexit and a Sino-U.S trade war. Furthermore, twin U.S deficits and prospects of a halt in Fed’s rate hike cycle are also weighing on the dollar.

Elsewhere, it has been mixed picture across regional stock markets overnight as investors await the next wave of corporate earnings and further developments across the aforementioned geopolitical issues.

Note: Any hint of a slowdown or stronger growth could affect the pace of Fed’s rate hikes.

Oil prices continue to fluctuate within striking distance of recent highs amid tensions between Saudi Arabia and the U.S over the disappearance of Jamal Khashoggi, a prominent journalist with U.S citizenship, while the precious ‘yellow’ metal holds its gains.

On tap: FOMC minutes are due Wednesday (02:00 pm EDT), with investors focused on projections for further interest rate rises.

1. Stocks mixed results

In Japan, the Nikkei rebounded overnight, supported by short covering in index heavyweights (automakers and SoftBank), but retailers came under pressure on worries about domestic personal consumption and slowing demand from China. The Nikkei share average closed +1.3% higher, after tumbling -1.8% yesterday. The broader Topix rallied +0.7%.

Down-under, Aussie shares rebounded overnight, as mining and financials bounced back from Monday’s -1% drop and six-month low, but rising tensions between Saudi Arabia and the West and weaker PPI data in China capped broader market gains. The S&P/ASX 200 index rose +0.6%. In S. Korea, the Kospi stock index closed flat on Tuesday as global uncertainties capped gains during the day.

In China, stocks ended lower overnight, after data showed factory-gate inflation had cooled for a third consecutive month in September amid lean domestic demand. The blue-chip CSI300 index ended -0.8% weaker, while the Shanghai Composite Index also closed -0.8% lower. In Hong Kong, the Hang Seng was up +0.1%.

Note: Chinese inflation was boosted by food while prices were mostly subdued elsewhere. China Sept CPI y/y came in as expected at +2.5% vs. +2.5%e (a seven-month high): PPI y/y was +3.6% vs. +3.5%e.

In Europe, regional bourses trade mostly higher across the board with the Italian FTSE MIB outperforming following the submission of its draft budget to the E.C, while the U.K’s FTSE underperforms on Brexit uncertainty.

U.S stocks are set to open in the ‘black’ (+0.3%).

Indices: Stoxx600 +0.4% at 361, FTSE -0.2% at 7012, DAX +0.2% at 11638, CAC-40 +0.1% at 5099, IBEX-35 +0.9% at 9004, FTSE MIB +1.1% at 19500, SMI +0.3% at 8678, S&P 500 Futures +0.3%

2. Oil dips on expectations of higher U.S stocks, gold unchanged

Oil prices have eased a tad amid expectations of an increase in U.S crude inventories, but signs of a fall in Iranian oil exports for October are limiting losses.

Brent crude for December delivery has fallen -6c, or -0.07%, to +$80.72 per barrel, while U.S West Texas Intermediate (WTI) crude for November delivery is down -14c at +$71.64 a barrel.

U.S crude stockpiles are forecasted to have risen last week for the fourth consecutive week, by about +1.1M barrels, ahead of reports from the API (data is due at 4:30 pm today) and the U.S DoE’s EIA (will be released at 10:30 am EDT tomorrow).

In the first two weeks of October, Iran has exported +1.33M bpd of crude to countries including India, China and Turkey. That is down from +1.6M bpd during the same period in September.

Note: October exports are a sharp drop from the +2.5M bpd in April before President Trump withdrew from a multilateral nuclear deal with Iran. In May Trump ordered the re-imposition of economic sanctions on the country. The sanctions will come into force on Nov. 4.

Also supporting prices is today’s comments from OPEC’s Secretary General Barkindo who said, “global spare oil capacity was shrinking,” adding “producers and companies should increase their production capacities and invest more to meet current demand.”

Ahead of the U.S open, gold prices are holding steady near yesterday’s three-month high as a number of risk-averse investors seek refuge in the metal amid rising political tensions and economic uncertainty.

Spot gold was little changed at +$1,226.71 an ounce – it touched +$1,233.26 yesterday, its highest print since mid July, as global equities slid on rising tensions between the Saudi’s and the West. U.S gold futures are flat at +$1,230.40 an ounce.

3. German Bund yields edge higher

A cautious, risk-on mood currently prevails in eurozone sovereign bond markets so far this morning, with yields of German Bunds and of other core eurozone bonds up, and Italian bond yields down.

This would suggest that market risk sentiment may be improving following last week’s sudden correction, but the balance remains a tad precarious in the current political environment. German 10-year Bund yield has backed up +1.4 bps to +0.51%.

Note: The +0.50% level in Bund yields remains pivotal and with more debt product coming to market today (Germany offers +€4B in the September 2020-dated Schatz) should be able to back up sovereign yields a tad more.

Elsewhere, the yield on 10-year Treasuries has backed up +1 bps to +3.17%, the highest in a week. In the U.K, the 10-year Gilt yield has decreased -1 bps to +1.603%, the lowest in almost two-weeks, while in Italy, the 10-year BTP yield has declined -2 bps to +3.522%.

4. G7 currency pairs are little changed

Major currencies (€, £, ¥ and C$) are relatively unchanged ahead of the U.S open.

Dealers and investors have little technical or fundamental data to work with at current levels. In fact, the market is looking for guidance, which may come in the shape of the U.S Treasury forex report, which is likely to be released this week and where the U.S could name China a currency manipulator.

If the U.S were to name China a currency manipulator it would further pressure China on trade and add to the Sino-U.S trade tensions.

EUR/USD is flat at €1.1579 and other major currency pairs are not moving by much either. GBP/USD is up slightly at £1.3163 as leaders struck a conciliatory tone a day after Brexit negotiations broke down and USD/JPY is up +0.3% at ¥112.07

Elsewhere, the performance of several petro-forex (NOK, CAD, RUB) has been held back due to various unique factors that have not translated into a growth boost for these currencies. The ruble has been driven by U.S sanctions, and the Canadian dollar has been held back by NAFTA re-negotiations.

TRY (-0.20% at $5.7865) has retreated after seven days of gains after the country released U.S pastor Andrew Brunson on Friday.

5. U.K wage growth fastest in a decade

U.K data this morning showed that wage growth quickened over the summer at the fastest pace in almost a decade, adding to signs of inflationary pressure.

The ONS said that average weekly earnings in Britain, ex-bonuses, grew +3.1% in the three-months through August.

The figures will likely reinforce market expectations that the BoE remains on course tighten monetary policy over the next 24-months to keep overall price-growth in check, assuming the U.K.’s exit from the E.U goes well.

Other data showed that U.K unemployment in the three-months through August was unchanged on the previous three-months at +4%, while the number of people in work, +32.4M, remained close to its record high.

Note: The BoE hiked interest rate in August and signalled that they expect to do so again two or more times over the next couple of years to bring inflation back to their +2% annual goal.

A weaker pound since the Brexit referendum has to push up the price of imports, squeezing U.K citizens’ purchasing power.

Forex heatmap

Oil Lower on Saudi Diplomacy and Supply Concerns

Oil is lower on Monday after an eventful weekend that has the energy markets full of uncertainty. After public condemnation on the investigation of a missing journalist Saudi Arabia has launched a threat of retaliation using their oil supply. Tempers flared within the Kingdom and some comments have been walked back by more official sources. The Energy Minister of Saudi Arabia said that the nation will be a responsible actor and keep oil markets stable.

Crude prices have been supported by supply concerns as the Iran sanctions will come into effect in November, but there has already been cuts from buyers that want to avoid incurring the wrath of the US. A soft dollar has limited crude price losses on Monday as a miss on US retail sales with a diplomatic exchange of harsh words between the US and Saudi Arabia over the missing reporter.


West Texas Intermediate graph

Crude prices are being kept at current levels due to estimates on supply even as Saudi Arabia has put on the table the threat of weaponizing oil prices.

While a sequel to the oil embargo of the 70’s is a long shot, there is also the need to remember that a lot has changed since then and Saudi Arabia might not hold a big a stick as it once did.

While the Saudi authorities have walked back, or clarified some of the comments made over the weekend, the threat of reducing their oil supply by applying sanctions to their critics remains. The oil embargo in 1973-74 was the result of a diplomatic dispute against the US.

Their position as the de facto leaders of the Organization of the Petroleum Exporting Countries (OPEC) is not as solid as it once was. Internal struggles with Iran and some members feeling ignored (Venezuela, Nigeria, etc) and the advance of shale technology has also reduced the vulnerability of US demand. US production has reached records while foreign have fluctuated.


West Texas Intermediate graph

The US still imports around 28 percent of its foreign oil form Saudi Arabia, but even the kingdom is trying to diversify away from relying on energy exports. An escalation of this conflict will cripple those plans as it would once again concentrate all their power on a single asset.

Sanctions against the US would push oil prices beyond $100. Those levels were already on the table as Iran sanctions are set to begin in November. The irony could be that a Saudi offensive could be the factor that makes the US rethink its sanctions against Iran, putting the OPEC on a crossroads. Demand has not surged at the same rate as prices, so there is not a lot of room above $100 in the short term, with the political decisions guiding markets rather than supply and demand.

U.S retail sales increase less than expected in September

U.S. retail sales barely rose in September as a rebound in motor vehicle purchases was offset by the biggest drop in spending at restaurants and bars in nearly two years.

The Commerce Department said on Monday retail sales edged up 0.1 percent last month after a similar gain in August. Economists polled by Reuters had forecast retail sales increasing 0.6 percent in September.

Retail sales in September rose 4.7 percent from a year ago.

Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.5 percent last month. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product.

Data for August was revised down to show core retail sales were unchanged instead of the previously reported 0.1 percent gain. Consumer spending is being driven by a robust labor market, with the unemployment rate near a 49-year low of 3.7 percent. Tight labor market conditions are gradually pushing up wage growth.

The solid core retail sales increase in September pointed to strong consumer spending that should offset anticipated drags on economic growth from a widening trade deficit and persistent weakness in the housing market. Growth estimates for the third quarter are above a 3.0 percent annualized rate. The economy grew at a 4.2 percent pace in the second quarter.

Last month, auto sales surged 0.8 percent after declining 0.5 percent in August. Receipts at service stations fell 0.8 percent, likely reflecting a moderation in gasoline prices.

Sales at clothing stores rebounded 0.5 percent after tumbling 2.8 percent in August. Online and mail-order sales soared 1.1 percent in September after rising 0.5 percent in the prior month.

Receipts at furniture stores increased 1.1 percent. But Americans cut back on spending at restaurants and bars, with sales dropping 1.8 percent. That was the biggest decline since December 2016.

While the Commerce Department said it was impossible to determine the impact of Hurricane Florence on the data, disruptions caused by the storm could have hurt sales at restaurants and bars last month.

Sales at building material stores nudged up 0.1 percent in September. Spending at hobby, musical instrument and book stores increased 0.7 percent last month.

Reuters

Geopolitical risks and yields dominate proceedings

Monday October 15: Five things the markets are talking about

Following a weekend of warnings on global economic fragility from G10 finance leaders at an IMF meeting in Bali, has global equities starting this new week on the back foot, with regional bourses in Asia and Europe seeing red, while U.S equity futures are pointing to deep declines.

Sovereign yields are lower in this cautious climate, while yen has pushed higher along with gold. Crude oil has advanced as tensions rise between the U.S and Saudi Arabia over a missing journalist.

Politics and data are never a good mix and this week is awash with both.

Italy is to submit its contentious budget to the E.C. Already; the proposed budget has potentially broken specific thresholds, which would require a lot of debating from both parties. Expect Italian BTP yields again to come under pressure, backing up towards the psychological +4%.

The E.U meets on Wednesday and will get an update on the status of negotiations with the U.K’s Brexit. Expect the Irish border to be the ‘hot topic du jour. If there is insufficient progress, the possibility of a special summit next month to finalize an agreement looks dead in the water. Dealers expect the pound to remain volatile in the short-term.

The U.S Treasury report about the international economy and the FX market is to be released Tuesday. To neutral observers, China does not meet the threshold of “manipulation.” However, Trumps interpretation may be very different.

On the data front, the U.S releases retail sales this morning (08:30 am EDT) and FOMC minutes on Wednesday.

Across the pond, the U.K presents its labour report tomorrow, (Oct 16) inflation Wednesday (Oct 17) and retail sales Thursday (Oct 18).

In Canada, Friday’s upcoming data includes retail sales, and CPI – neither of the reports are expected to dissuade the market of pricing in a +25 bps rate hike at next weeks Bank of Canada (BoC) monetary policy decision.

1. Equities see red

In Japan overnight, the Nikkei closed at a two month low as automakers and other manufacturers were hit by news that the Trump administration would seek a provision about currency manipulation in future trade deals. The Nikkei share average ended down -1.8%, the weakest closing point since mid-Aug, while the broader Topix dropped -1.6%, the lowest close in seven-months.

Down-under, the ASX 200 fell to a six-month low overnight, led by the banking sectors growing concerns about the hit to earnings from an inquiry into misconduct. The S&P/ASX 200 index fell -1%. In S. Korea, the Kospi stock index fell -0.77% as institutions cut their exposure to riskier assets. The country’s biggest automaker Hyundai Motor slipped -1.7%, marking its lowest trading level in eight-years.

In China and Hong Kong, stock markets again slipped overnight following last week’s deepest dive in eight-months, as investors await the latest twist in the Sino-U.S trade dispute. The Shanghai Composite index closed lower by -1.5%, while in Hong Kong the Hang Seng closed -1.4% lower.

In Europe, regional bourses trade lower across the board, tracking U.S futures and Asian indices lower. The FTSE and sterling (£1.3140) trade a tad lower after the E.U and U.K paused Brexit talks until after this week’s mini-summit.

U.S stocks are set to open deep in the ‘red’ (-0.8%).

Indices: Stoxx600 -0.6% at 356.8, FTSE -0.3% at 6976, DAX -0.4% at 11474, CAC-40 -0.6% at 5066, IBEX-35 -0.3% at 8876, FTSE MIB -0.2% at 19225, SMI % at -0.8%, S&P 500 Futures -0.8%

2. Oil prices rise on Saudi tensions, gold higher

Oil prices remain bid this Monday morning as tension over the disappearance of a Washington post journalist and Saudi critic, Jamal Khashoggi, fuelled supply worries, although concerns over the long-term demand outlook dragged on sentiment.

Brent crude oil jumped +$1.49 a barrel to a high of +$81.92 before easing to +$81.13, up +70c. U.S crude (WTI) was last up +40c at +$71.74.

Saudi Arabia has been under pressure since Khashoggi, a U.S. resident, disappeared on Oct. 2 after visiting the Saudi consulate in Istanbul.

President Trump has threatened “severe punishment” if it is found that the journalist was killed in the consulate.

On Sunday, the Saudi’s said it would retaliate to any action taken against them over the Khashoggi case. The market is tentatively concerned that the Saudis may use oil as a tool for retaliation.

Despite prices starting the week better bid, there are still lower that last week’s high print.

Also limiting price gains is a report from the IEF last Friday stating that the market looked “adequately supplied for now” and cut its forecasts for world oil demand growth this year and next.

Ahead of the U.S open, gold prices have jumped +1% to hit a three-month high as global stocks resumed their fall and investors wrestled with the impact of the ongoing Sino-U.S. trade war and higher U.S interest rates. Spot gold is up +0.9% at +$1,228.24 an ounce, while U.S gold futures are up +0.8% at +$1,231.80 an ounce.

3. Italian and Portugal yields fall

Portuguese and Italian government bond yields have fallen this morning, with prices outperforming euro zone peers after ratings agency Moody’s upgraded Portugal’s credit rating back to investment grade.

Portugal’s 10-year bond yield fell -4 bps to +2.01% after Moody’s lifted its credit rating to Baa3 on Friday.

The positive periphery sentiment from Portugal has spilled over into Italy’s battered bond market. Italian 10-year BTP yields are down -4.5 bps to +3.53%.

Note: Expect Italian yields to trade rather volatile this week as Italy presents its budget to the E.C.

Elsewhere, the yield on U.S 10’s fell -1 bps to +3.15%. In Germany, the 10-year Bund yield has dipped -1 bps to +0.49%, the lowest in more than a week. In the U.K, the 10-year Gilt yield has eased -2 bps to +1.614%, the lowest in more than a week.

4. Dollar’s safe haven flows ease

Risk aversion flows initially provided a bid for the traditional safe-haven currencies of JPY (¥111.75) and ‘big’ USD, however, market sentiment has eased a tad ahead of the U.S open.

GBP (£1.3147) opened below the psychological £1.31 handle on concerns that a Brexit agreement might be slipping away after the U.K and E.U negotiators were said to have called ‘a pause’ in their Brexit talks and would now wait for the outcome of a summit mid-week (Wed) before any resumption.

TRY ($5.8208) is firmer by over +1% outright for its seventh session gain on optimism that relations between Turkey and U.S would improve following the release of U.S Pastor Brunson.

Bitcoin prices have spiked +6.5% this morning, jumping above +$6,600. While the catalyst behind the move higher is not clear and with few ready to label bitcoin a “true store of value” in turbulent times, BTC has held up better than most of late.

5. Embarrassing losses in Bavarian election shake Merkel’s coalition

Germany’s grand coalition could become even further unstable after coalition members suffered humiliating results in an election in the southern state of Bavaria.

Chancellor Merkel’s Bavarian allies slumped to their worst election results in almost 70 years and her junior coalition partners, the center-left Social Democrats (SPD), saw support in Bavaria halved.

The SPD had hoped that infighting over immigration between Merkel’s Christian Democrats (CDU) and the Bavarian Christian Social Union (CDU) allies would give them a boost in Bavaria.

But instead, the party saw support fall to just under +10%, prompting a discussion over the sustainability of its alliance with Merkel’s conservatives at the national level.

Note: SPD members are still bitter over their leaders’ decision to join a Merkel-led government.

Merkel’s authority may be called into question as soon as in two-weeks in an election in the western state of Hesse – the state is ruled by Merkel’s CDU in a coalition with the Greens, but polls suggest she is losing further support.

Forex heatmap

Pound suffers on Brexit stalemate

 

Pound pressured at start of the week

Weekend news that the latest Brexit negotiations had hit yet another stalemate pressured the pound at this week’s open. UK’s Financial Times reported that PM May is said to call the current draft Brexit deal a “non-starter” and as a result EU leaders may cancel plans for a special summit in November due to the lack of progress in negotiations. EU leaders are supposed to convene for a Brexit summit this Wednesday, and hopes were that a deal could be announced.

GBP/USD hit its lowest level in six days and tested the 100-day moving average support at 1.3099 again. The FX pair had climbed to a three-week high of 1.3259 on Friday on deal hopes, but closed lower on the day. Should the 100-day moving average support be breached convincingly, then the 55-day average at 1.2990 would come in to focus.

 

GBP/USD Daily Chart

Source” Oanda fxTrade

 

Asia Market Update: Echoes of October past

RBA’s Harper reiterates current stance

RBA board member Ian Harper has reiterated the RBA view that interest rates are more likely to rise than fall, however added that a near-term rate increase would “spook” consumers. He commented that a cloud remains over the consumer outlook though some stimulus is coming from a lower Australian dollar, which is helping to support confidence.

Monthly retail sales growth has been either zero or positive over the past eight months, though not setting the economy alight, with a maximum reading of +0.6% in February and the August reading at +0.3%. Meanwhile, Westpac’s consumer confidence index rose above zero for the first time in three months this month.

Aussie has been on the defensive versus the US dollar this morning, looking set to post a decline for the second straight day. AUD/USD is currently at 0.7107 with this month’s previous lows above the 0.7040 level acting as support.

 

AUD/USD Daily Chart

Source: Oanda fxTrade

 

US retail sales expected to show a rebound in September

The Asian data calendar is not yet complete, with Japan’s industrial production and capacity utilization data still pending. The European calendar is barren of tier-1 data, and the highlight of the North American calendar will be US retail sales for September. Sales are expected to rise 0.5% m/m, more than the 0.1% posted for August, and would be back at the June/July levels. The Empire State manufacturing index and business inventories are also due. The Bank of Canada’s business outlook survey is the only release from north of the border.

You can view the full MarketPulse data calendar at https://www.marketpulse.com/economic-events/

 

Market Podcast October 15

Source: MarketPulse – Market Podcast October 15

Friday’s relief rally in full swing

Friday October 12: Five things the markets are talking about

Volatility, in particular, for equities, has notched aggressively higher this week, now that sovereign bond yields are beginning to price out cheap money.

Stronger than expected U.S economic data and weak European underlying inflation in key countries is being blamed as the specific trigger for this week’s ‘bearish’ bout.

However, Chinese trade data released earlier this morning showed better-than-expected growth in Chinese exports has, at least temporarily, helped ease investor concerns about the damage to China’s economy from U.S tariffs and other trade friction.

China’s trade surplus with the U.S widened to a record +$34.1B in September as exports to the American market rose by +13% y/y, despite a worsening tariff war.

Global equities have staged a robust recovery; the ‘big’ dollar trades steady, U.S Treasury yields back up and crude oil prices recover while still heading for the biggest weekly drop in three-months.

Nevertheless, a gradual Fed rate increase remains the order of the day, especially after yesterday’s muted U.S CPI data – the market is pricing in a +25 bps move in December.

Since the Fed’s last meeting in September all data has been in line with the Fed’s depiction of an economy in which low unemployment will be coupled with inflation running near +2% for the foreseeable future.

1. Stocks sell off ends in Asia

Chinese stocks, among the biggest losers in a global market selloff this week, rallied overnight, as investors reassessed the impact of the Sino-U.S trade spat on the country’s economy and its markets.

In Japan, the Nikkei ended higher on Friday as investors took heart from gains in Chinese equities on upbeat export data, which generated buying in manufacturers exposed to China. The Nikkei share average gained +0.5%. On Thursday, the index slid -3.9% and for the week the index was down -4.6%, its biggest weekly drop since March. The broader Topix traded flat.

Down-under, Australia’s ASX 200 lagged most of Asia Pacific overnight as the heavily weighted energy and financial sector held the index back. It ended +0.2% higher, but fell -4.7% for the week. In S. Korea, its stock market rebounded from one of its biggest drops in seven-years. The Kospi rallied +1.5%, its first gain this month. The index fell -4.7% for the week.

In China, the main stock indexes bounced higher overnight after suffering massive losses this week, as investors went bargain hunting on the back of stronger Chinese exports data. At the close, the Shanghai Composite index was +0.9% higher, after touching near four-year lows yesterday. The index was down -7.6% for the week, its worst weekly performance in eight months. The blue-chip CSI300 index closed +1.49% higher.

In Europe, regional indices trade higher across the board rebounding from multi-month lows following a rebound in U.S index futures and Asian Indices.

U.S stocks are set to open deep in the ‘black’ (+0.8%).

2. Oil rebounds, but pares gains on adequate supply, gold lower

Oil has rallied overnight; rebounding after two-days of heavy declines, though prices pared gains after an IEA report deemed supply adequate and the outlook for demand weakening.

Brent crude has rallied +76c to +$81.02 a barrel, having dropped by -3.4% yesterday. U.S crude (WTI) has added +71c to +$71.68.

Note: Brent is still on course for a -3.7% decline this week, the biggest weekly fall in about four-months.

Oil found support from data showing that China’s daily crude imports last month hit their highest in four-months and from a rebound in equities.

Gains were pared, after a monthly report by the IEA said the oil market looked “adequately supplied for now” after a big rise in production and trimmed its forecasts for world oil demand growth this year and next. “This is due to a weaker economic outlook, trade concerns, higher oil prices and a revision to Chinese data,” said the IEA.

Ahead of the open, gold prices are under pressure as global equities rally, but the ‘yellow’ metal trades within striking distance of its 10-week high print in yesterday’s session. Spot gold is down -0.4% at +$1,218.86 an ounce, after rallying +2.5%yesterday, as this weeks equity rout sent investors rushing to safe-havens. U.S gold futures are down -0.4% at +$1,222.30 an ounce.

3. Yields back up on relief

Eurozone government bond markets show signs of relief as equity markets rebound. The 10-year Bund yield is trading +2.3 bps higher at +0.54%, pulling the yields of other core and semi-core issuers higher.

Note: Bunds yields are down from five-month highs reached earlier this week at +0.58%.

Eurozone periphery government bond yields trade lower, indicating a lower level of concern, at least for the day. Italy’s 10-year BTP yield is trading -4.5 bps lower at +3.53%.

Note: Italian 10-year bond yields rose to five-year highs earlier this week on tension between Rome and the E.U over Italy’s expansionary budget plans.

Elsewhere, the yield on 10-year Treasuries has backed up +3 bps to +3.18%, the biggest advance in a week. In the U.K, the 10-year Gilt yield has gained +2 bps to +1.694%. In Japan’s 10-year JGB yield has climbed less than +1 bps to +0.15%.

4. Dollar stable, EM pairs rally

USD initially tested multi-week lows as a weak Wall Street soured its recent bullish sentiment. Nevertheless, the greenback is off its worst levels as the equity sell-off has eased.

After jumping to an 11-day high of €1.1611 overnight, the dollar has stabilized and EUR/USD trades slightly higher, last by +0.1% at €1.1593. However, expect Italian fiscal risks and the direction of U.S yields to continue to drive the EUR/USD.

Emerging-market currencies are having another good day after weathering the global equity selloff this week. The South African rand is up +1.1% at $14.483, and the Mexican peso has gained +1.5% at $18.8718. The Turkish lira has paired some of its gains, but its trading +2% at $5.9451 – up +5% on the week.

The PBoC set yuan at weakest level since March 2017, a day after U.S Treasury staff advised Secretary Steven Mnuchin that China was not manipulating its the exchange rate. The midpoint for the dollar was ¥6.9120.

GBP/USD (£1.3215) is trading within striking distance of its three-week highs on hope for a Brexit agreement at the upcoming E.U leader summit next week. There is speculation that PM May is close to an agreement, but obstacles remain, as she requires the DUP Party ally and rebel Tory members support.

5. Eurozone factory output rebounds

Data this morning showed that industrial production in the eurozone rebounded strongly in August, as surges in Italy and the Netherlands offset weakness in Germany to suggest economic growth across the currency bloc continues at a modest pace.

The E.U’s statistics agency said industrial production was +1% higher in August than in July, and up +0.9% on year. The market was looking for a monthly gain of just +0.2%.

It was the first rise in production since May, following two straight months of decline.

Today’s healthy rebound will likely reassure the ECB that the economy is on course to grow more slowly this year than last, but still at a rate that will lead to new jobs being created, thereby pushing wages and inflation higher.

Note: The IMF trimmed its eurozone growth forecast for this year to +2% from +2.2%, noticeably downgrading its growth projection for Germany to +1.9% from +2.2%.

Forex heatmap

Gold gains most in more than two years

Gold is back in favor

The safe haven of gold, very much unloved over the past few months as it stood in the dollar’s shadow, saw its fortunes reverse yesterday to record the biggest one-day gain in almost 2-1/2 years. A weaker US dollar amid easing US yields and a below-forecast CPI print, reduced demand for the greenback, leaving gold to take up the slack, for a change.

Gold jumped more than 2.5%, its biggest one-day gain since June 2016, to reach the highest level since July 31. The commodity is now testing the 100-day moving average at 1,228.99, which has capped prices since April 30.

 

Gold Daily Chart

Source: Oanda fxTrade

 

China’s trade surplus with US hits record high

The September trade numbers will likely not be music to Mr Trump’s ears. Exports rose 14.5% y/y, beating economists’ estimates of a mere 8.9% increase. That’s the biggest monthly gain since February. The overall trade surplus widened to $31.7 billion, the highest in three months.

China Customs also reported that exports to the US were up 16.6% y/y while imports from the US rose just 1.6% y/y, pushing the trade surplus with the US to a record high $34.1 billion. The agency commented that the impact from the US trade frictions was “controllable” and that Chinese exporters were diversifying their markets.

The reaction in FX markets was marginal. AUD/USD slid to 0.7118 from 0.7124 while USD/CNH rebound from intra-day lows to 6.9026. AUD/USD currently appears to be struggling to overcome previous highs in the 0.7130-31 window.

 

AUD/USD Hourly Chart

Source: Oanda fxTrade

 

Singapore tightens policy marginally as Q3 growth beats estimate

In its semi-annual policy review, Singapore’s de-facto central bank tightened policy by a minimal amount. Rather than fix a benchmark interest rates, Singapore manages monetary policy by guiding the value of the local dollar against a basket of currencies of its major trading partners. The MAS raised “slightly” the slope of appreciation of the net effective exchange rate (NEER) trading band of the Singapore dollar, keeping the width and center of the band unchanged. This was tantamount to a mild tightening of monetary conditions as latest surveys had suggested it was a 50/50 chance.

Looking ahead, the MAS sees 2018 growth in the upper half of a 2.5% to 3.5% range then moderating “slightly” in 2019. Core inflation is seen in a 1.5% to 2.0% range and averaging 1.5% to 2.5% in 2019.

The Singapore dollar rose marginally after the announcement, with USD/SGD poised to record its second consecutive daily loss. USD/SGD is now at 1.3739 with the 100-day moving average below at 1.3637.

 

USD/SGD Daily Chart

Source: Oanda fxTrade

 

One of the first nations to report Q3 GDP numbers, Singapore’s economy grew 2.6% y/y, faster than the than the 2.5% growth anticipated by economists, but slower than the 3.9% pace in Q2. On a quarterly basis, growth was below expectations of a 4.9% increase, but faster than the 0.6% posted in Q2.

China will release its Q3 GDP data next Friday and is also expected to show slower annualized growth from Q2. The latest survey suggests 1.6% q/q and 6.6% y/y from 1.8% and 6.7% respectively.

 

 

Will German CPI echo the US miss?

After yesterday’s release of below-forecast CPI data from the US, today it’s the turn of Germany. Estimates for September suggest consumer prices rose at the same pace as August, up 0.4% m/m and 2.3% y/y. August industrial production data for the Euro-zone follow the CPI numbers and then the calendar thins out with only second-tier US data scheduled. Export and import prices and Michigan sentiment index are the highlights, with speeches from Fed’s Evans and Bostic completing the week.

You can view the full MarketPulse data calendar at https://www.marketpulse.com/economic-events/

 

Have a great weekend from Asia.

Dollar Lower on Weak Inflation OANDA Market Beat Podcast

Source: MarketPulse

Dollar Loses Momentum as Stocks Drop Awaiting Inflation Data

The EUR/USD rose 0.42 percent on Wednesday. The single currency is trading at 1.1539. The surge was due to positive Brexit comments but was limited as Italian budget drama continues. As the deadline for a final divorce agreement between the UK and the EU nears there has been a lot of talk of getting closer to an amicable split. The market is still awaiting any definite details that could send the euro even higher.



The US dollar is taking a breather even as US yields continue to climb. Inflation data in the US is still supportive of more rate hikes. The PPI release today met the forecast at 0.2 percent after last month’s loss of 0.1 percent. Tomorrow’s CPI datapoint will be crucial for the US dollar as fundamentals continue to push the greenback higher.

Yesterday US President Donald Trump once again spoke against more Fed rate hikes. The President echoes the view of many (including some Fed members) that inflation is not a problem and is urging the Fed to slow down its planned rate hikes. The Fed has hiked 3 times this year and is on track to add another 25 basis points lift in December.

Loonie Lower as USMCA High Fades

The Canadian dollar is lower on Wednesday. The loonie is lost 0.38 percent versus the USD as lower oil prices and higher US yields put downward pressure on the currency.

The IMF did not cut the growth forecast for Canada, in fact mentioned that the USMCA might boost growth. The loonie has been riding the trade agreement wave, but the market is now focusing on fundamentals.


usdcad Canadian dollar graph, October 10, 2018

Returning form the Thanksgiving holiday CAD traders have seen housing starts and building permits come in lower than expectations. The Bank of Canada (BoC) could hike rates in October, but economic data has to prove that the economy can take it.

Although the USMCA is a big positive for the loonie, the agreement is not final as politicians in all member countries need to ratify the agreement and with midterms in the US and a looming federal election in Canada next year there could be some obstacles ahead.

Mexican Peso Stays Close to 19

The Mexican peso had a volatile day as the US PPI validated the Fed’s rate hike path. The Mexican central bank kept rates unchanged in October and the market is anticipating a rate hike in December the U.S. Federal Reserve. Interest rate divergence put some pressure on the peso, but after reaching daily highs the US dollar ran out of steam. The pair is trading at 19.03 awaiting the release of US inflation on Thursday.



Gold Higher Awaiting US Inflation Data

Gold prices rose 0.14 percent on Wednesday. The US dollar is mixed against major pairs with the euro and sterling gaining on positive Brexit news. The dollar is losing some steam after the producer price index PPI met expectations at 0.2 percent. Investors will be on the lookout for the Consumer Price Index (CPI) to be released on Thursday at 8:30 am EDT.



A rate hike by the Fed was already priced in at the end of the September meeting and with high probabilities of a December rate lift its time to question the staying power of the US dollar.

Global growth has been downgraded and if trade disputes increase the pace of growth of the US looks to take a hit next year. Gold will fail to get any traction if US economic data continues its steady solid pace.

Oil Prices Await US Weekly Inventories

Oil prices dropped 2 percent on Wednesday. Energy prices are back to levels last seen on Monday after a global growth downgrade and the lower estimated impact of Hurricane Michael in the US.


West Texas Intermediate graph

The IMF downgraded its outlook for global growth on Tuesday. Growth is now estimated at 3.7 percent this year and next, from a previous 3.9 percent made last summer. Trade concerns were the biggest factor behind the downgrade.

Weather disruptions will continue to keep the black stuff bid as the sanctions against Iranian exports are set to begin. Buyers have already limited their purchases of Iranian crude and decisions like that of Sinopec to halve its purchases of oil loadings signal a more stringent enforcement from the US.


West Texas Intermediate graph

Hurricane Michael is not expected to affect Gulf of Mexico production beyond workers who were evacuated return to work after the storm has passed. The release of API inventories and weekly US crude data by the Energy Information Administration (EIA) will weigh on prices later today and tomorrow.

US weekly energy stocks are expected to increase by 2.3 million barrels and could put further downward pressure on prices. Lack of pipelines are a concern as Permian Basin oil and natural gas supply will be constrained. The bottleneck created by higher supply into an existing pipeline capacity will be sorted next year, but in the meantime it won’t be a big of a factor.
Market events to watch this week:

Thursday, October 11
7:30am EUR ECB Monetary Policy Meeting Accounts
8:30am USD CPI m/m
11:00am USD Crude Oil Inventories
Friday, October 12
10:00am USD Prelim UoM Consumer Sentiment

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar