A nervous beginning to the start of the week

Monday October 22: Five things the markets are talking about

Global equities remain better supported this Monday morning after Chinese stocks surged overnight on senior officials verbal intervention.

The ‘mighty’ U.S dollar has eased a tad along with treasuries, while Italian bonds have rallied.

The EUR had found some early support on the back of a ratings decision by Moody’s Investors Service late last Friday who removed the immediate threat of a downgrade to ‘junk.’ The market now awaits on S&P’s review this Friday.

Nevertheless, risks remain, from tension surrounding the Khashoggi murder and the ongoing Sino-U.S trade showdown to Italian budget fears and President Trump’s unpredictability ahead of U.S midterm elections.

On tap for this week, the Bank of Canada (BoC) is expected to increase its policy rate by +25 bps to +1.75% on Wednesday (Oct 24) despite last Friday’s disappointing inflation and retail sales readings.

Elsewhere, the European Central Bank (ECB) is expected to leave policy unchanged, but questions regarding Italy and its budget issues are expected to be front and center.

In Scandinavia, Sweden’s Riksbank and Norway’s Norges bank take center stage mid-week.

Stateside, earnings season gathers pace with notable highlights including Amazon, Alphabet, Intel, Verizon, Microsoft, Twitter, McDonald’s, and Caterpillar.

1. Stocks in the black

Japan’s Nikkei edged higher, supported by a rally in Chinese stocks on the promise of additional stimulus measures, triggering buying in firms exposed to China. The Nikkei share average rallied +0.37%, moving off a six-week low hit during last Friday’s session. The index is now down around -7.5% since hitting a 27-year high on Oct. 2. The broader Topix edged +0.15% higher.

Down-under, Aussie stocks ended lower on Monday, as political concerns rattled investors after the governing coalition looks set to lose its one-seat majority in parliament following a weekend by-election. The S&P/ASX 200 index closed -0.6% lower. In S. Korea, the Kospi stock index climbed on Monday supported by a strong Chinese market. The index rallied +0.5%.

In China, stocks surged overnight in the wake of coordinated statements of support by senior regulators, and as China prepares to overhaul its income tax law for individuals. The benchmark Shanghai Composite index was +4.2% higher, while the blue-chip CSI300 index jumped +4.4%.

The gains extended to Hong Kong, where the Hang Seng index added +2.3% and the China Enterprises Index ended +2.6% higher.

In Europe, indices trade higher across the board. Italy’s FTSE MIB outperforms after Moody’s cut the countries rating to the lowest investment grade, but put the outlook as stable, helping BTP futures rally.

U.S stocks are set to open in the ‘black’ (+0.1%).

Indices: Stoxx600 +0.22% at 362.02, FTSE +0.26% at 7,066.00, DAX +0.52% at 11,614.01, CAC-40 +0.24% at 5,096.82, IBEX-35 +0.73% at 8,957.30, FTSE MIB +0.66% at 19,205.50, SMI +0.30% at 8,892.50, S&P 500 Futures +0.18%

2. Brent oil back above $80 as Iran sanctions loom

Brent crude oil prices remain better bid as markets are expected to tighten once U.S sanctions against Iran’s crude exports come into effect in November.

Brent crude oil futures are at +$80.26 a barrel, up +48c, or +0.6%, above Friday’s close. U.S West Texas Intermediate (WTI) crude futures are at +$69.60 a barrel, up +48c, or +0.7%.

Note: The U.S sanctions on Iran, the third-largest producer in OPEC, are set to start on Nov. 4.

OPEC agreed in June to boost supply to make up for the expected shortfall in Iranian exports, however, recent data suggests that OPEC is struggling to add barrels as an increase in Saudi supply was offset by declines elsewhere.

Nevertheless, relief may come from the U.S, where offshore drillers added four oilrigs in the week to Oct. 19, bringing the total count to 873, according to Baker Hughes data on Friday. After months of stagnation, U.S crude production is expected to rise.

However, undermining sentiment is weaker China growth data and the ongoing Sino-U.S trade dispute. The full impact of the trade war is expected to hit markets early next year and provide a considerable drag on oil demand.

Ahead of the U.S open, gold prices have edged higher overnight towards their three-month peak hit last week, as the ‘big’ dollar eased and worries over rising political tensions slowing global economic growth lent support to the ‘yellow’ metal. Spot gold is up +0.1% at +$1,226.52 an ounce, while U.S. gold futures are also up +0.1% at +$1,229.50 an ounce.

3. Italian yields drops by most in 4-months on Moody’s decision

Italian sovereign yields dropped across the curve after ratings agency Moody’s kept the country’s sovereign ratings outlook ‘stable’ while delivering an expected downgrade last week. The market was worried that the outlook would be ‘negative.’

Note: S&P’s review is expected this Friday (Oct 26). It now rates the country two notches above junk at BBB.

Italy’s five-year BTP yield dropped -36 bps to a two-week low of +2.63%, while the benchmark 10-year yield was -26.5 bps lower at +3.39%, its biggest daily drop in four-months. The BTP/Bund 10-year yield spread tightened to +284 bps.

Elsewhere, the yield on the U.S 10-year note rose +1 bps to +3.20%, while Germany’s 10-year Bund yield increased + 2bps to +0.48%. In the U.K, the 10-year Gilt yield climbed +1 bps to +1.588%.

4. Dollar quiet across the board

The EUR/USD is a tad lower at €1.1515 after testing a high of €1.1550 overnight on the back of a relief rally in the 10-year BTP/Bund spread. Nevertheless, event risk persists ahead of the deadline for Italy to respond to the E.U Commission’s initial objections over the 2019 budget plan.

Expect Thursday’s ECB meeting to be closely watched, especially Draghi’s press conference, where the market is looking for more color on how the ECB would reinvest maturing QE proceeds post December this year.

GBP/USD is -0.3% lower at £1.3030 as Brexit talks again reached an impasse. However, PM Theresa May believes that +95% of the Brexit withdrawal deal is “now settled.” It’s believed that the PM is facing a rebellion by more than 40 Tory MP’s if she does not back down to fresh demands from Brexiteers’

Note: 48 votes are necessary for a leadership challenge

5. Italy says it’s ready to discuss budget with E.U authorities

The Italian government is ready to sit and discuss its budget targets with E.U, Deputy Prime Minister Luigi Di Maio said this morning, restating that the “populist” coalition had no plan to leave the euro.

Italy has sent a letter to the commission explaining its reasons for sticking to the +2.4% goal, and that the government was ready to “sit at the table”.

Note: Italy wants to hike its budget deficit to +2.4% from this year’s +1.8%. Last week, the E.U Commission labeled Italy’s 2019 draft budget an “unprecedented breach of EU fiscal rules.”

Forex heatmap

CAD plummets on disappointing retail sales and weak inflation

Canadian inflation slowed significantly last month as temporary factors that lifted the cost of gas and air travel dissipated.

Canada’s CPI climbed +2.2% y/y, following a +2.8% increase in August and a +3% climb in July.

The market was looking for a solid +2.7% gain in September.

On a month-over-month basis, CPI declined -0.4%.

Digging deeper, the Bank of Canada (BoC) three preferred measures supporting inflation also weakened - core-inflation prices rose in a range from +1.9% to +2.1% for an average of +2.0%, down from the previous month’s +2.1% average.

Despite this morning miss, the headline annual inflation rate in Canada has come in +2%+ for eight consecutive month.

Canada retail sales miss

Canadian retail sales fell unexpectedly in August, led mostly by gas stations receipts declines.

Canada retail sales fell -0.1% in August, m/m, to a seasonally adjusted +C$50.76B. The market was looking for a +0.3% rise.

In volume terms, retail sales declined by a steeper -0.3% in August.

The previous month’s data were revised downward, and indicated receipts rose +0.2% vs. +0.3% estimate.

On the release, the CAD came under immense, trading at C$1.3030 before the headlines to C$1.3116.

Next up, the BoC monetary policy announcement is next Wednesday (Oct 24). Despite a weaker retail sales and inflation, the market is currently pricing in another +25 bps hike by Governor Poloz.

ADP Canada: Employment increased in September

Employment in Canada increased by 28,800 jobs from August to September according to the September ADP® Canada National Employment Report. Broadly distributed to the public each month, free of charge, the ADP Canada National Employment Report is produced by the ADP Research Institute®. The report, which is derived from actual ADP payroll data, measures the change in total nonfarm payroll employment each month on a seasonally-adjusted basis.

“The labor market was quite strong in the month of September,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Although the goods producing sector struggled this month, we saw significant growth in many industries. Trade, for example, continued its steady growth adding the most jobs the sector has seen all year.”

The August total of jobs added was revised up from 13,600 to 42,700.

Read more Newswire

U.S. Treasury said to release currency policy report today

The U.S. Treasury Department is poised to release its much-awaited foreign-exchange policy report to Congress on Wednesday afternoon, according to an administration official.

The semi-annual review of currency regimes of the U.S.’s 12 major trade partners and Switzerland will be released on Treasury’s website late in the day in Washington, the official said, declining to provide timing. The person spoke on the condition of anonymity.

Treasury is poised to render a verdict on President Donald Trump’s claim that China is manipulating its currency. While the U.S. hasn’t designated China as a currency manipulator since 1994, Wall Street is bracing for the prospect that Treasury will do so this week. Such a move wouldn’t trigger penalties, but it would likely escalate tensions between the world’s two largest economies.

Bloomberg

Canada: Monthly Survey of Manufacturing, August 2018

Manufacturing sales fell 0.4% to $58.6 billion in August, following three consecutive monthly increases.

The decline was mainly due to lower motor vehicle sales. Excluding this industry, manufacturing sales rose 0.4% in August.

After taking price changes into account, the volume of sales in the manufacturing sector edged down 0.3% in August.

Motor vehicle industry posts the largest decrease

Sales of motor vehicles fell 8.3% to $4.9 billion in August, following two consecutive monthly increases. The decline was mostly attributable to lower production due to atypical shutdowns in some assembly plants in August. In constant dollars, motor vehicle sales fell 8.4%, which shows that the decrease in current dollars mainly reflected a drop in sales volumes rather than lower prices in the industry.

Primary metal industry sales fell 2.9% to $4.4 billion in August, a third consecutive monthy decline. The decrease in August reflected lower sales in the non-ferrous metal (except aluminum) production and processing industry. Conversely, seasonally adjusted sales in the iron and steel mills and ferro-alloy manufacturing, steel product manufacturing, and alumina and aluminum production and processing industries grew in August.

Sales in the wood product (-3.4%) and food (-0.6%) industries also fell in August.

These decreases in current dollars were partially offset by increases in the aerospace product and parts (+13.5%), plastic and rubber product (+3.8%), machinery (+2.0%) and chemical product (+1.1%) industries.

Sales down in three provinces

Sales were down in three provinces in August, with Ontario posting the largest dollar decrease.

After two straight monthly increases, sales in Ontario fell 2.0% to $26.6 billion. The decline was mainly attributable to lower sales in the motor vehicle (-8.9%), primary metal (-8.4%) and motor vehicle parts (-1.8%) industries.

In Alberta, sales fell 0.8% to $6.6 billion, following three consecutive monthly increases. Most of the decrease stemmed from lower sales in the petroleum and coal products (-3.5%), electrical equipment, appliance and component (-24.6%) and primary metal (-9.2%) industries.

The largest monthly increase was in Quebec, where sales rose 1.3% to $14.2 billion. The gain was mainly attributable to an 18.9% increase in the aerospace product and parts industry and, to a lesser extent, gains in the plastic and rubber product (+8.6%), computer and electronic product (+12.2%) and petroleum and coal product (+3.4%) industries.

Inventory levels rise

Inventory levels rose 1.1% to $83.9 billion in August. Inventory increased in 14 of 21 industries, with the largest gains in transportation equipment (+3.4%), food (+1.9%) and plastic and rubber product (+5.6%).

These increases were partially offset by lower inventory levels in the primary metal (-1.4%) and wood products (-2.3%) industries.

The inventory-to-sales ratio rose from 1.41 in July to 1.43 in August. The ratio measures the time, in months, that would be required to exhaust inventories if sales were to remain at their current level.

Unfilled orders increase

In August, unfilled orders rose 0.8% to $94.8 billion, after edging down 0.2% in July. Most of the gain came from a 0.8% increase in the aerospace product and parts industry. Unfilled orders were also up in the computer and electronic product and the fabricated metal product industries.

After two consecutive monthly decreases, new orders were up 1.1% to $59.3 billion in August. An increase in new orders in the aerospace product and parts and machinery industries were behind this gain.

The capacity utilization rate edges up

The capacity utilization rate (not seasonally adjusted) of the manufacturing sector edged up 0.7 percentage points, from 79.5% in July to 80.2% in August. Following a 14.6 percentage point decline in July, the capacity utilization rate for the transportation industry increased from 73.4% in July to 81.5% in August. Shutdowns at several auto manufacturing plants were responsible for the decrease in July.

The capacity utilization rate of food manufacturers fell 2.2 percentage points to 81.0% in August. This decrease was attributable to lower production in most food industries.

The capacity utilization rate of the primary metal industry, which includes aluminum and steel, edged down 0.3 percentage points to 77.8% in August.

StatsCanada

U.S. Housing Starts Fell in September Amid Hurricane Florence

U.S. new-home construction fell in September on a decline in the South that may reflect disruptions from Hurricane Florence, government figures showed Wednesday.

Highlights of Housing Starts (September)

  • Residential starts dropped 5.3% to 1.201m annualized rate (est. 1.21m) after downwardly revised 1.268m pace in prior month
  • Multifamily home starts fell 15.2%; single-family declined 0.9%
  • Permits, a proxy for future construction of all types of homes, slipped 0.6% to 1.241m rate (est. 1.275m) after 1.249m pace; reflects decline in multifamily permits
  • Key Takeaways

    Analysts had forecast a decline in housing starts after Hurricane Florence, which made landfall in North Carolina on Sept. 14, caused damage and flooding throughout the Carolinas. Those states are part of the report’s South region, which accounts for about half of starts and showed a 13.7 percent drop from the prior month. Hurricane Michael, which struck Florida and other southeastern states last week, will probably affect activity in October.

    While the impact of the storms on housing data is likely to be temporary, the decline in starts largely reflected slower construction in multifamily housing, a category that tends to be volatile. In addition, permits for single-family homes rose 2.9 percent last month, the most in a year, on gains in the Northeast and West, indicating builders have a steady pipeline of construction.

    That indicates housing could contribute to the economy toward the end of the year as consumer demand, helped by a solid job market, lower taxes and post-storm rebuilding, overshadows headwinds including rising mortgage rates and property prices.

    A decline in lumber prices from a record earlier this year may also be providing some comfort to developers. A gauge of homebuilders’ confidence rose in October for the first time in five months, according to a National Association of Home Builders/Wells Fargo report released Tuesday.

    Other Details

  • Single-family home starts fell to a 871,000 rate from 879,000 the prior month
  • Groundbreaking on multifamily homes, such as apartment buildings and condominiums, dropped to an annual rate of 330,000
  • Midwest region also posted a decline in starts, while they rose in Northeast and West to highest levels since March
  • Report shows wide margin of error, with a 90 percent chance that the September figure on housing starts ranged from a 16.6 percent drop to a 6 percent gain
  • Report released jointly by the Census Bureau and Department of Housing and Urban Development in Washington
  • Bloomberg Quint

    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

    Asia Market update : A time out

    China Data

    China CPI data came out bang on market expectation while the PPI rose slightly 3.6 % versus 3.5 % but continues to trend lower despite weaker Yuan and tariff price pressures. But given the delta to expectations are negligible there isn’t much of trade to be had on the data.

    Regional equity markets

    Regional markets are trading more positively this morning as overall regional volatilities are falling. A weaker US dollar profile is helping to cool depreciation pressure on the Yuan as overextended shorts are getting pared. Don’t confuse this recovery with anything other than consolidation amidst a protracted downtrend in Asia equities. Traders are looking to sell upticks given that intraday volatility can ignite on the drop of a dime.

    While neither new or original for that matter and with discussions centring on market uncertainties the topic of China infrastructure spending is making the rounds yet again.

    Since additional monetary easing could trigger a run on the Yuan; there’s more chatter that China will move back to its old habits of pumping up infrastructure spending to boost economic growth as Beijing is preparing to pull out their old stimulus playbook.

    But overall a quiet start today in the wake of an unusually quiet Monday in US market.

    Oil markets

    Oil bulls are latching on to falling Iran export data which showed the country’s exports fell even further during the first half of October. Which gives rise to the spare capacity ” proof is in the pudding” argument that until supplies are made quantifiably available, given Venezuela and Iran shortfalls, that squeeze in supply should be enough to support Oil prices until proven otherwise. With so much noise in the market, traders top side ambitions could temper ahead of this week’s US inventory data sets.

    Currencies

    The US Dollar 

    Dollar bulls still fear we are little more than a Jay Powell headline away from sending the dollar into full out retreat. especially if he or this week FOMC minutes do walk back the hawkish market interpretation from the last policy meeting.

    The Yuan

    The USDCNH remains in a very tight range with overnight funding getting extraordinarily liquid, but the forward curve remains under pressure as traders continue to unwind some of the USD paid in forwards on a carryover from the slight de  escalation of USD-China tension on the back of Trump -Xi meeting and a softer tone for the Pboc at the IMF in Bali. However, USDCNH remains bid on dips below 6.92 despite today’s CNY  fix at 6.9119 today, -35 pips from last fixing and -151 pips from the previous closing at 6.9270 on 16:30 Beijing time. But well in line with market expectations.

    With lower CNH vols comes some breathing room for local EM as the Won is making significant headway after the softer US retail sales print. In the absence of strong US economic data for the USD to anchor too, it continues to struggle but EM risk is fraught with peril, and I suspect this is more of a case positions squaring rather than bullish bets put on the table.

    New Zealand Dollar

    NZD CPI has overshot expectations: +0.9%QoQ for Q3 versus 0.4% prior and 0.7% expected. The RBNZ forecast stood at 0.4%. but taking the gains from energy out of the equation but with very mixed signals on the USD appetite to fade the move has been muted as dollar bulls remain nose-ringed to this weeks FOMC minutes

    Risk remains on the back foot

    Daily Markets Broadcast – 2018-10-16

    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