Forex today had the US 10 years slipping from 2.35% to 2.32%, while the 2yr yields ranged between 1.51% and 1.52%, pretty steady while the DXY was unchanged on the day between 92.79 and 93.22, settling back onto the 93 handle.
So, while the DXY is flat, there was still plenty of downside, but one must bear in mind that the DXY carries much of its index valued against the euro, and with what appears to be some temporary political calmness in Spain as well as Brexit making some traction, the euro is somewhat relieved, for now.
The focus is back on the Fed, and the Fed fund futures yields continued to price the chance of a December rate hike at 87%. The PPI data for the US, as a potential prelude to Friday’s key CPI that will draw a lot of attention this time around due to the concerns that some of the FOMC members showed within Wednesday’s minutes in regards to the possibility that this lowe spell of inflation is not just transitory, rose 0.4% in September as expected. The ex-food and energy measure also rose 0.4% vs 0.2% expected and leaves Friday’s CPI in good light. However, the dollar can stay soft on the back of the possibility that 2017’s tax reform is not on schedule due to the intra-republican party disunity, the same disunity we saw in the healthcare bill.
As for the currencies, EUR defends the 1.1860-70 neckline despite dovish Draghi who said wage inflation is too low. GBP was robustly bid on Brexit traction where news that EU’s chief Brexit negotiator, Michel Barnier, could offer the UK a 2-year transition stay in the EU market. GBP/USD rallied from 1.3120 to 1.3290 and awaits next week’s key UK data dump for higher grounds.
The yen is stuck in a technical range between 112.10 and 112.45. As for the antipodeans, they were supported by higher metals and Wednesday’s dovish hike minutes driving along the higher betas and carry trade. AUD held the 0.78 handle and made a high of 0.7835 while the bird slipped from the session’s high at 0.7146 and grounded in the 0.7120’s, albeit still up from 0.7100 low. Gold hit the psychological $1,300 mark while Wall Street dropped on disappointing earnings. Also worth a mention was the SEK falling 0.9% after inflation missed to the downside.
Key events ahead:
Analysts at Westoac highlighted the key events for the rest of the week as follows…
“Australia: The RBA Financial Stability Review is released. The key interest will be their assessment of macroprudential measures, while their view on commercial property will also likely gain attention.
US: Sep CPI is expected to rise 0.6% (Westpac +0.5%) largely due to hurricane effects seeing a continued rise in energy prices, with underlying core inflation remaining more stable at +0.2%. Sep retail sales are anticipated to jump 1.7% (Westpac +1.2%) as the need to replace cars sees a surge in auto sales along with other replenishing/repairing activity. Fedspeak includes Evans on policy, Kaplan at a fixed income conference, and Rosengren opens a conference on discretion and monetary policy. On Sunday, Chair Yellen speaks on ‘The Economy and Monetary Policy’ at the G30 International banking Seminar, which also includes a panel with BoJ Governor Kuroda and PBoC Governor Zhou.”
Key notes from US session
Fed’s Fischer: It’s always better to have an independent central bank
WTI retraces losses above $50 post-EIA report
EIA: US commercial crude oil inventories decreased by 2.8 mln barrels
Fed’s Brainard: Below target inflation is an important consideration for monpol
US PPI consistent with moderate inflation – Wells Fargo
Global growth strengthening, price pressures remain muted – Scotiabank
US: Producer Price Index for final demand advanced 0.4% in September
US: Weekly initial claims was 243,000, a decrease of 15,000 from previous week
Wall street drops on disappointing earnings results