Daily Market Pulse

U.S stocks rallied substantially on Columbus Day


Owing to Columbus Day, the Dollar Index ended the day broadly unchanged (+0.02%) against a basket of major currencies. As the FX market was quiet, U.S stocks rallied substantially, climbing to an almost six-week high amid a rally in some of the world’s largest tech companies. The S&P 500 gained 1.66%, and the tech-heavy Nasdaq closed 2.57% higher. Today is going to be a busy day on the data front, with Consumer Price Index (CPI) and IBD/TIPP economic optimism scheduled to be released. According to some market analysts, the September CPI report should show price pressures remaining muted, and will not have an impact on the Federal Open Market Committee’s outlook.


The euro lost some ground (-0.14%) against the USD on Monday after the Dollar Index, which measures the performance of the USD against a basket of major currencies, ended the day broadly unchanged. Earlier this morning, the German Federal Statistical Office reported that Germany’s consumer price index (CPI) was at -0.2% in September compared to the same month last year. No change to the initial estimates so this just reaffirms the more subdued inflation pressures seen in Germany last month. The recent strengthening of the EUR had raised concerns about a possible rise in inflation in the eurozone. As the day progresses, October’s ZEW sentiment surveys will provide some insight into how the German economic recovery is progressing.


The GBP traded 0.18% higher against the USD on Monday amid a quiet day on the data front. Also, yesterday, the Bank of England (BoE) sent submissions to banks about their operations readiness to implement a policy of zero or negative interest rates, following up its announcement in September that it was considering how to take rates below zero if necessary. This BoE’s action is an attempt to understand all the consequences and the needs of such policy, before implementing it. Later today, market participants will keep a close eye on UK labor market figures, with job growth, claims, the unemployment rate, and wages providing a fresh update on the British labor market in August and September under the Job Retention Scheme.


A lack of key macroeconomic events, with the U.S celebrating Columbus Day, the JPY appreciated 0.31% against the USD. Investors' concerns about the escalation of Covid-19 infections in Europe favored the safe-haven JPY. The Japanese yen also found support after Japan’s core machinery orders unexpectedly climbed 0.2% in August, extending gains and highlighting resilience in capital spending even as the economy remains under pressure from the Covid-19 crisis.  The monthly rise came soon after a 6.3% rise in July and a 7.6% decline in June, the government's data showed. Market participants will be focused on industrial production on Wednesday, where it is expected to show a rebound industrial output in August compared with last months.


Canadian markets were closed for the Thanksgiving holiday. The CAD, last week, outperformed against the major pairs, which climbed 1.4%, its best weekly performance since June. The Canadian dollar might continue to gain ground against the USD, supported mainly by a weaker greenback. Canadians who have missed work because of Covid-19 started applying for new financial support (CAD 500/week) from the federal government on Monday. The new benefit comes into effect as concerns rise about increasing job losses in the country, after imposing restrictions on restaurants, bars, and leisure centers to slow the spread of Covid-19. This financial aid might serve as a major catalyst for the CAD over the coming trading session.


The Mexican peso dropped 0.24% on Monday amid mixed data published during the day. Official data reported that the country’s industrial production slowed in August compared to July due to a lower performance of mining and manufacturing activity. On the other hand, Mexico's Institute of Social Security reported an increase of 113,850 formal jobs in September, which highlights continuous signs of economic recovery amid the Covid-19 restrictions despite being below the President López-Obrador’ previous estimate (+120k). Later today, the Bank of Mexico will release Foreign Exchange Reserves figures, which currently stand at USD 198,640M.


The CNY saw a strong correction on Monday, with the currency depreciating 0.77% against the USD. The biggest news on the FX market was that the People’s Bank of China has removed the 20% reserve requirement ratio for yuan forward settlements, a rule change that will lower the cost of shorting the yuan and might help to boost the recent CNY's uptrend. The move came after the CNY traded at a 17-month high on Friday against the USD, its biggest one-day percentage gain since 2005. By removing the restrictions on derivatives, it will create a more flexible (hedging) environment for foreign investors, because financial institutions will no longer need to set aside cash to conduct currency forwards as foreign exchange risk reserves. Today, investors will closely watch vehicle sales and the exports and imports figures of September.


The FX market in Brazil was shut due to a National Holiday on Monday. After a long-weekend, investors will watch the Focus-Market Readout today, albeit this does not have a great impact on prices. The Readout summarizes the statistics calculated over market expectations (i.e. prices indices, economic activity, exchange rate, etc.) collected until the previous Friday. More evidence regarding Brazilian economic recovery will be published throughout the week, with Business confidence and Service Sector Growth tomorrow, and IBC-Br on Thursday. The IBC-Br is widely considered to reflect gross domestic product data.


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