Daily Market Pulse

The back-and-forth U.S fiscal stimulus package talks


The dollar edged 0.29% lower on Monday as investors were cautiously optimistic after the American biotechnology company Moderna Inc. said it expects results of its Covid-19 vaccine shot in November. Also, the USD’s drop was due to the back and forth of the negotiations on the U.S fiscal stimulus package, where House Speaker Nancy Pelosi said on Monday that she believed stimulus legislation could be pushed through before Election Day on Nov. 3, while acknowledging an agreement would have to come by today for that to happen. On Wall Street, stocks also slumped. The S&P 500 ended the day 1.65% lower, its biggest one-day decline since 23rd September. On the economic data front, the focus will be on the Housing start and building permits of September, which indicates whether developers and builders are finally planning for more growth ahead or not. 


The EUR closed 0.43% up against the USD on Monday after a positive and constructive tone from Brexit talks with the Bloc’s negotiator Michel Barnier saying that the EU is prepared to talk “intensively” based on legal text – one of the government’s key asks for continuing talks. Also, the EUR reacted well to European Central Bank President Christine Lagarde’s statement that Europe must distribute its 750-billion-euro recovery fund for the pandemic-hit economy promptly and should debate creating a permanent fiscal tool for the bloc. On the economic data front, according to first estimates from Eurostat, in August 2020, the seasonally adjusted production in the construction sector rose by 2.6% in the eurozone and by 2.4% in the EU, compared with July 2020. The data signaled the EU economic recovery is still improving but at a slower pace. Later today, investors will be keeping a close eye on the Eurozone’s current account figures.


On Monday the GBP performed well against the USD, closing 0.16% up amid a constructive tone in the Brexit deal. Yesterday, Michel Barnier, the bloc’s chief negotiator, said he would be willing to intensify talks and begin work on the legal text of the accord after a meeting with his British counterpart, David Frost. Today, in addition to Brexit talks, market participants will focus on UK inflation data, which is expected to increase by 0.5% year-over-year in September while Core Inflation Rate is projected to grow by 1.3%. Similar to other major central banks, the Bank of England is trying to bring inflation to the 2% target. If the inflation reports are weaker than expected, the odds of negative rates will increase. 


The JPY closed relatively flat +0.01% against the greenback on Monday in a quiet trading session. Given the lack of data in Asia this week, except China’s third-quarter (Q3) GDP on Monday, which reported 4.9% gross domestic product growth in Q3 compared with last year, the USD/JPY pair might be driven by the U.S stimulus package hopes and worsening of Covid-19 second wave in Europe. Both are risk catalysts for near-term direction, which can either soften or weigh on the safe-haven JPY. 


The CAD traded 0.07% higher against a weaker USD and remained depressed for the second consecutive session on Monday. The USD’s drop was led by some renewed sales of US dollars, as well as a softer tone around oil prices and domestic data showing wholesale sales rising for the fourth straight month. Canadian wholesale trade increased by 0.3% in August from July, remaining above pre-Covid-19 levels, Statistics Canada said. The West Texas Intermediate crude oil prices were up 0.2% at $40.98/ barrel, while the U.S. dollar fell 0.29% against a basket of major currencies.


The MXN edged down 0.38% against the greenback on Monday in a volatile trading session, while uncertainty lingered over whether the United States will soon be able to finalize a stimulus package to face the Covid-19 crisis, and awaiting a bulk of corporate results for Q3. The latest Reuters poll shows that Mexico’s domestic annual inflation rate has likely accelerated slightly in the first half of October, thanks to higher prices for electricity, gasoline as well as fruit and vegetables. This has also weighed on the MXN. 


On Monday, China reported 4.9% gross domestic product growth in Q3 compared with last year, according to government statistics. The pace was quicker than the 3.2% increase that China recorded in the Q2, but below market expectations of 5.2%. However, the government statistics also released yesterday a raft of economic data which provided a positive tone for the Chinese market, leading the CNY to close 0.24% higher against the USD. Industrial output grew 6.9% compared to the same month of the previous year in September, which was above August’s 5.6% increase. The reading marked the best result since December 2019 and exceeded the 5.8% increase that market analysts had expected. Retail sales rose 3.3% in September, for a 0.9% increase in Q3. Finally, the official urban surveyed unemployment rate edged lower in September to 5.4%, below a record of 6.5% hit in February during the peak of the Covid-19 pandemic in China. All data released confirmed that China’s return to economic dynamism at a faster pace than its peers, is the first step towards a global recovery.


The Brazilian Real edged up 0.70% against the USD on Monday after the United States and Brazil signed a new Protocol relating to Trade Rules and Transparency. This Protocol updates the 2011 Agreement on Trade and Economic Cooperation (ATEC) with three new annexes comprising state-of-the-art provisions on Customs Administration and Trade Facilitation, Good Regulatory Practices, and Anticorruption. The ATEC allows engagement on a wide range of issues related to trade and investment. The BRL also found support after encouraging data from China, which showed that China's GDP grew 4.9% in July-September from a year earlier. Also, the market sentiment was lifted by Economy Minister Paulo Guedes’ commitment regarding the year’s emergency budget, who guaranteed that public spending this year will not extend to next year. 


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