Daily Market Pulse

Federal Reserve will issue its Beige Book


The USD weakened as much as 0.41% against a broad basket of major currencies on Tuesday. The USD’s drop is due to the White House and Democrats in the U.S. Congress moved closer to an agreement on a new Covid-19 stimulus package, as President Donald Trump said he was willing to accept a relief bill despite opposition from his Republican colleagues. This comes a day after election polls showed that Joe Biden continues to lead by 9-11% in national polling against President Trump. Regarding economic data, the U.S. reported that Building Permits rose by 5.2% (MoM) in September while Housing Starts grew by 1.9%. The housing market is showing strength but further improvements could depend on whether U.S. lawmakers will be able to reach an agreement on a new round of stimulus. Later today, the Federal Reserve will issue its Beige Book - a collection of economic and business activity assessments within each of the central bank’s 12 regions. 


The EUR rallied to its highest level in a month while the dollar struck a softer tone. The euro rose substantially 0.47% against the USD for the third session in on row on Tuesday with market participants betting on Democrats’ victory and rising hopes of extra fiscal stimulus in the U.S economy. Today, investors are looking forward to watching ECB’s Christine Lagarde at an ECB Listens event. Additionally, ECB’s board members Luis de Guindos and Philip Lane are also due to speak.


On a choppy Tuesday, the GBP was flat against the USD, giving back gains made at the beginning of the trading session. There is no material news from Brexit talks. The UK has just published inflation data for September. UK’s Inflation Rate climbed to 0.5% (YoY), from 0.2% in August - fully in line with the market consensus. The CPI began rising more quickly in September after the discount meals scheme ended, pushing up restaurant and café prices. However, the softness of the Inflation Rate is likely to attract the Bank of England’s (BoE) attention to do more to support the economy. According to market participants, taking into consideration the low inflation the BoE could lunch another GBP 100bn or so of Quantitative Easing at the November meeting.


The JPY rose 0.07% against a weaker USD on Tuesday for the second trading session in a row as optimism that U.S lawmakers could reach an agreement on a pre-election weighed on the USD favoring its major peers. Markets continue to trade with uncertainty as the news flow of the major macro factors remains on edge. On the economic data front, Japanese exports dropped at a slower pace in September in a sign of easing trade damage from the Covid-19 pandemic, according to data from Japan's Finance Ministry. The report showed that Japanese exports last month declined by 4.9% compared to the same month of the previous year. Later today, Japan’s inflation rate is expected to be released by the Bank of Japan.


The Canadian dollar strengthened 0.52% versus the USD on Tuesday as the greenback lost ground against a broad basket of currencies. The CAD saw support on the back of positive trading sentiment after U.S House Speaker Nancy Pelosi’s praise of the Covid-19 relief package talks and hopes for an agreement this week. Aside from aid package discussions, increasing hopes of Joe Biden’s victory in the U.S presidential election due to Nov. 3, also favor the risk tone. Today’s focus will be on the key economic figures such as Core Consumer Price Index and Retail Sales. Forecasts suggest the headlines CPI (YoY) to grow by 0.4% versus 0.1% prior whereas Retail Sales may remain unchanged with 1.1% monthly growth.  


The Mexican peso closed higher 0.32% against the USD while the Mexican shares gained 1.27% on Tuesday as market participants remained optimistic that the United States could soon agree to a new economic stimulus package. Owing to a quiet week regarding economic data, investors will continue to monitor closely any new developments on the U.S stimulus package. Also, investors expect the release this week and the next one of the bulk of local third-quarter corporate results.


The Chinese yuan finished up 0.07% on Tuesday and surged to the strongest level against the USD registered in July 2018 as traders bet on Joe Biden’s victory and growing optimism about China’s economy. China kept its benchmark lending rate for corporate and household loans steady for the sixth straight month at its October fixing on Tuesday, encouraged by an extended recovery in its economy from the Covid-19 shock. The one-year loan prime rate (LPR) was kept unchanged at 3.85%, while the five-year LPR remained at 4.65% – as widely expected by the market. Earlier this morning, China’s central bank lifted its official yuan midpoint to a more than 27-month high, following gains in the spot market a day earlier.


In Brazil, investors and traders are still digesting the new Protocol relating to Trade and Economic Cooperation between the U.S. and Brazil signed by the two countries on Monday. The BRL closed flat against the greenback on Tuesday, holding previous gains, after the U.S. ambassador to Brazil, Todd Chapman, said at an event hosted by the U.S. Chamber of Commerce that the United States and Brazil intend to double bilateral trade in the next five years from around $100 billion currently. Today’s main focus will be the Foreign Exchange Flows, which will show the amount of capital flows that are directed to Brazil by foreign investors due to financial operations (investment in bonds, profit and dividend remittances, foreign direct investment), as well export/import operations.


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