Daily Market Pulse

U.S Durable Goods Orders scheduled for today


870,000 more Americans filed for first-time unemployment benefits last week ending on September 19, the Labor Department announced Thursday. This number represents an increase of 4,000 from the previous week’s revised level (866,000). Although the figure came in somewhat worse than expected, it did not have an impact on USD performance, where it ended up flat against most of its major pairs. Moreover, the weekly report also highlights that job creation, after the peak of the current Covid-19 crisis, is growing slowly, raising further concerns about the shape of the U.S economic recovery. Today, traders pay attention to the volume of base orders for durable goods in August, which is expected to show an increment of 1.3%. This data is important for many other macroeconomic indicators, in particular, for the GDP. Therefore, any number below market expectation could move the USD down.


The EUR ended Thursday with modest gains against the greenback. The U.S jobless claims data was weaker than expected and U.S equities bouncing off daily lows put pressure on the USD. The German Ifo business climate indicator, which is a widely observed early indicator for economic development in the country, was released at 93.4 in September, compared with 92.5 last month. This was the highest reading since February and illustrates that the German economy is stabilizing despite the increase in the number of Covid-19 infections. In France, the business confidence index jumped from 90 in August to 92 in September, reaching its highest level since February. Both figures contrasted with HIS Markit surveys released yesterday, which showed the manufacturing and services activity slowed in September.


Despite unveiling an emergency jobs scheme, UK Chancellor Rishi Sunak’s speech late on Thursday brought a dismal sentiment to the market, where he also warned that Britain faces a winter of rising unemployment. This emergency jobs scheme is a new multibillion-pound spending package that will cover three-quarters of normal salaries for six months starting next November. Against this backdrop, the GBP retained early gains. The Sterling also found support with UK retail sales volumes growing at the fastest rate in September since April 2019, according to the September CBI Distributive Trades Survey.  The survey showed that grocery sales jumped to 11% this month from -6% in August. Later today, the Bank of England will publish the Q3 Quarterly Bulletin, which includes commentary on market developments and monetary policy operations.


The Services Producer Price Index (PPI) rose 1% from a year before in August, according to Bank of Japan earlier this morning. The PPI, which measures the cost of services offered to corporate clients, came to 103.8, providing some support to the JPY during the last trading session of this week. The national newspaper, The Yomiuri Shimbun, in its morning edition wrote that the government is planning to cut corporate tax for small and medium enterprises. The tax cut plan is under consideration and it is hoped it will boost Mergers & Acquisitions in the country. According to the most recent Reuters poll, Japan’s factory output is likely to rise for a third straight month in August but at a slower pace. The trade ministry will release the official factory output next Wednesday (Sep, 30).


The CAD strengthened +0.11% against the greenback on Thursday after Employment Minister Carla Qualthrough said that Ottawa was proposing legislation that would make the new unemployment aid equal to emergency income support. That means eligible individuals will now receive CAD 500 per week. Also, the CAD gained extra support from higher oil prices. The West Texas Intermediate (WTI) crude oil futures settled nearly 1% higher at $40.31 a barrel as a drop in U.S. crude inventories offset fears that a new wave of coronavirus cases across Europe could hurt the outlook for oil demand. The CAD at this current level bounced back from an earlier seven-week low.


As widely expected, after five consecutive rate cuts of 0.5% and general economic improvement, Mexico’s central bank (Banxico) trimmed the benchmark rate by 0.25 base points to 4,25%, yesterday. Banxico’s statement also signaled that the recent inflation increase is not a big concern (with headline inflation now at 4.1% in the first half of September and core inflation at 4.0%) and that the central bank remains more concerned about the economic outlook. Thus, this will allow Banxico to continue easing in the last two meetings of the year. The focus turns to the Global Economic Activity Indicator (IGAE) later today, where figures will reveal the pace of the recovery starting Q3 (prior -13.2%).


CNY gained +0.09% after the country was added to a global bond benchmark. The major index provider FTSE Russell said yesterday it will add Chinese government bonds to its flagship World Government Bond Index from October next year. Not only the inclusion is likely to push China’s markets further into the mainstream for international investors when China’s bond market is already the world’s second-largest, but it also gives important support to the CNY. According to Goldman Sachs, once included, the Chinese bonds have the potential to bring inflows of about US$140 billion. Moreover, the CNY will be the fourth largest currency in the index, after the USD, EUR, and JPY.


The Brazilian real weakened 1.38% and remains under pressure. The Central Bank of Brazil reviewed its 2020 GDP forecast to minus 5.0% from minus 6.4%, as the Covid-19 crisis entered a less acute phase in the third quarter. The main fear for investors is centered around the federal budget for public spending, as there are doubts about how the federal government will fund the social programs without putting more stress on public accounts. The government leader in the Chamber of Deputies, Ricardo Barros, said on Wednesday that the government will maintain the spending ceiling and fiscal rigor and that there will be no proposals to increase the tax burden. Later today, the central bank is going to release the Brazil Federal Tax Revenue figures, a higher than expected (forecast is R$110.20B) reading could be taken as bullish for the BRL.


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