Daily Market Pulse

A defensive tone prevailed in the global market yesterday


The risk-averse market environment helped the greenback gather strength against its peers as a safe-haven. U.S shares ended the day with wider losses, where the S&P finished down 1.88%, the index’s biggest one-day decline since 23rd September, the Dow Jones fell 2.29%, and the NASDAQ declined 1.61%. Thus, the USD closed 0.29% up against a broad basket of major currencies on Monday. The USD also saw support after the Commerce Department on Monday said the sales of new U.S single-family homes unexpectedly fell in September after four straight monthly increases, however, the housing market is still very warm, supported by record-low mortgage rates. The data’s drop did not change expectations that the housing market will likely contribute to a sharp rebound in economic activity in 3Q. It is a busy day on the economic front, with market participants waiting for Durable Goods Orders, Consumer Confidence Index, and Richmond Fed Manufacturing Index.


The EUR traded 0.35% lower after a report showed German business morale for October came in slightly weaker than expected. German business sentiment fell in October after increasing for five months in a row, according to the Ifo Institute. The Ifo business climate index came in at 92.7 (vs. 92.9 forecasts) in October, compared with a downwardly revised 93.2 in September. Moreover, pressure on the euro also came from a drop by 7.6% in Europe's Stoxx 600 benchmark, its biggest one-day loss since March, which was driven by an outlook cut and subsequent stock plunge from heavyweight German software group SAP. Today, the market’s focus will be on Spain’s unemployment rate in Q3, as well as France’s jobless benefit claims and jobseekers total in September.


After a weekend full of negative Covid-19 headlines across Europe and the U.S, a rather defensive tone prevailed in the global market yesterday – stocks selling-off, bonds finding a bid, and the USD being in demand. Amid this background, the British pound finished 0.23% down against the greenback. The market will remain focused on the latest Covid-19 headlines, especially after rumors that UK Prime Minister Boris Johnson is facing a revolt from more than 50 members of his party who are demanding a clear route out of lockdown for northern parts of the country which handed him a resounding election victory last year. On the economic front, market participants will wait for the BRC Shop Price Index,  which measures price changes in the popular retail outlets in the UK.


The JPY closed -0.15% down against the USD, albeit a report showed that the index of coincident economic indicators in Japan registered the highest reading since March, while the index of leading economic indicators posted the highest level since February. The prospect of a downward revision of GDP and inflation forecast might continue to weigh on the JPY throughout the week. The Bank of Japan must confirm the new forecast on Thursday, but it is unlikely to announce additional easing.


The CAD lost ground against the USD, falling 0.47% on Monday, after closing the previous week modestly higher. The fall in crude oil weighed on the Loonie. West Texas Intermediate (WTI) declined sharply -1.68% daily, extending its losses to the third straight day as a result of both U.S demand oil contraction due to Covid-19 and winter season. At the same time, the USD remained strong across the board amid risk aversion. The Dow Jones fell 2.29%, and the Nasdaq declined 1.61%. Looking ahead, the pandemic and associated headlines will remain in focus today, then attention turns to the Bank of Canada policy meeting on Wednesday.


The Mexican peso edged down 0.06% against the USD on Monday after futures oil prices slid and economic data showed the country’s economy grew more slowly than expected. The monthly GDP proxy (IGAE) dropped by 9.4% (YoY) in August, from -9.9% in July. The reading came below the market expectation of -8.3%. It is expected the Mexican economy will slightly recover in the next two months, helped by manufacturing output and supported by the U.S recovery and a weaker MXN – which could boost the country’s exports. Today, market participants will focus on September’s trade balance, which is expected to improve in 2020 as exports recover faster than imports due to a better performance of domestic demand in the U.S. relative to Mexico and the weak MXN.


The CNY edged down 0.41% against the greenback in a volatile trading session on Monday. The 19th Central Committee of the Communist Party of China (CPC) started its fifth plenary session in Beijing yesterday, with a focus on the blueprint for the country's future. Headlines from CPC's fifth plenum will be the background in the FX market until Thursday and, unsurprisingly, it may influence the USD/CNY pair. Earlier this morning, the National Bureau of Statistics showed that profits of China's major industrial firms totaled 646.43 billion yuan (US$96.5 billion) in September, increasing by 10.1% (YoY) and 9% (MoM) over August. The strong numbers are due to the outperformance of the Chinese economy amid better control over Covid-19.


Positive data from the local credit market was unable to overshadow the more risk-averse environment abroad on Monday. The BRL closed down 0.10% against the USD despite the Brazilian Central Bank (BCB) showing that new non-earmarked loans expanded 3.2% (mom), while new earmarked loans climbed 8.9% (mom) in September. Overall delinquency slid to 2.4% and the average interest rate and spread also decreased. The credit data came out better than expected, suggesting that the Brazilian economy is recovering faster than expected. It is a quiet day on the data front, with investors waiting for the BCB Interest Rate Announcement tomorrow.


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