Overnight Action Bullets
- Asia: Bank Indonesia and Philippines seen on hold; Australia employment
- Yields cheapen after weak auction, but drop in stocks limits losses
- Treasury’s record $27 bln 20-year sale tails to 1.422%, very poor sale
- Fed’s Williams worries about the expiration of fiscal aid
- U.S. housing starts improved 4.9% to 1.530 mln in Oct from 1.459 mln Sep
- U.S. MBA mortgage applications slid -0.3% in the November 13 week
- Canada’s CPI accelerated to a 0.7% y/y pace in Oct from 0.5% in Sep
- Dollar retaining softening bias, hit 20-mth low vs Kiwi dollar
- UK inflation higher than expected at 0.7% y/y in Oct, core at 1.5%
- Eurozone Oct HICP inflation confirmed at -0.3% y/y – as expected
Asia Market Outlook (November 19)
Wall Street was mixed through the session. Shares were initially buoyed by Pfizer’s 95% effective vaccine claim, though risk appetite was kept in check by the surge in Covid cases, hospitalizations, and deaths. The better housing starts data had minimal impact. Core European bourses closed moderately higher with the DAX and CAC 40 both up 0.52% and the FTSE advancing 0.31. Treasuries were quiet as investor sentiment vacillated between the good news on vaccines and depressing news on the virus, though a very poor 20-year auction saw yields climb to the day’s highs late in the afternoon. The 20-year cheapened to 1.425% for a small loss, while the 10-year note rose 2.6 bps to 0.883%. Shorter note rates were fractionally higher as well, leaving the 2-year at 0.175%. Expectations for additional Fed QE will help limit the rise in longer rates. EGBs continued to lose ground, though overall it was a quiet day. The virus and worries that lockdowns are unlikely to come to a quick end are expected to help to keep a lid on yields. For today, the German 10-year lifted 0.6 bp to -0.56% and the Gilt was up 1.3 bp to 0.334%, with Brexit optimism adding pressure to U.K. bond markets.
Today’s regional calendar has Indonesia’s Bank Indonesia meeting, where rates are seen on hold with the 7-day reverse repo rate expected unchanged at 4.00%. The Philippines central bank also should hold fire with rates not likely to move from the current 2.25% level. Australia’s employment report is expected to show a -20.0k drop in October after the -29.1k decline in September. The unemployment rate is seen rising to 7.0% from 6.9%.
In Europe, Eurozone September current account figures are due. The U.K. has November CBI industrial trends – orders. Spain releases September trade data, while Switzerland has October trade data.
In the U.S., the calendar is busy. The November Philly Fed index is forecast to fall back to 20.0 from 32.3. October existing home sales should hold steady at a 6.540 mln clip. Weekly jobless claims are due, with initial claims expected to dip to 700k from 709k, and continuing claims seen falling to 6.350 mln from 6.786 mln. October leading indicators are penciled in at up 0.6% from 0.7% previously. The Treasury will announce 2-, 5-, and 7-year notes, along with reopened 2-year notes FRN and will auction $12.0 bln of reopened 10-year TIPS. The earnings calendar features reports from Intuit, NetEase, Workday, and Ross Stores.
N.Y. FX Summary (November 18)
N.Y. FX trade was very quiet on Wednesday, with major Dollar pairings held to narrow ranges. The USD attempted to rally early on, though quickly turned modestly lower. The DXY topped at 92.45, later easing to a 92.27 low. Incoming U.S. data saw October housing starts rise more than forecast, though the outcome had little market impact. More positive Covid vaccine news helped Wall Street, as PZizer said its entry was 95% effective. In the meantime, rising cases in the U.S. as we enter the holiday season will likely keep enthusiasm hemmed in. EUR-USD traded from early lows of 1.1851 to 1.0877, while USD-JPY fell from 104.00 to 103.65. USD-CAD topped at 1.3099, later falling back to 1.3034 lows. GBP-USD advanced to 1.3312 from early lows of 1.3263.
EUR-USD put in an inside day on Wednesday, ranging in N.Y. between 1.1851 and 1.1877. The USD continues to trade on a softer footing, with the DXY printing four-consecutive lower daily lows. Sharply higher Covid cases in the U.S. raise the possibility of a fizzling of the nascent economic recovery, a USD-negative, while the Fed lower for longer policy stance may hurt the Dollar as well in the coming months. As Fed Chair Powell noted yesterday, near term risks are to the downside due to the spike in the virus, hospitalizations, and deaths. EUR-USD’s next upside target is the November 9 high of 1.1920.
Cable printed a one-week high of 1.3312 in N.Y. morning trade, up from `.3263 at the open, and overnight lows of 1.3246. The Brexit endgame drama is now reaching a climax. There is a lot of noise coming from officials and politicians, yet little response in the pound, with participants uncommitted, waiting on concrete developments. Neither the EU nor UK has blinked yet in trade talks. We expect that some sort of accord will be reached, and one potentially broader than is currently being anticipated in markets. This would spark a rally in the Pound should it materialize.
USD-JPY headed from 104.00 in early trade to 103.65, before recovering over 103.80. Yen trade was relatively subdued, as was the case with most major Dollar pairings. Inflows into Japanese equities has been noted of late, which has seen the Nikkei 225 print 29-year highs this week, boosting Yen demand from foreign investors. General USD sentiment appears to be souring, as the Fed’s ZIRP and asset
purchases could keep pressure on the Greenback in the coming months, especially should the economy recover more quickly due to the Covid vaccine rollout. The next USD-JPY support level comes at the November 9 low of 103.19.
USD-CAD shrugged off the warmer Canada CPI figures early in the session, rallying from near 1.3880 to 1.3099 highs, since pulling back to 1.3072 lows. The CAD had firmed up in concert with modest oil price gains, with WTI holding near the $42.00 level. FX trade overall remains on the quiet side, with narrow ranges the rule so far this morning, and more of the same can be expected if current risk levels and oil prices continue on their current paths.