The global trading dynamics was quite similar to yesterday. There were hardly any data with market moving potential in EMU or in the US. Chinese markets reopened after the Golden Week holidays and joined the risk rally on other markets. Joe Biden holding a significant lead in the polls on the November 3 US presidential election apparently raises investors’ hope on an easing of tensions between the US and China. The yuan jumped sharply higher at the opening this morning (6.70 area currently). The strength of the local currency apparently also received the blessing of the PBOC. The Biden lead and speculation that the Democratic party might also gain a majority in the Senate, further supports market hopes on big additional fiscal support. Further support is expected whatever the outcome of the election, but an unequivocal Democratic approach will likely yield widest support to revive the economy. US equities are extending their gradual, but protracted rise again, opening 0.25%/0.50% higher. European equities also gain about 0.5%. Bonds also continue the trading patterns as developed earlier this week. Yields don’t rise further anymore after the US 10-y yield hit important resistance near 0.80% on Tuesday/Wednesday. US auctions of bonds with longer maturities (Wednesday and yesterday) went relatively smooth, removing some of the upside pressure on yields. At least for now, a gradual further rise in inflation expectations is balanced by a modest decline in real yield (currently -0.96%). Bunds again slightly outperform Treasuries with the German yields declining between 0.5 bp (2-y) and 1.7 bp (30-y). 10-y intra-EMU spreads versus Germany also continue grinding tighter (1/2 bp) even as they have already reached absolute low levels.
The overall context of low/declining volatility was also visible on the FX markets. The dollar is setting another step backward. The TW dollar (DXY) dropped to the lowest levels of the week (currently around 93.25). EUR/USD cleared the 1.1780 area and currently trades north of 1.18, extending the gradual uptrend since end September. The context of declining vols also caused broad-based gains among smaller, less liquid currencies. CE currencies again had a good run (EUR/PLN 4.4650; EUR/HUF 356.50; EUR/CZK 27.10). The Canadian dollar was already in good shape earlier this week supported by the global risk-on and higher oil prices. The rally today accelerated after a strong labour market report (cf infra). CAD/USD dropped below the 1.3150 level. Sterling hardly profited from the global risk-on trade. EUR/GBP again regained the 0.91 barrier. UK august growth and production date disappointed. However, this probably wasn’t the reason for the sterling underperformance. Investors remain cautious to add directional exposure in the UK currency as Brexit negotiations are nearing the October 15 political deadline.
Spanish PM Sanchez is about to declare the state of emergency in Madrid, television station laSexta reported today. The news comes after the Spanish High Court for the Madrid region struck down government curbs on entering and leaving the capital as the coronavirus situation is spiraling out of control. Country-wide, the Spanish positivity rate surpassed 10%, double the critical 5% that the WHO considers as having the pandemic contained.
Canadian employment grew a stronger-than-expected 378.2k (vs. 150k anticipated) in August. Of the 3 million job losses at the peak of the pandemic, some 2.3m have been recouped by now. Unemployment fell from 10.2% to 9% while the participation rate rose from 64.6% to 65%. Both are still high/low in a longer term perspective though. The Canadian dollar extends this week’s rally to test important resistance near USD/CAD 1.315.