Investor sentiment changed for the better after Friday’s (end of month?) risk-off repositioning even as plenty of event risk is still ahead later this week with the outcome of the US elections, the Fed policy decision and key US data to be released. However, the risk-rebound (or should we call it pre-election reflation trade) again was uneven across markets. European equities opened rather hesitant, but soon captured a better bid, closing with solid gains of up to 2.0%. (Cyclical) European equities are assumed to profit from a Biden win/stimulus package further out. The intra-day rebound of the oil price was a positive for risk-sentiment too. US equities also closed in positive territory with the Dow (1.60%) and the S&P (1.23%) outperforming the Nasdaq (0.42%). The US manufacturing ISM printed at a strong 59.3 with important subseries (orders, prices paid and employment) all improving further, indicating that this (production) part of the economy is quite resilient to the second corona wave, at least for now. Still the report had limited impact on global trading. After a remarkable rise in yields on Friday (despite the risk-off at that time) US yields yesterday didn’t profit from the risk rally. The US yield curve even showed a (corrective?) bull flattening with yields declining up to 4.3 bp (30-y). German bunds underperformed Treasuries, but still declined slightly with the 10-y German yield again turning to the key -0.64% support area. The dollar opened well bid, but couldn’t extend gains. The TW dollar (DXY) closed the session little changed (94.13). The EUR/USD price pattern was unconvincing, but the pair stayed north of the 1.1612 support and closed at 1.1641. EUR/GBP also traded basically sideways in the lower half of the 0.90 big figure, awaiting more concrete news from the brexit negotiations.
Asian equities this morning are joining the risk rally in from Europe and WS yesterday. Japan is closed for a holiday. The yuan is trading rather stable near 6.69 even as the Chinese currency might show quite some sharp moves related to the outcome of the US election, with a Biden win considered to be yuan supportive. The dollar is losing modest ground, with EUR/USD returning to the mid 1.16 area. The Aussie dollar lost only modest ground even as the RBA cut is policy rate and the rate for the 3-y to 0.1% and stepped up QE bond buying. AUD/USD is trading in the 0.7040 area down form 0.7050/60 earlier this morning.
Today, the eco calendar is thin with only the US Sept factory orders scheduled for release. So, the countdown the US election outcome will continue. Futures point to further equity gains at the start of trading in Europe and the US. We expect mostly technical, guarded trading on interest rate and FX markets. The US 10-y yield has settled north of the 0.80% barrier, but for sustained further gains a confirmation of a democratic victory (President and Senate) is probably needed. The 10-y German yield is still struggling not the fall below the key -0.64% level. EUR/USD this morning, is cautiously returning north in the 1.16 big figure. We continue to monitor the key 1.1612 support area. EUR/GBP is holding a tight sideways range, close to mostly slightly above 0.90. Positive headlines on the Brexit talks might at least partially be counterbalanced by expectations for further BoE easing (meeting on Thursday).
The Australian central bank cut policy rates and its 3-year bond yield target with 15 bps to 0.1%. It also announced a new bond buying programme worth A$100bn stretching maturities of around 5 to 10 years over the next 6 months. The new measures are announced even as the short term economic horizon was slightly revised upwardly. The RBA aims to underpin the fragile recovery as the coronavirus resurges in many parts of the world.
Turkish inflation rose slightly less than anticipated, from 11.75% to 11.89% in October (2.13% m/m). Core inflation creeped higher to 11.48%. Shortly after the release, the Turkish central bank raised its lira swap rate via which it provides some of its lira funding to lenders from 11.75% to 13.25% in another stealth tightening move that fails to stop the decline in the lira (EUR/TRY at 9.85 currently).