Markets
The US tech-heavy Nasdaq led the correction lower on Wall Street, ceding 2% after coming inches of a new record high on Monday. Losses for the Dow Jones (-0.5%) and S&P 500 (1.15%) were more contained, with the focus on lofty AI valuations. The Eurostoxx 50 lost up to 1.8% intraday, but managed to limit losses to 0.34% eventually. This morning in Asia, South Korea and Taiwan are underperforming giving larger exposure to the sector. Fragile risk sentiment in absence of other drivers helped the US trade-weighted dollar to a fifth consecutive trading day gain. DXY exceeded the 100-mark to test the August high at 100.26. The 200d moving average at 100.35 is also nearby. A break higher would have significant technical importance with 101.55 (38% retracement on YtD decline and 101.98 (May high) being the next targets. EUR/USD closed below the 1.15-handle for the first time since the final trading day of July. EUR/USD 1.1392 (Aug low) – 1.1334 (200d mov avg) – 1.1240 (38% retracement on YtD move higher) is the marching order. Core bond gains were all in all modest given the risk sell-off with German and US yields respectively losing around 1.5 bps and 2.5 bps across the curve. General risk sentiment remains today’s overall market driver even if we get some rare US eco data with the October ADP employment report and the US services ISM.
Sterling faced another setback with EUR/GBP closing above 0.88 for the first time since May 2023. GBP/USD is currently hovering just above the 1.30-mark (lowest since April). UK Chancellor Reeves reaffirmed her commitment to the fiscal rules (tax receipts covering day-to-day spending by the end of the decade) and like PM Starmer last week didn’t rule out broad-based tax hikes in the November 26 budget that go against the Labour party’s election manifesto. The Office for Budget Responsibility’s expected 0.3 percentage point downgrade to productivity forecasts means Reeves is looking for at least £35bn to restore her slim £9.9bn fiscal buffer and probably £50bn to create some additional breathing room. That number is floated by the UK’s National Institute of Economic and Social Research (NIESR) this morning. The think-thank said that the trajectory of UK public debt is becoming unsustainable and calls for running primary surpluses, something the UK failed to do since 2001-2002.
News & Views
New Zealand labour market conditions eased further in the third quarter. The unemployment rate rose from 5.2% to 5.3%, a level not seen since 2016. After four quarters of negative quarterly job growth, employment growth stabilized in Q3. Still it was weaker than expected and 0.6% lower compared to the same period last year. The participation rate eased further from 70.5 to 70.3%, the lowest level since 2020. Wage inflation (salary and wage rates including overtime, LCI) over all sectors rose a modest 0.4% Q/Q and 2.1% Y/Y (from0.6% Q/Q in Q2). Ongoing soft labour market data are reinforcing the case for additional easing by the Reserve Bank of New Zealand at its next meeting scheduled for November 26. A 25 bps rate cut is now fully discounted. NZD dollar this morning touched a ST low at NZD/USD 0.5631. Due to a divergent monetary policy, the NZD/AUD cross rate this morning also briefly dropped below the September 2022 low (0.8703), touching levels not seen since 2013.
The Bank of Japan published the Minutes of the September 19 monetary policy meeting. The BoJ left its policy rate unchanged at 0.50%, but at that meeting two members proposed to raise the policy rate by 25 bps to 0.75%, which was rejected by the majority. Some members indicated that the conditions for gradually raising rates are falling into place especially considering the domestic economic developments in Japan. Other members still indicated that in considering to costs and benefits of waiting, the MPC should take into consideration the long experience of deflation in the country. A number of them also wanted to avoid surprising the market with a rate hike at that time. As the internal debate within the BoJ is moving to a further step at the December 19 meeting, the market currently discounts a 50-50 chance of a rate hike of that happening, with the focus still being on further sustained (real) wage growth.
 and S&P 500 (1.15%) were more contained, with the focus on lofty AI valuations. The Eurostoxx 50 lost up to 1.8% intraday, but managed to limit losses to 0.34% eventually. This morning in Asia, South Korea and Taiwan are underperforming giving larger exposure to the sector. Fragile risk sentiment in absence of other drivers helped the US trade-weighted dollar to a fifth consecutive trading day gain.){kind=link}