The major assets were all over the charts on Monday despite a lack of top-tier data releases.
Crude oil found support from escalating tensions in the Middle East while gold prices turned lower after hitting fresh record highs.
How did your other closely watched assets trade? We have the deets!
Headlines:
- As expected, PBOC cut its 1-year and 5-year loan prime rates by 25bps in October
- RBA Deputy Governor expressed his surprise at Australia’s employment growth strength and said the labor participation rate is “strikingly high”
- Germany producer price index for September: -0.5% m/m (-0.2% expected, 0.2% previous)
- U.S. Conference Board leading index for September: -0.5% m/m (-0.3% expected, -0.3% previous)
- BOE member Megan Greene thinks a “cautious, gradual approach” to cutting rates is appropriate
- FOMC non-voting member Lorie Logan favors a “gradual” easing of policy rate amid “meaningful uncertainties” in economic outlook
- FOMC non-voting member Neel Kashkari sees “modest cuts over the next several quarters” unless there’s “real evidence” of a rapidly weakening labor market
- FOMC voting member Jeffrey Schmid prefers to “avoid outsized moves” and “lowering rates in a gradual fashion” to give time to pinpoint the neutral rate
- FOMC voting member Mary Daly expects the Fed to continue cutting interest rates as inflation heads for the 2% target
- New Zealand trade deficit narrowed from 2.3B NZD to 2.1B NZD in September as exports (5.2%) outpaced imports (0.9%)
Broad Market Price Action:
Dollar Index, Gold, S&P 500, Oil, U.S. 10-yr Yield, Bitcoin Overlay Chart by TradingView
The People’s Bank of China (PBOC) kicked off Monday on a positive note by cutting its 1-year and 5-year loan prime rates as expected. PBOC Governor Pan Gongsheng also dropped a hint that the bank could lower its reserve requirement ratio (RRR) by 0.2% to 0.5% by year’s end, while the government flagged new measures to support the tech sector.
Still, geopolitical tensions lingered. Over the weekend, Israel launched more strikes in Beirut and southern Lebanon, and Hezbollah reportedly fired more rockets into Israel. Equities also saw some profit-taking, likely driven by rising bond yields and caution ahead of upcoming corporate earnings and economic data.
In the U.S., the prospect of a more gradual Fed easing pushed 10-year Treasury yields up to 4.20%. Gold, which had hit a fresh record high of $2,740 on risk-off sentiment and lower rate expectations, pulled back to $2,720. Meanwhile, WTI crude touched $70.30 before easing to $69.80.
U.S. stocks had a mixed close, with the Dow and S&P 500 slipping after several record-setting days, while the Nasdaq found support from Nvidia’s surge to a new all-time high. Bitcoin, after getting rejected at $69,500, dropped on fears of contagion from other risk assets and hit a low of $66,900 before recovering slightly to close around $67,500.
FX Market Behavior: U.S. Dollar vs. Majors:
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar was king of pips on Monday, thanks to some profit-taking in riskier assets, a bit of risk-off vibes, and expectations that the Fed would take its time easing up on rates.
At first, the Greenback had a mixed start, losing some ground to the yen when Tokyo opened and giving up a few pips to the Aussie and Kiwi after China’s rate cut. But by the time Europe opened, the dollar turned things around, probably helped by rising U.S. bond yields and tensions in the Middle East that had traders looking for safe havens.
The dollar got another boost when the U.S. session kicked in, with stocks seeing some profit-taking and 10-year yields moving higher. It didn’t hurt that most Fed officials—both voters and non-voters—backed the idea of taking things slow with rate cuts.
By the end of the day, the dollar finished stronger across the board, with the biggest gains against the Aussie, Kiwi, and yen. USD/CHF and USD/CAD didn’t move as much, but still ended higher.
Upcoming Potential Catalysts on the Economic Calendar:
- BRICS Summit ongoing
- U.K. public borrowing at 6:00 am GMT
- BOE Gov. Bailey to give a speech at 1:25 pm GMT
- BOE member Greene to give a speech at 1:45 pm GMT
- FOMC member Harker to give a speech at 2:00 pm GMT
- U.S. Richmond manufacturing index at 2:00 pm GMT
- ECB President Lagarde to give a speech at 7:15 pm GMT
- BOE member Breeden to give a speech at 7:15 pm GMT
With not a lot of top-tier economic reports on tap, central bankers will likely take center stage again today. Keep your eyes peeled for speeches by BOE Gov. Bailey and ECB head honcho Lagarde, as well as a parade of speeches by several BOE members for clues on the pace of easing in the European region.
Meanwhile, headlines from the BRICS summit could influence overall market risk sentiment. Make sure you’re glued to the tube if you’re trading risk assets this week!
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