Daily Market Pulse

EU Council Summit and US jobless claims report


The U.S. dollar did not hold on to its gains on Wednesday, as the dollar index fell 0.11% against a basket of major currencies. The USD struggled amid downbeat comments from the U.S. Treasury Secretary Steven Mnuchin that a stimulus deal was unlikely before the Nov. 3 election. Today’s main focus will be the latest EU Council Summit, as well as the weekly US jobless claims report. Jobless data today is expected to confirm the U.S. labor market is deteriorating, with another 825,000 submissions expected. 


Aside from the Brexit saga, all investors are closely monitoring the fragile situation that European countries are facing in their fight against the spread of Covid-19. France, Portugal, Czech Republic, Italy, and Spain all tightened activity restriction rules. Elsewhere, Ireland announced that all household visits are to end and non-essential businesses in some areas to shut. The EU has resisted endorsing new national lockdowns amid the sharp renewed deterioration of economic activity, a stance that has been questioned as cases have risen across the Bloc. On Wednesday, the EUR closed flat against the USD.


After the GBP saw a sharp decrease of 1.0% against the USD on Tuesday, the British pound responded on Wednesday and managed to recover 0.6% of its previous losses. The last trading session was marked by a light trading volume with traders waiting for further Brexit developments at the EU two-day summit amid growing rumors about the end of Brexit talks. As mentioned, today’s main focus will be the latest EU Council Summit, where Brexit will be top of the agenda for leaders. Earlier this morning, according to Bloomberg, both sides now consider the end of October or the first few days of November as the real deadline for getting a deal done. It is expected that the GBP will trade directionless as it waits for a more definitive resolution on the UK’s future. 


The Japanese yen edged up 0.32% against the USD on Wednesday, with data showing Japanese industrial production in August increasing +1.0%, mainly helped by fiscal and monetary stimulus measures. The JPY also found support from global investors with an increasing inclination towards risk aversion, catalyzed by the uncertainty of a vaccine against Covid-19, the stalemate in the U.S stimulus, and the clash in the Brexit negotiations. Earlier this morning, Japan’s tertiary industry index rose 0.8% mom in August, which was better than the expectation of -0.3% mom. The continued improvement in the data is encouraging, as it reaffirms the gradual recovery in the domestic economy, since the index measures a range of economic activities, from retail to communications.


The Loonie extended declines to the second day, to fall 0.06%, despite rising oil prices. The West Texas Intermediate (WTI) crude oil futures advanced 2.09% to $41.04 per barrel after American Petroleum Institute Weekly Inventories Report showed a 5.4-million-barrel draw in crude oil. The CAD’s modest drop is being attributed to diminishing risk appetite for currencies beyond the safe-haven assets amid renewed questions about a Covid-19 vaccine and lack of an agreement on additional U.S. fiscal stimulus. It is a busy day on the economic front, with market participants waiting for Bank of Canada's Tim Lane speech, Existing Home Sales, and ADP Nonfarm Employment report throughout the day.


Yesterday, the MXN slightly rose 0.07% against the USD on the back of higher crude oil prices. The West Texas Intermediate (WTI) Crude benchmark traded up +2.09% after the American Petroleum Institute (API) reported on Wednesday a major draw in crude oil inventories of 5.421 million barrels for the week ending October 9. On the one hand, the investor risk aversion sentiment catalyzed by the political stagnation in Washington and the inability of the U.S Congress to launch a new financial aid package play in favor of strengthening the USD. On the other hand, there is an increasing likelihood that Donald Trump will be defeated by former Vice President Joe Biden in the U.S election according to recent polls and this seems to limit the Mexican peso's weakness, creating a relatively neutral environment for MXN. The manufacturing activity figure to be released tomorrow is widely awaited by market participants.


The CNY edged up 0.47% against the USD on Wednesday, recovering some lost ground. Earlier this morning, China's producer price index, which measures costs for goods at the factory gate, fell 2.1% year on year in September, the National Bureau of Statistics reported. This is compared with a 2.0% drop in August. The statistics bureau also said the consumer price index rose 1.7% from a year earlier in September, compared with a 2.4% rise in August. The figures seem to have no impact on the FX market. Although the prices of goods that a typical Chinese consumer buys are increasing at a modest rate, the number is well within the government’s expectations. Today, investors will assess official credit and money supply figures to hopefully confirm the sustained pace of economic recovery signaled by PMI surveys.


The Brazilian real closed 0.38% down against the USD for the second trading session in a row on Wednesday while the Brazilian shares Ibovespa closed up 0.84%, reaching 99,334 points. In the domestic agenda, the volume of services in Brazil advanced 2.9% in August over July, according to the Brazilian Institute of Geography and Statistics (IBGE). Despite engaging the third positive rate in a row, accruing a rise of 11.2% in the period, the sector has not yet managed to eliminate losses from the Covid-19 pandemic and the sector remains 9.8% lower than the level seen in February 2020, before the full impact of the Covid-19 pandemic. Apparently, in the absence of domestic political news, the FX market has already priced in investors’ concerns about the country’s public finances into the BRL and the real could continue to trade strongly as it is influenced by external headlines.


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