Daily Market Pulse

Disappointing growth figures compromise the Fed


The U.S. dollar index, a useful tool to measure the valuation of the dollar against a basket of six major currencies, sustained significant pressure during yesterday's trading session, falling 0.6% after the U.S. growth reports failed to impress market participants, raising concerns over the Fed’s next move. The U.S. Bureau of Economic Analysis released its first Gross Domestic Product estimate, revealing that the economy grew only by 2% annualized, below market expectations set at 2.7% and a previous result of 6.7% in Q2. The soft GDP data caused investors to reassess the Federal Reserve tapering timeline, considering October’s job report, which flagged concerns over the economy's ability to generate employment. However, major equity indexes in the U.S. registered impressive gains as stockholders sustain hopes that the Fed will continue to support the economy for longer than expected. On the other hand, U.S. treasury yields rose over 2% on Thursday, and continued to edge higher, capping losses on the greenback during the early hours of today’s session. As the greenback finds its footing in the session, Personal Consumer Expenditure, the Fed’s favourite gauge for inflation, is due to be released later today, alongside the University of Michigan Consumer Sentiment Index featured in the U.S. economic calendar.  


The EUR remained resilient against most of its peers, capitalizing 0.69% against the greenback and hitting its highest level in a month amid comments from European policymakers. Christine Lagarde, President of the European Central Bank (ECB), reiterated her opposition to the market pricing of an ECB rate hike, although she acknowledged that high inflation is likely to last longer than they initially anticipated (no shit). The common currency could build up renewed momentum amid today’s significant data flow, which could show robust economic activity in the Eurozone for Q3. Market participants remain cautious ahead of Gross Domestic Product, inflation data, and German growth figures during the course of the day.  


The British Pound took advantage of the dollar’s weakness during the course of Thursday's session, closing 0.41% higher amid the disappointing U.S. growth figures. However, renewed Brexit concerns capped the potential for Sterling to capitalize further gains, as the media reported that France seized a British trawler and fined another one amid an ongoing spat regarding post-Brexit fishing rights. Additionally, the U.K. Chancellor Rishi Sunak’s multi-billion pounds 2021 budget, and the hawkish stance of the Bank of England, seem to support the move in the currency. Today, market participants keep an eye open for BoE Consumer Credit, Mortgage Lending, and U.S. Personal Consumption Expenditure Price index to gauge market impetus.  


The Japanese Yen stepped forward against the greenback aided by the broader dollar weakness following disappointing growth figures which keep investors thoughtful about the Fed’s next move. Moreover, the Japanese Yen gained some traction after the Bank of Japan’s policy update, where policymakers maintained the status quo while keeping the cash rate low at -0.10% and trimmed this year's inflation forecast to 0%, from 0.6% previously anticipated. Coming up, market participants await Japan’s Unemployment rate and Consumer confidence data, while U.S. traders eye Personal Income and Spending reading to gauge market sentiment. 


The Loonie recorded mild gains during yesterday's trading session, as the commodities linked currency failed to capitalize further gains against the greenback amid crude oil prices progressively retreating. The West Texas Intermediate dropped as much as 2% on Thursday before the market erased heavy losses, thanks to some dip buying from risk-on traders. Today, market participants will stay tuned to Canadian Gross Domestic Product figures from August, which will be looked upon for fresh impetus. 


The Mexican Peso is looking to register its fifth consecutive trading session recording losses against the greenback, despite the disappointing reading and tumbling expectation from U.S. policymakers. Domestic drivers keep the Peso on the backfoot amid sustained inflation concerns and Banxico policymakers tightening monetary policy. Additionally, the Peso failed to gain traction, after foreign trade reports showed that the deficit reduced from USD 3.9 billion to USD 2.4 billion, although it remains way below the USD 4.4 surplus in September 2020.   


The Chinese Yuan edged marginally lower amid fears of Evergrande contagion, as even if the giant managed to avoid default again, many other firms are heading in the same way. One-third of China’s property developers will struggle to repay their debt obligation in the next 12 months, according to reports from credit rating agency Standard and Poors flagging that many of these companies could be heading toward bankruptcy. The financial contagion through the sector represents a serious risk for China, and the global economy as its investment and construction-driven model of growth begins to crack under the strain of mind-boggling debts.  


The Brazilian Real fell sharply during yesterday's trading session, consolidating 1.97% losses against the greenback after the Brazilian Central Bank announced its monetary policy decision. Brazil’s Central Bank announced an interest rate hike of 150 bps, setting the Selic rate at 7.75%, while policymakers flagged that similar hikes could come in upcoming meetings depending on how inflation readings behave. Moreover, job reports in Brazil showed that unemployment fell to 13.2%, 1.2 percentage points better than the reading from one year ago reported at 14.4%. However, despite the improved figures, Brazilian authorities remain concerned due to a decrease in income, as workers' average real income in the past quarter reduced 4.3%. 


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