Daily Market Pulse

Market confidence restores as the greenback retreats


Markets remain cool, with the U.S. dollar index closing 0.38% lower and continuing to extend losses during early hours of Tuesday’s trading session. Equity markets opened decisively higher and registered impressive gains on yesterday's trading session as sign that the risk off wave has now passed. Despite the quiet market activity, geopolitical tension brew in Asia, as North Korea fired its first missile over Japan since 2017, ratcheting up tensions over Kim Jong Un’s nuclear program and prompting a public safety warning by the government in Tokyo. Risk flows are the main driver across currencies and market participants will remain wary on further developments from North Korea’s missile launch. On the data front, we expect later on the day JOLTS Jobs openings, Factory Orders and Durable Goods Orders to provide an overview of the economic activity in the country alongside S&P ISM Manufacturing PMI readings. Moreover, from early hours of the American session Fed officials are set to take the stage, as speeches from Williams, Mester and Daly (FOMC members) are scheduled throughout the course of the day.


The Euro progressively advances against the greenback, edging 0.7% higher on Tuesday morning amid a broader cool off in global markets undermining the dollar. Moreover, Unemployment change results showed a slower than expected figure, releasing 17.7k vs 40.4k expected. However, inflation figures continued to edge higher as Producer Price Index figures showed a 5% monthly growth vs 4% previously released, while yearly estimates posted 43.3% considerably higher than its previous reading at 37.9%. Inflation reports suggest that the European Central Bank will sustain the current tightening course to curb inflationary pressures caused by sustained supply chain disruptions.


Prime Minister Liz Truss and the British Pound made a U-turn from the recent drop driven by the unfunded tax-cuts proposed by her government. The pound recovered 1.34% on Monday and remain in positive territory on early hours of Tuesday. Kwasi Kwarteng, the Chancellor of the United Kingdom brought forward plans to balance the books and scrapping the policy to abolish the top rate of income tax announced a couple of weeks ago. The spokesman vowed fiscal responsibility and announced that its medium-term fiscal plan will be accompanied by an independent assessment from the office of Budget Responsibility. The chancellor promised there would be no more distractions as he acknowledged the fallout from his mini-budget. Simultaneously the gilt market seems to have stabilized as the BoE cut off its GBP 65 billion intervention.


The Japanese Yen remains relatively unchanged against the dollar as the pair keeps oscillating within a tight range which could break with strong momentum either way. Geopolitical tensions in the region will keep market participants cautious following the North Korea missile launch over Japan earlier today which triggered a public safety warning from the government in Tokyo. The Japanese Prime Minister Fumio Kishida condemned the launch and South Korean President Yoon Suk-Yeol warned of an “Resolute response”. The United States also condemned the missile launch as dangerous and reckless, although no damages were reported. On the data front, Tokyo CPI reading remained stable releasing 2.8%, 0.1% lower than its previous release.


The Loonie kicked off the Q4 in the positive territory (+1.48%) after bullish crude oil prices underpin commodity-backed currencies, including the CAD. Overall, oil rose amid speculation OPEC+ will cut supply, given that many OPEC+ countries can´t meet their quotas at present so that would mean an actual reduction of about 500k b/d. In other news, the Bloomberg Nanos Canadian Confidence Index, a measure of sentiment based on weekly polling, declined for a fifth straight week to touch some of the weakest levels ever outside of the last two economic crises. The data suggests that there is a doubt about whether Canadian consumer spending can continue to drive the country´s economic growth.


Yesterday, the Mexican peso strengthened by 0.54% against the greenback as disappointing US manufacturing data spurred bets for less hawkish rate hikes by the Fed. Overall, market participants turned on the mood for riskier assets amid that Fed might slow down the pace of rate hikes. In addition, emerging markets benefited from the latest headlines in the UK, which had gone back to a controversial tax-cutting plan that had shaken the global markets. Looking ahead, Mexico is set to release weekly foreign reserves numbers today, while traders already await the release of September's inflation figures later this week.


China markets are closed for the Golden Week holiday until October 10.


After seeing a fierce dispute in the first round, market players welcomed the results as they understand that both candidates, President Bolsonaro and Luiz Inácio Lula da Silva are likely to adopt a more pro-market agenda in order to woo moderate voters ahead of the second-round vote. As a result, the Brazilian Real closed 4.59% up against the greenback. Apart from the domestic political environment, the strong increase in future oil prices in the international market also contributed to the positive performance of the commodity-linked BRL. Today, traders will digest the fresh Sao Paulo consumer prices for September, which rose 0.12% on the month with housing prices adding the most (+0.44% m/m).


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