Daily Market Pulse

Uncertainty keeps markets cautious ahead of key NFP figures


The U.S. dollar index, which tracks the performance of the greenback against a basket of six major currencies, retraced 0.33% amid soaring energy prices and Facebook’s massive downtime. However, earlier on in today’s session, the dollar seems to gain some traction ahead of upcoming ISM services PMIs. Uncertainty around the U.S. debt ceiling and Chinese issues continues to linger, keeping investors cautious. Additionally, elevated natural gas prices and worries about inflation coming from other materials and shipping costs may risk the recovery and push borrowing costs higher. President Joe Biden warned that the U.S. could default on its debt within two weeks if Republicans do not cooperate on raising, or suspending, the debt ceiling. Democrats are still struggling to find a compromise between leftist and centrist factions regarding spending bills. Despite the ongoing noise around Evergande due to the conglomerate struggling to pay its debt debts, Fantasia Holdings Group Co, also missed a dollar bond payment, while rating agency Fitch downgraded a Beijing-based property developer Sinic, which added to the downbeat sentiment.  Coming up, U.S. Services Pmis are expected to show a slight slowdown in growth for September, which raises concerns that this indicator might compromise upcoming Nonfarm payrolls on Friday, which is the ultimate indicator that will drive the greenback this week amid tapering monetary policy expectations.  


The EUR recovered 0.29% after hitting the 2021 bottom during Friday’s trading session. However, the market sentiment remains cautious amid Evergrande’s contagion fears beginning to crystalize, and the U.S. debt ceiling finding the crossroad amid Republicans rejecting Biden’s approach of “all or nothing”. Moreover, the EUR remains subdued against the dollar amid policymakers’ divergence in approach to monetary policy in previous weeks. However, interestingly enough, comments from James Bullard from the Fed, and Luis de Guindos from the ECB, both flagged concerns over the price action and bottleneck effects over the supply chain, suggesting that fears of higher inflation could materialize in the upcoming months. However, Fed tapering gains more attention and underpins the greenback’s attention than chatters from the ECB, underpinning the common currency. Today, the EcoFin meeting is taking place among Eurozone members, while Markit PMIs Composite data released during the early hours of today exceeded expectations posting 56.2 vs 56.1, although it provided little or no support to the EUR. Later today, the Producer Price Index is expected at 13.5% annualized while ECB President Lagard will address the audience. 


The Pound Sterling recorded its third consecutive session of capitalizing gains against the dollar, closing 0.62% higher during yesterday’s trading session. The momentum also extended to the early hours of today. A modest dollar pullback allowed the pound to drive higher, although participants expect the upside potential to be capped. The global market sentiment remains cautious amid China’s property developer sector being under financial distress and the U.S.-related debt ceiling alongside tapering expectations. Additionally, the fuel crisis persists in the United Kingdom, which should keep bullish flows capped, while renewed tensions between Britain and France over post-Brexit fishing rights, might further collaborate to doom the Cable’s potential, at least for the time being. Data-wise, Markit Services PMIs posted upbeat results during the early hours of today’s trading session, releasing 55.4 vs 54.6 previously anticipated, which has underpinned Sterling to extend some recovery from its year-to-date bottom.  


The Japanese Yen sustained pressure over the greenback amid a broader dollar weakness and the market mood remaining risk-off spurred by U.S. political uncertainties and China-related issues, benefitting from its safe-haven appeal. Moreover, Tokyo Consumer Price Index went back to the inflation path, with results surprisingly on the upside posting a 0.3% price increase, unlike the -0.4% contraction the market consensus suggested during yesterday’s trading session. Today, Jibun Bank Services PMIs showed an increase from its previous release, growing from 42.9 to 47.9 in September. 


The Loonie advanced 0.42% against the dollar, amid bolstering crude oil prices underpinning the commodities linked currency. The West Texas Intermediate rallied 3.2% on Monday after the OPEC + members decided to stick to raising output only by USD 400,000 barrels per day. The front-month futures contract hit USD 78 per barrel, and it now changes hands at USD 77.53. The Canadian dollar has weakened during the last weeks despite soaring energy prices. The National Bank of Canada flagged that the correlation is unusual, and they see that Energy prices should either pull back, or the Loonie should strengthen.   


The Mexican Peso extends losses against the dollar, trading 0.32% lower against the dollar during the early hours of today’s session. However, Private sector economists consulted by Banxico raised its forecast for Mexico’s GDP growth in 2021 6.15%, up from 5.99% in August, and approaching Banxico’s own GDP forecast of 6.2% released last week after raising 25 bps on their benchmark rate. Inflation-wise, surveyed economists expect the year to close at 6.28%, higher than the 6.06% from August and still well above the Central Bank target of 3% +/- 1 range defined by policymakers.    


The Chinese Yuan remains off-market amid a week-long holiday which will conclude and resume trading activity by the end of the week. Fears of Evergrande’s contagion grew among market participants as Fantasia Holdings Co, another real estate developer, missed a dollar bond payment, while credit rating agency Fitch downgraded a Beijing-based property developer Sinic. The developments in the Real Estate Market in China are raising concerns that the Evergrande credit default might start to spread across China’s real estate market.    


The Brazilian Real erased previous gains during yesterday’s trading session and it currently tests a multi-month low. The latest trade balance figures showed that the Brazilian economy surplus shrank 15%, to USD 4.32 billion, due to an increase of 51.9% of imports which now represent 19.96 billion, while exports grew 33.3% annualized. Given the fast growth in imports, Brazilian authorities now forecast a trade surplus to close the year at USD 70.9 billion, down from previous projections of USD 105.3 billion. 


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