Daily Market Pulse

Senate increase debt ceiling ahead of all-important NFPs


The U.S. dollar index, a benchmark used to assess the performance of the greenback against a basket of six major currencies, remains resilient amid rising Treasury Yields hitting 1.6%. However, the broader risk-on mood underpinned riskier assets weighing on the demand for dollars. Market participants stay focused on upcoming job reports to gauge the market sentiment and digesting tapering expectations from U.S. policymakers. Yesterday, the U.S. Department of Labor reported initial jobless claims at 326,000, below the market consensus of 350,000. The Non-farm Payrolls expectations have been built off the back of ADP employment change which posted upbeat results, and participants expect the print to increase to 488,000 new jobs created in September, following the disappointing readings released in August at 235,000. Moreover, the risk-on mood continues to feed on equity markets, with S&P capitalizing 0.83% during yesterday’s session, bolstered by the Consumer Discretionary sector, while Dow Jones edged 1% higher alongside Nasdaq. After the market closed, the Senate passed the bill to raise the debt ceiling by USD 408 billion through November, easing down the fear of the U.S. debt default and government shutdown ahead of the all-important non-farm payrolls.  


The EUR failed to consolidate gains against a softer dollar, closing relatively unchanged during yesterday’s trading session. The command currency still trades dangerously close to the year-to-date low, which was extended earlier this week. German indicators repealed that industrial production contracted by 4% in August, which removed fundamental support from the EUR to take advantage of the broader risk-on mood. The European Central Bank’s September meeting accounts offered no new details regarding upcoming adjustment to the emergency stimulus program. 


The Pound Sterling remains under pressure amid Brexit woes and upcoming U.S. Non-farm payrolls release later today. Fresh Brexit updates and pre-NFP market anxiety keep the mood cautious with limited potential for cable. Amid the U.K.-France tussle over fishing rights, French MP Juan-Pierre Pont said that the French government should consider scrapping the Touquet Treasury which allows the U.K. to set up border checks on French soil. Moreover, European Commission Vice President Maros Sefcovic showed eagerness for very far-reaching proposals over Northern Ireland’s protocol edit, although it is unlikely the deadlock will be overcome soon.  


The Japanese Yen remains subdued against the greenback amid its safe-haven appeal weighing over the broader risk-on sentiment. Additionally, rising U.S. treasury yields hitting 1.6%, the highest since June, underpin the greenback ahead of key U.S. job reports. However, morale indicators in Japan revealed that the current situation and outlook have improved significantly since the latest shift in leadership in the country. Eco Watchers Survey shows Outlook raised to 56.6 in September, exceeding expectations at 45.8 and previous August release at 43.7. On the other hand, the current situation is also perceived better by Japanese investors, as the reading posted 42.1 vs 21.1 previously anticipated. 


The Loonie edged 0.3% higher against the greenback amid a broader dollar weakness arising from a restore in sentiment and rebound in crude oil prices. Currently, the West Texas Intermediate is off its two-day highs of USD 79.61 per barrel, although it remains firm on fundamental factors favoring bullish traders as market participants eye USD 80 per barrel. Moreover, the Ivey PMI rose unexpectedly in September to 70.4 from 66.0 on Friday, while market participants expect critical economic data from the U.S. and Canada amid the release of job reports on both fronts.   


The Mexican Peso stepped back 0.41% during yesterday’s trading session amid rising Treasury yields and concerns around Mexico’s electricity reform. Moody’s, the international credit rating agency, warned that the electricity reform sent to congress by President Andres Manuel Lopez Obrador (AMLO) is “credit negative”, slamming the proposal as the initiative reduces the operating transparency, deters private investment, disincentivize renewable generation, and is likely to increase the overall costs of energy. The agency believes that the President Party Morena will struggle to get this approved without a solid majority in the house. 


The Chinese market is back with little traction during the early hours of today’s session, as the Chinese Yuan remains virtually unchanged against the greenback. The return of China failed to improve market sentiment due to market participants being particularly anxious about upcoming non-farm payrolls, which will be a fundamental driver for U.S. policymakers to go ahead with tapering in November. However, U.S.-China chatter keeps building commerce optimism in global markets. 


The Brazilian real continued to extend losses during yesterday’s trading session, recording its 4th consecutive session retracing against the dollar. Moreover, two right-wing political parties in Brazil announced on Wednesday that they will join forces to become the country’s largest political party, with plans to field an alternative to President Jair Bolsonaro in next years’ elections. Additionally, vehicle production slumped in September as the latest report revealed a 21.3% contraction compared to 1 year earlier, suggesting that the output in the country is decreasing significantly. 


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