Weekly market update 24 October – Dollar extended its decline, BOJ, ECB and BoC monetary policy meetings in focus this week
Weekly market update 24 October – Dollar extended its decline, BOJ, ECB, and BoC monetary policy meetings in focus this week
1. The U.S. dollar dipped during the week, closing around 93.7 on Friday, as investors digested Fed Chair Jerome Powell’s speech which indicated that the central bank is ready to begin tapering. Powell also noted that the central bank’s cautious approach was not designed for the current framework, and warned that upside risks on supply chain, inflation, and wages are likely to last longer than previously anticipated. Meanwhile, the S&P 500, NASDAQ, and Dow Jones managed to book gains before the week closed. US 10Y Treasury Yield dropped to 1.64% before the week closed on Friday from a 5-month high of near 1.7%. On the data front, recent PMI figures showed the service sector saw accelerated growth while manufacturing output increased the least in 15 months. Moving forward, U.S. crude oil inventories, annualized estimated Q3 GDP data, and unemployment claims will be in focus.
2. Pound traded around $1.38 during the third week of October, remaining close to a recent one-month peak. The FTSE 100 closed 0.2% up on Friday, recovering from a slight decline on Thursday, as concerns over Evergrande’s crisis diminished. UK 10-year bond yields held at 1.2%, near their recent two-year high which stands at 1.22%, as investors anticipate consecutive rate hikes from the Bank of England in November and December. With the recent CPI and PPI data standing close to August’s nine-year high and a decade’s high respectively, Governor Andrew Bailey also highlighted the need for policymakers to take actions to curb the risks of higher inflation, exacerbated by a surge in energy prices following the global energy crunch. Meanwhile, the Euro held above $1.16 against the greenback, supported by a weaker Dollar. Eurozone annual inflation rate stands at 3.4%, the highest rate since before the global financial crisis in September 2008 and well above ECB’s target of 2%, raising doubts on the policymakers’ narrative that recent price spikes are temporary. On the data front, the Eurozone trade surplus narrowed sharply to EUR 4.8 billion in August 2021 and industrial output declined by 1.6% from a month earlier in August. IHS Markit Eurozone Service PMI was also down, to 54.7 in October. ECB President Lagarde has said over the weekend that the bloc’s central bank will continue aiding the Euro Area economy and the ECB is only seen hiking rates by 10 basis points by the end of 2022.
3. The Aussie steadied around 0.7470 against the US Dollar, supported by rising commodity prices due to strong consumer demand and supply bottlenecks. Australia’s 10-year yield grew to above 1.8% on Friday, setting the stage for a 9th straight weekly gain as traders continued to bet on earlier rate hikes although the RBA repeatedly said it has no plans to raise interest rates until 2024. The Canadian dollar echoed the same sentiment, strengthening against the Dollar, as investors anticipate a hawkish monetary policy stance from the Bank of Canada with the inflation rate standing at nearly a two-decade high. Crude oil also reached a 7-year high, trading at about $84 per barrel on Friday. Gold extended its rally on the back of a weaker dollar after Fed Chair Powell mentioned that it is still premature to raise rates with intentions that they are ready to use the necessary tools if inflation expectations persistently rise.
