The overextended U.S. dollar long positions remain under pressure on Monday morning, mostly in the wake of the slightly disappointing nonfarm payroll (NFP) print last Friday. Historically, the first North American session after the jobs release is usually the quietest day of the month, which should give any battle-scared investor enough time to recalibrate. The low-octane start appears to be more risk averse ahead of the Veterans Day holiday tomorrow. Global markets are likely to be calm as a result of U.S. investors taking today off to bridge a four-day weekend.
After the NFP was released, yields of U.S. 10’sfinished the week near lows (+2.29%) that provided good enough reason for investors to lock in profits on USD longs. Despite the dollar squeeze lower, the overall market trend remains intact — bullish on the mighty buck — with many sideliners preferring to fade U.S. short-term weakness. However, be aware this market has the potential for further immediate risks, particularly for one or two currencies like USD/JPY to sub-¥113.00, and the Aussie dollar to $0.8765 mostly on the back of lower U.S. yields. Gold remains the better bid this morning climbing above $1,171 after rising by its biggest margin since mid-June last Friday.
U.S. Labor Market, Retail Sales Data on Tap
From a U.S. perspective it’s a relatively light week on the fundamental side, but there are some key consumer numbers releases. U.S. retail sales have been relatively volatile, mostly on the back of auto sales and gas prices. Employment growth has been moderate at best stateside, and this week’s JOLTS (jobs openings and labor turnover survey) will indicate whether there is an improvement in job openings. Despite the sluggish recovery (albeit the best of a bad lot), U.S. consumer sentiment has somewhat improved mostly due to stable labor market conditions. Whether the trend continues will be seen in this coming week’s early reading on November consumer sentiment. Finally, initial jobless claims have been trending downward and this week’s number could potentially be another market eye opener.
U.K. Inflation Report Under the Microscope
Next Wednesday is dominated by the U.K. Average earning reports, a jobless claimant count, and the Bank of England’s (BoE) Governor Mark Carney will hold a press conference, along with other Monetary Policy Committee members, to discuss the bank’s Quarterly Inflation Report. The report will be closely studied for hints of when the BoE will increase interest rates. U.S. fixed-income traders are looking to price in a hike by the end of the first half of 2015.
For the rest of Europe, flash third-quarter gross domestic product data will be reported, and analysts will be looking to see if the eurozone grew at all or whether the European Central Bank President, Mario Draghi, will have a sleepless early December before the next rate-setting meet. October consumer price data will also be looked at for signs of a pickup in prices with “disinflation, then deflation, then ruination,” being the cycle that Draghi and company are trying to break.
Chinese Economic Data in Focus
The world’s second-largest economy released its own spate of economic data for October over the weekend, starting with consumer-price (CPI) and producer-price indexes (PPI) and finishing with trade figures. The global disinflationary theme remains in focus; China inflation is soft with CPI matching five-year lows while PPI registers another month of decline. Later in the week, investors get a heads-up on retail sales and industrial production.
On Sunday, China released October’s CPI, the +1.6% matched the lowest level in four years as food component rose +2.5% and non-food up +1.2%. The year-to-date headline was unchanged from prior month just above the +2% level. The PPI decline of -2.2% is the 32nd consecutive decline, and not surprisingly, it’s been attributed to global oil price drop and overcapacity.
The trade figures released marked a beat on the surplus and exports side, but growth in the imports component was lower-than-expected. A report stated that “trade surplus was driven by the contraction in growth of imports, domestic demand remains weak, and de-stocking this year has led to decline in consumption of cement, coal, iron ore and other raw materials.” With softer data like this the market has be regionally concerned. Nevertheless, at the Asia-Pacific Economic Cooperation summit, Chinese President Xi Jinping said while the economy “shifted to a slower, more stable rate of growth, economic risks are not that scary.” Xi remained optimistic that “for Asia Pacific and the world at large, China’s development will generate huge opportunities and benefits, and hold lasting and infinite promise.”
China continues to seek out stronger trade ties with the west and North America. A new Sino-Canadian currency hub will be based in Toronto. The hub is expected to foster better trade between the CAD and the CNY, bypassing the dollar payment system. It makes Canada the first country in the Americas to have a deal to trade in the renminbi.
Catalonia’s Scottish Wish
The Scottish independence vote was a boon for capital market volume and volatility. However, the Catalonian independence question in Spain carries much less weight. The European peripheral markets are trading better after Sunday’s citizens’ consultation (referendum) in Catalonia, which showed over +80% of the voters favoring independence. The participation rate was +36.3% or +2.2M individuals (plenty remaining for a swing vote). Regardless of yesterday’s results, expectations still appear to lean toward voters shying away from independence in “any” official vote, especially when the Spanish court blocked a formal referendum on independence.
On the radar this Week
1. The Central Bank of Russia has ditched the trading band in an effort to promote more two-way RUB trade action.
2. The 18-member single currency again is expected to be strangled by a plethora of option deals coming off this week: Monday €2.22B at €1.25 and €3.2B at €1.2450, Wednesday €1B at €1.2500 and Thursday €2.6B at €1.2500.
3. Pressure is mounting on EUR/CHF ahead of a November 30 gold referendum. The cross has fallen to a fresh 26-month low of €1.2024 this morning. A decision for the Swiss National Bank to increase gold reserves will temporarily see the psychological central bank-defended €1.2000 be broken.