by Marc Chandler
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Overview: A consolidative tone is emerging in the foreign exchange market as the week's key events begin tomorrow: UK budget, eurozone and US Q3 GDP, and the US ADP private sector jobs estimate, and quarterly refunding. Outside of the Norwegian krone, which is up nearly 0.5%, the other G10 currencies are largely +/- 0.1%. The yen, Swiss franc, and antipodeans are trading with a slightly heavier bias. Among emerging market currencies, most from the Asia Pacific area, but the Thai baht are lower, while central European currencies are mostly firmer. The Mexican peso's 0.3% gain puts it on top of the emerging market currencies, after it settled softly yesterday.
Stocks are firmer and bonds are softer. Most of the large bourses in the Asia Pacific region, except China and Taiwan rose today. The MSCI Asia Pacific Index has fallen for the past four weeks. Europe's Stoxx 600 is up about 0.30%, its second day of gains. US index futures are firm. European benchmark 10-year yields are 2-4 bp higher. The 10-year US Treasury yield is up about two basis points to 4.30%. Between bills and coupons, the US Treasury will sell more than $200 bln of paper. The absorption may be less disruptive that the large settlement on Thursday. Gold is firm but continues to trade within the range set in the middle of last week when the record high was seen (~$2758.50). After gapping lower yesterday, December WTI is consolidating near the lows. So far, today's range is roughly $67.20-$68.10.
Asia Pacific
In 30 days, the lower house of Japan's Diet will vote for a new prime minister (November 26). In 1993, when the LDP last lost its majority, it took seven opposition parties coalesce and for a new government without the LDP for the first time since 1955. It was in office for less than a year. The opposition seems even more divided now. It does not seem prepared to take the reins of government. The most likely scenario seems to be a minority LDP-Komeito government that must secure some opposition support on individual policy issues. Ishiba, who became prime minister on October 1, will have to push back against calls from within the party to resign. He has said he does not intend to step down. Koizumi, who had competed for the LDP's leadership, and the led the party's election effort resigned. While Japan's monetary policy may not be impacted--no rate change is expected this week, the opposition parties wanted stronger fiscal support, which could make the supplemental budget, expected next month to be larger than previously anticipated, and could weigh on JGBs. Separately, Japan reported that the unemployment rate ticked down to 2.4% from 2.5% and job-to-applicant ratio edged up to 1.24 from 1.23. Australia reports Q3 CPI tomorrow. A 0.3% increase on the quarter would see the year-over-year rate ease to 2.9% (from 3.8%) and the underling measures should fall to an average of about 3.55% from 4.0% in Q2. The futures market has little chance of a cut at next week's meeting discounted, and a little less than a 30% chance of a cut in December. The first meeting in 2025 is mid-February. The futures market has discounted about a 65% chance of a cut. The first sub-3% quarterly CPI reading since Q1 21 will likely see the odds of cut early next year increase.
The dollar slipped to a marginal new session low near JPY152.40 in early North American turnover, stopping shy of the pre-weekend high, slightly below there. Unable to fill the opening gap, the dollar recovered, facilitated by a new high in the 10-year yield (~4.30%). The greenback reached almost JPY153.90 in late North American dealings. It is firm but within yesterday's range. The dollar is finding sellers in Europe ahead of JPY153.50. The Australian dollar continues to struggle. It was sold through the (61.8%) retracement objective of the August-September rally near $0.6575 before finding bids in early European turnover around $0.6560. The lower Bollinger Band is near $0.6550. There is little chart support ahead of $0.6500. Rising US rates and a falling yen may have weighed on the yuan. Yesterday, the dollar came nearly as close of CNH7.15 without trading it as it could but has pushed above it today for the first time since September 19. It reached about CNH7.1640A break, and near-term potential exists toward CNH7.18-CNH7.20. The PBOC set the dollar's reference rate at CNY7.1283 (CNY7.1307 yesterday).
Europe
The important week for European data really begins tomorrow with the eurozone Q3 GDP and the UK Autumn budget. The eurozone is expected to have grown by 0.2%, the same as in Q2, but the risks are on the downside. Germany, the largest economy in the bloc, likely contracted for the second consecutive quarter. The median forecast in Bloomberg's survey has the French economy growing by 0.3% after 0.2% growth in Q2. Italy is seen matching the second quarter growth of 0.2%, while Spain may have grown by 0.6% (0.8% in Q2). The UK's consumer credit and mortgage lending in September were little changed from August. The focus in on tomorrow's budget, which is expected to include tax hikes and spending increases. Chancellor Reeves is likely to project a declining deficit as a proportion of the public sector net financial liabilities.
The euro recovered from the low near $1.0780 set in the Asia Pacific session yesterday to record the session high in the North American morning slightly below $1.0830 and resistance seen ahead of $1.0840. It is trading quietly today, holding above $1.08 for the first time in six sessions (if sustained). The upside has also been limited...~$1.0825. A move above last week's high and the 200-day moving average (~$1.0870-75) would help lift the technical tone. Sterling traded on both sides of the pre-weekend range yesterday and managed to briefly poke above $1.30 for the first time in four sessions. It has held below there today, where there are options for GBP780 mln that expire. After it was sold to $1.2960 Asia Pacific, sterling recovered to $1.2990 in early European turnover before stalling.
America
The focus is on the US labor market, culminating in Friday's nonfarm payroll report. The September JOLTS report is released today and is expected to unwind some of September's roughly 4.25% increase (to 8.04 mln), the largest increase since last August. The 3, 6, and 12-month averages are trending lower, consistent with the gradual slowing of labor market. The US also reports September goods trade and inventory data, which will help economists fine-tune Q3 GDP forecasts. The official estimate is due tomorrow. US house prices and the Conference Board's consumer confidence survey are also due. While Canada has a light schedule today and tomorrow, Mexico reports Q3 GDP tomorrow. The median forecast in Bloomberg's survey is for a 0.7% quarter-over-quarter growth, which would see the year-over-year pace ease to 1.3% from 1.7%.
The US dollar traded above CAD1.39 yesterday for only the second time this year. It had breached it in Asia Pacific turnover yesterday against in the North American morning. It did not spur more greenback buying. The US dollar spent most of the session in a narrow range (CAD1.3880-CAD1.3900). Support may be found near CAD1.3850. It has come back better offered today. It held yesterday's high and has slipped through yesterday's low (~CAD1.3880). Initial support is seen near CAD1.3850 and then CAD1.3815. Yesterday, the dollar's range against the Mexican peso was recorded in North America. The high was recorded near MXN20.0940, slightly below last week high (~MXN20.9050). The low was recorded after Mexico reported a smaller than expected trade deficit (~$580 mln vs. median forecast in Bloomberg's survey for $2 bln). Both imports and exports fell but imports fell more than exports (-11.6% and -4.4%, respectively). Still, the dollar settled above MXN20.00 for only the second time this year (the first was on September 10). There has been no follow-through dollar buying. It is trading in a narrow range straddling the MXN20.00 level. The September high was near MXN20.1475 and the August high for the year was around MXN20.2180.
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