As market sentiment has looked to stabilise in recent sessions, the US dollar bulls have also looked to regain their footing as Treasury yields have looked to push higher again. With levels of fear reducing for traders, the (brief) dash back for US Treasuries has dissipated and concentration has now turned again to the fundamentals. That meant the FOMC minutes last night were key yesterday. With the committee “generally” anticipating further gradual increases but also admitting also that there may need to be a situation where going beyond the normalisation of rates if necessary. This shows the FOMC’s concern of building inflationary forces (even if the hard data so far shows a bit of a spluttering start on that one). Treasury yields pulled higher again. Having unwound to 3.12% last week, the 10 year yield is back above 3.20% again. Traders will certainly be eyeing the 3.26% recent peak as a line in the sand. If this level is broken then pairs such as EUR/USD and USD/JPY will likely be pulling in decisive dollar favour on rate differentials. Turning now to Brexit, there is a reason why this is not featuring more strongly today, and that is the latest fudge in the negotiations. Not so long ago, the October EU Summit was supposed to be where something concrete was agreed/announced. But, nothing again. Brexit negotiations are to continue, with the potential for the transition period to be extended by a year to 2021, but for now the UK remains in limbo. Apparently Mrs May was more relaxed this time and perhaps this suggests better prospects of finding an agreement. However, quite how this can be done, with the issue of the Northern Ireland border seemingly impossible to solve, remains somewhat of a quandary still. Just as in the wake of the September summit disappointment, sterling is back under pressure again, even if the selling pressure is a touch more restrained.
Wall Street clawed back earlier losses to leave the S&P 500 almost flat on the day -1 tick at 2809, but with futures around half a percent lower, Asian markets have dropped into the close (Nikkei -0.8%, China’s Shanghai Composite -2.2%). In Europe, indices are mixed to slightly lower but will do well to prevent selling pressure from building today. In forex, there is a mixed outlook on the majors, with the euro (Italian yields higher) and sterling (Brexit woes) under pressure, but also the yen is rebounding. The commodities show a corrective slip on gold and silver, whilst oil is consolidating after sharp losses on the back of the EIA inventory crude oil build yesterday.
The UK consumer may be able to take the emphasis off Brexit briefly this morning, with UK Retail Sales at 0930BST which on an adjusted ex-fuel basis is expected to fall by -0.4% in September (after a strong couple of months over the summer) which would actually mean the year on year data would show an uptick to +3.7% (from +3.5% in August). The Philly Fed Business Index is at 1330BST and is expected to drop to +20.0 (from +22.9) whilst the US Weekly Jobless Claims at 1330BST are expected to drop to 212,000 (from 214,000). There will also be a focus on the FOMC’s Randall Quarles (permanent voter, centrist leans hawk) at 1715BST.
Chart of the Day – NZD/USD
The Kiwi has reached an important crossroads once more. The recovery over the past week and a half has seen the market rally once more within what is now a four month downtrend channel. Each time the momentum indicators have unwound from bearish near term configuration this has been used as a chance to sell. What is also interesting is that old support levels and pivots have consistently been used as another chance to sell. The latest rally may have made it through $0.6500/$0.6540 but the overhead barrier of the falling channel is now coming into