Dollar demand steady as equities look heavy

27th October 2020 – Macro Daily

Market Update

Equities were nursing a mild recovery this morning, after the worst day on Wall Street since September. However, since the European cash open, sentiment has again taken a turn for the worse. US S&P 500 futures trade just 0.1% higher and the Stoxx 600 is now lower by around 0.3%. Crude oil markets cling onto mild gains, while DXY has recovered back to yesterday’s highs around 93.10. Turning to the major themes driving sentiment;

In terms of Covid-19 lockdowns in Europe, reports allege that France is considering the re-imposition of full lockdown restrictions as soon as Friday in Paris, Lyon and Marseille (this would mean a 7pm curfew and closure of all public transport and non-essential businesses). In terms of US fiscal stimulus talks, we still have no deal Pelosi said the Trump admin is refusing to accept the Democrats’ Covid-19 testing plan, but that she is still optimistic that a deal can be reached prior to the election. Meanwhile, Politico reported that, according to sources, some progress has been made, but not nearly enough to make a deal close. Meanwhile, ACB has been had her nomination to the Supreme Court confirmed in the Senate.

G10 FX

As noted, DXY is back at yesterday’s highs amid the recent further deterioration in risk appetite, with focus now on US Durable Goods Orders (Sep Prelim) and CB Consumer Confidence (Oct) in the early European afternoon. Technically speaking, last Monday’s low at 93.22 and the 50dma at 93.26 ought to provide resistance to the upside, whilst, DXY first major area of support is last week’s low of just below 92.50.

CAD (yesterday’s worst performer) has managed to reverse its fortunes and, in a market characterised by technical corrections this morning, is one of this morning’s outperformers, alongside NOK; USDCAD strongly rejected a test of its 21dma (currently at 1.3218) yesterday and has since managed to extend losses back below the 1.3200 handle and its 50dma (currently at 1.3198). Eyes on tomorrow’s BoC meeting.

Meanwhile, EUR, GBP, CHF and SEK have all seen selling vs USD in recent trade; EURUSD is currently testing its 50dma (at 1.1798) and the 1.1800 mark, with focus this morning on the results of the ECB’s latest lending survey. Meanwhile, GBPUSD has managed to hold above 1.3000 for now, with eyes on this morning’s CBI Distribute Trades survey for an early read on the performance of UK retailers in October.

Meanwhile, AUD, NZD and JPY are holding up better, and each still trade flat on the day vs the dollar. AUDUSD continues to trade within its 0.7100-0.7150 range of the last few days, while NZDUSD remains fairly subdued just below 0.6700, following last night’s NZ trade data that saw the country’s trade balance come in bang in line with expectations for a trade deficit of just over NZD 1bln (exports at NZD 4bln and imports at roughly NZ 5bln).

In terms of the latest from the RBA, Deputy Governor Debelle last night commented on the economy; he noted that the economic impact of the Victoria lockdown was not as bad as feared and not enough to bring national GDP growth into negative territory. He refused to comment on policy changes when pressed on next week’s meeting. Meanwhile, we had Bullock this morning speaking on financial stability (the Australian financial system is in a good position to support the economy, he said, though he sees pressure on bank profits ahead).

The Day Ahead

0825GMT/0425EDT, German Economy Minister Altmaier speaks at Franco-German business event.

0900GMT/0500EDT, ECB Lending Survey (Sep)

0900GMT/0500EDT, ECB’s Centeno speaks at a banking conference in Lisbon.

1100GMT/0700EDT, UK CBI Distributive Trades Survey (Oct)… An early snapshot into UK October retail activity. Lloyds Bank note that “while the reported sales balance improved to +11 in September, it is expected to ease back to around -1 in October… consistent with the decline in GfK consumer confidence reported last week, with the resurgence in coronavirus infections leading to renewed restrictions to tackle the pandemic and concerns about wider economic prospects.”

1200GMT/0800EDT, Riksbank Deputy Governor Flodén participates in virtual roundtable and discusses the state of the Swedish economy and how the central bank is addressing the crisis.

1200GMT/0800EDT, Spain’s economy minister Nadia Calvino to speak at conference in Madrid.

1230GMT/0830EDT, US Durable Goods Orders (Sep Prelim)… Durable goods orders grew at a sluggish rate of 0.5% in August, marking a sharp slowdown on the impressive M/M gains of 11.7% in July. Wells Fargo note that “the downshift for the month was partially owed to a 4.0% drop in motor vehicle orders, as pent-up demand for autos from the lockdown period looks to be showing signs of exhaustion.” Meanwhile, Core orders held up better, posting an increase of 1.8%. Wells Fargo think that “the better-than-expected outcome in core orders in August suggests that the recovery in capex is not coming to a grinding halt.” However, the bank adds that “considering the recent strength… some softening in growth in coming in months is likely.”

1400GMT/1000EDT, US CB Consumer Confidence (Oct)… CB Consumer Confidence surprised on the upside in September, reaching its highest levels since March of back above 100, although this is still substantially below pre-pandemic levels of closer to 120. SEB think that “slowing momentum in the labour market recovery is a downside risk going forward, as is the failure of policy makers on agreeing on a new stimulus package.”

1400GMT/1000EDT, Federal Reserve Bank of Richmond issues Survey of Manufacturing Activity and Survey of Service Sector Activity for October.

1430GMT/1030EDT, Federal Reserve Bank of Dallas issues Texas Service Sector Outlook Survey for October.

1445GMT/1045EDT, Bank of England Chief Economist Haldane due to appear in conversation in an online event.

1500GMT/1300EDT, ECB’s de Cos attends forum held by Expansion newspaper. 2030GMT/1630EDT, Weekly API Private Inventories

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