- Crude: The rally in crude prices, spurred by comments from Putin has bolstered energy sector stocks, giving Europe and US stock markets a lift
- NZ: Assistant Governor McDermott’s comments caused the probability of a November RBNZ rate cut to jump 10pc
- USA: As Clinton's lead widens and polls firm in her favor watch for MXN and CAD to continue to benefit
- Germany ZEW: Brexit, plus outlook on Deutsche Bank is likely to have weighed on the German sentiment, increasing the likelihood of a disappointing read
- Brexit: Though recent flash crash is alarming, we believe that it is a good opportunity for traders to reload their long positions
Despite the recovery in risk appetite in the stock markets, in FX, USD buyers dominated the Asian session. Oil rose to a 15-month high after Russian President Putin, supported the growing expectation of an output cut by OPEC and non-OPEC nations, by suggesting that he is willing to cooperate with a broad production cut, while Saudi Arabia’s energy minister indicated that he could see oil prices at $60 in a few months. The rally in crude prices supported energy sector stocks, giving Europe and US stock markets a boost.
The NZD and AUD fell -0.97% and -0.66% respectively against the USD. In New Zealand, assistant governor McDermott reiterated the RBNZ policy that additional monetary easing would be required in order to revive inflation expectations. The comments caused IOS implied probabilities to jump to 76% from 66% that the central bank will cut interest rates in November. NZDUSD dropped to 0.7060 from 0.7142 with expectations of a bearish extension to 0.6952. In Australia, home loans fell -3.0% m/m against -1.5% expectations.
In Japan, the Balance of Payments increased to JPY 1975bn above expectations of JPY 1570bn. The Nikkei rose 0.98%, while the Shanghai composite climbed 0.39% yet the Hang Seng fell -1.62%.
In the USA, Presidential election polls continue to indicate that the Trump slide is not complete. The latest polls suggest that Hillary Clinton lead is now back to the double digits. Following this weekend's release of a lewd audio of Trump, Congressman Paul Ryan the highest ranking republican in government is the latest republican to withdraw his support from Trump. Elsewhere, Warrant Buffer refuted Trump claims that he had used tax loopholes to avoid paying income taxes. Buffet refuted these claims, stating that he has paid income tax “every year since 1944.” As Clinton's lead widens and polls firm in her favor watch for MXN and CAD to continue to benefit.
Another light day for scheduled economic release should allow risk taking to remains dominate. In the European session, markets will be focused on the German ZEW survey as investors look for signs of the strength of the German growth and fallout from the Brexit vote. In addition, the news and speculation over the outlook on Deutsche Bank is likely to have weighed on the German sentiment, increasing the likelihood of a disappointing read. The market expected ZEW current situation or increase to 55.55 in October from 55, while expectations should rise to 4 from 0.5. Elsewhere, EU finance ministers will gather for a second and final day in Luxembourg.
Yann Quelenn, market analyst: “The bright side of the devalued pound: A few days after the flash crash which sent the GPBUSD below 1.2000 before bouncing back, it is alarming that no concrete cause has been found. Many are blaming algos but what would be the rationale to justify such a sell-off during the Asian session? Others claim that a fat finger order was behind the brutal move.
Even though such issues are concerning, especially as they bring the FX market's microstructure into question, it does not change our fundamental view on the pound. We believe that it is a good opportunity for traders to reload their long positions. The Brexit consequences have been largely over-exaggerated and the nightmare scenario that was promised in the wake of the Brexit referendum has not played out as dramatically as expected.
A Brexit is definitely not the end of the world. Moreover, the devalued pound will see exports gain momentum within the next few month. Also, the UK is currently enjoying its lowest use price growth in three years. However, we remain cautious as a more-than-expected hawkish Fed could send the cable lower. This has not happened in recent decades but the Fed’s quest for credibility could surprise markets.”