Market Overview
After so many weeks of “will they, wont they？”, markets have taken one word “optimistic” from Democrat House Speaker Nancy Pelosi and run with it. We are risk-on once more. US Treasury yields are breaking higher, with the 10 year yield above 0.80% for the first time since June, whilst this is also accompanied by a “bear steepener” on the yield curve (which is bullish for risk). We have been here before though, and this move is clearly open to potential disappointment. Markets are taking fiscal stimulus as not “if”, but “when” and as just a matter of time now. The US dollar is coming under growing negative pressure, with the Dollar Index falling below 93.0 for the first time in a month. A move below 92.70 would now open a retest of the 91.75 September low (which would equate to EUR/USD testing 1.2010 once more). Equity markets have been fluctuating in recent sessions, with repeated bull failure moves, however, once more we see futures ticking higher. Can the move hold this time？ Away from the US, we had UK inflation rebounding all but in line with expectations today, with the core at +1.3% year on year and headline at +0.5%. A tenth of a percent miss on the consensus headline has not been enough to weigh sterling down today.
Wall Street closed with gains well off the session highs, with the S&P 500 +0.5% at 3443. However, with futures rebounding again today (E-mini S&Ps +0.6%) the bulls are having another go today. Asian markets have been mixed to slightly positive, with the Nikkei +0.3% and Shanghai Composite -0.3%. In Europe, the rise in US futures is helping FTSE futures +0.2% and DAX futures +0.3%. In forex, we see USD as the main casualty today, with a risk positive bias. AUD and NZD are rebounding after recent weakness and are outperforming. In commodities, the dollar weakness is pulling gold +0.6% higher and silver +1.7% higher. Oil has slipped back around half a percent and is again unable to sustain traction.
It is another rather light economic calendar today. Canadian inflation is at 1330BST which is expected to see year on year headline inflation increasing to +0.4% in September (from +0.1% in August). The EIA Crude Oil Inventories are at 1530BST and are expected to show a small drawdown of -0.2m barrels (after a +2.9m barrels build last week). We are also on the lookout for the Feds Beige Book which is released at 1900BST.
There are a number of central bank speakers listed today to keep an eye out for. ECB President Christine Lagarde speaks at 0830BST whilst the ECB‘s Chief Economist Philip Lane speaks at 0845BST. For the Fed speakers we have the FOMC’s Lael Brainard (voter, leans dovish) at 1350BST and the FOMCs Loretta Mester (voter, leans hawkish) at 1500BST.
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