- Tech stock rout fuels safe-haven demand for bonds
- CAD/US yield spreads narrow sharply.
- US dollar under pressure.
USDCAD open (6:00 am): 1.4204, overnight range 1.4195-1.4241, close 1.4238, WTI $94.50, Gold $4,156.80.
The Canadian dollar is at the top of its October range after the greenback gave back the swagger it picked up from Wednesday’s CPI report.
The 10-year Treasury yield did much of the heavy lifting, tumbling to 5.073% from 5.31% on Tuesday and squeezing CAD/US yield spreads hard. The 10-year spread tightened to -120.4 this morning from -136.1 yesterday, while the 2-year spread closed in to -149.4 from -161.8.
WTI spent the night trapped in a $93.59-$95.38 band and is parked near $95.00, apparently torn over whether Tehran or Washington deserves more fear. Vessels around the Strait of Hormuz continue to take hits, even as Trump insists the waterway is entirely under his control.
Markets around the world are still nursing a hangover from yesterday’s hotter-than-expected US inflation numbers and a tech selloff that sent investors scrambling into the safety of bonds. The US 10-year Treasury yield briefly topped 5.32% after the CPI release, then collapsed to 5.073% by early New York trading.
The Fed offered little in the way of comfort. Chicago Fed President Austan Goolsbee labelled the inflation print unacceptable, and Richmond Fed President Tom Barkin said a hike this month is on the table. Futures traders are less excitable, with the CME FedWatch tool putting the probability of an October 28 rate hike at 30%.
Asian stocks delivered a split decision. Hong Kong’s Hang Seng lost 1.01% and Australia’s ASX 200 slipped 0.40%, while Japan’s Topix bucked the trend with a 1.31% gain.
As of 7:25 am, the UK FTSE 100 is up 0.59% and the French CAC-40 has added 0.18%, while the German DAX is off 0.47%. S&P 500 futures are 0.31% lower, the US 10-year Treasury yield sits at 5.073%, the DXY is at 102.02 and gold (XAUUSD) is trading at $4,155.87.
EURUSD marched higher in a 1.1151-1.1241 range, grinding up through Asia and into the European session as US yields backed off and the dollar handed back its post-CPI bounce. Still, France’s ongoing budget headaches could put a lid on further gains. Eurozone industrial production dropped 1.1% y/y in August.
GBPUSD recovered in a 1.3184-1.3276 band, with cable erasing all of yesterday’s losses after August growth came in stronger than expected. The economy expanded 0.1% in August against forecasts for a 0.1% contraction, nudging up the odds of a November rate hike. Industrial production rose 0.8% and manufacturing climbed 1.2%, both comfortably beating forecasts for modest declines.
USDJPY drifted lower in a 157.59-158.36 range as retreating Treasury yields and safe-haven buying gave the yen a lift, while persistent intervention chatter limited gains. August industrial production slumped 2.4% m/m, deeper than the 1.7% decline expected. Machinery orders, capacity utilization and industrial production barely registered with the market.
AUDUSD took a beating in a 0.6927-0.6981 range, sliding to its lows after Australia lost 39,300 jobs in September when economists had pencilled in a 20,000 gain. The jobless rate stayed at a five-year high of 4.7%, against expectations of 4.6%, and a 73,700 collapse in part-time positions overwhelmed a 34,400 rise in full-time work. The numbers all but kill the argument for another RBA hike.
Todays’ Canadian data includes: August manufacturing sales (forecast 1.1%, previous -0.4%) and wholesale sales (forecast -1.5%, previous 0.3%).
The US data includes: September PPI (forecast 0.5% m/m, 5.3% y/y), core PPI (forecast 0.3% m/m, 4.4% y/y), retail sales (forecast 0.3% after 1.2%), initial jobless claims (forecast 200K), the Empire State index (forecast 10.3) and the Philly Fed survey (forecast 28.4).
