The Euro
The "risk-off" mood in European equities continues for a fourth day, capping yesterday's rally in EUR/USD. Much of the newsflow out of Europe remains familiar and worrying. Germany and Italy recorded another record day of new COVID-19 cases.
The Pound
GBP has held onto the bulk of yesterday's gains prompted by confirmation that Brexit talks would resume. The talks are expected to continue through the weekend, But what little time remains as month-end approaches will dictate whether the EU olive branches translate into an agreement.
But a large contingent on the street continues to view GBP's risks as asymmetric to the downside post these Brexit talks. Still, yesterday's bullish GBP response shows that an agreement is not fully baked into the Brexit Party Cake. So Sterling bears are likely sitting tight waiting to fade the Brexit bounce.
PBoC intervention
As most Yuan watchers had expected, China FX regulators instituted currency smoothing measures issuing about $10 bn in new Qualified Domestic Institutional Investor (QDII) quotas in several batches. The annual total would represent a 10% expansion of the program. The agency issued $3.36 bn of new quotas last month, the first in a year and a half. This move encourages domestic institutional investors to put more money into foreign capital markets, as the Yuan appreciates strongly against the US dollar amid accelerating post-pandemic inflows.
The CNH lifted 200 pips + on the news as this is the second such push back in as many weeks, and while it's not known if the PBoC institutes a three strikes your out policy rule, but history tells us not to take on China's Central Bank when they start rolling out sequentially stronger policy hints.
Of course, the weaker Yuan is exerting its usual degree of gravitational pull across Asia FX and G-10.
Surprise Hold By Turkey Central Bank
Turkey's central bank surprises by leaving the 1w benchmark repo rate unchanged -- the consensus was for a hike of 175bp.
The Turkey Central Bank decision (surprise hold) makes sense as the late liquidity window (LLW) is the relevant rate benchmark for markets as it is the limiting factor and the effective upper bound. While hiking the entire rates corridor would have sent a powerful and more orthodox message to markets – so this will come as a mild disappointment vs. some loftier expectations. So far, not much buying into the Blue Wave trade as investors appear content to sit tight ahead of tomorrow's final debate.
Oil trying to bounce back
Crude prices were weaker most of the day in Asia, echoing a down session for the market across asset classes, which most are pointing to the elusive US stimulus aid deal as the cause.
Brent started down in London by has lifted in line with broader assets as the long term speculators started bottom picking for anticipating and eventual reflation impulse once that stimulus does get rolled out, pre of post-elections.
Adding to the gloom were comments from Libya's deputy prime minister claiming production would be up to 550kbd by the end of the month and 1Mbd by the end of the year.
Finally, while the DoE data showed a decline in crude stocks and a big draw in the distillate, the market took fright from the build on gasoline warehouses and the implied weak demand at the pump underpinning the number.
Given the low probability of a pre-election stimulus, oil bulls could be deferring to the medium-term outlook where supply/demand balance remains positive with the OPEC+ production agreement more than offsetting expected production upside from Libya and others in 2020/21.
Still, oil is likely to remain range-bound until there is a sustainable recovery in demand. Because of this, the oil will continue to be stiffly influenced by newsflow about coronavirus, progress on a vaccine, and the US presidential vote.
Romney Backs Another Candidate
In what looks like series of nails getting hammer into the President election coffin, Mitt Romney, Republican senator for Utah and the Republican party's 2012 presidential candidate, on Wednesday said he didn't vote for Trump in 2020. He didn't reveal who he did vote for, but he's the latest in a long line of Republicans that have refused to support Trump.
In recent days, several generals that worked with the president in the first few years of his administration have also launched scathing attacks. These criticisms make it more difficult for Trump to attract voters beyond his core base.