The US Dollar started the week again stronger, recovering most of the losses of the last two days of the previous week. Emerging market currencies traded mixed in the context of the stronger dollar, with for example the Russian Ruble (RUB) and the Turkish Lira (TRY) modestly strengthened, while the Chinese Yuan (CNH) declined to its lowest level in almost two months, after the Chinese Central Bank (PBOC) reduced the minimum reserve ratio of the country’s banks.
Equity future indices started the day mixed, with some losses in the US after the bond market reopened from the Columbus Day Holiday, while European and also Chinese saw a modest upside. Brazilian equity indices such as the Bovespa traded significantly higher, close to the all-time high of this year, after the right-conservative candidate Bolsanaro won the first round of the presidential elections with an unexpected high lead over his opponents. Markets see a good chance that he might also win the next round against his leftist opponent Haddad.
Values of most significant digital currencies saw a modest upside since the start of the week, while Bitcoin remains stable above $6,500. According to some reports, the reduced volatility at a 17-month low, was also blamed for reduced trading volumes. The cryptocurrency exchange Coinfloor from the United Kingdom, which was launched in 2013 thus had to announce that it would reduce its staff.
On Thursday the NFIB Small Business Optimism index and the Redbook Store Sales statistic will be released in the US. In Canada the Housing Starts level for September will be published. In Mexico the Consumer Price Index (CPI) for September will be released and later in the Asian-Pacific trading session in Japan Core Machinery Orders numbers will be published.
The strength of the US dollar and the heightening friction between Italy’s populist government and the European Commission and especially its President Juncker led to further declines in the EUR/USD pair, which reached its lowest level since the end of August. Italy’s leadership maintains that the anti-austerity measures will grow stronger across Europe, while markets see this development not without skepticism, as the 10 Year Italian government bond yield reached 3.6% for the first time since 2014.
On Tuesday morning the German Trade Balance for August was released, indicating a higher surplus than previously (€15.9 bn. in July) at €18.3 bn. for August.
There are some few data releases planned for Tuesday, such as the NFIB Small Business Optimism index, the Redbook Store Sales statistic.
Gold
Gold prices again fell below $1,200 on Monday, with a further rapid decline by 10 points within just one hour seen during midday. Gold again faced pressure from the strong dollar, as markets firmly believe now that another rate hike can be expected for December. Also higher yields on high-grade sovereign bonds added pressure on the safe-haven metal. In theory it is assumed that a strong dollar makes gold less affordable in non-dollar economies and thus reduces demand, while higher yields on safe bonds make gold less competitive as an investment due to the lack of interest it can accrue.
In terms of economic data affecting the dollar, this week one of the key events will be the publication of Consumer Price Index (CPI) data in the US on Thursday.
WTI Oil
Oil started the week with a significant upside on Monday after Reuters reported that in recent days crude oil exports from Iran reduced to 1.1 million barrels per day (bpd), compared to 1.6 million bpd in September. Most buyers are reducing their oil imports from Iran, ahead of the implementation of US sanctions at the beginning of November, which would target any entity still doing business with the Iranian oil sector.
Iran’s officials mentioned that they do not believe that Saudi Arabia could instantly replace Iranian production capacity, after the Saudis stated that if America would request so, they and their OPEC partners could offset the loss of supply of Iranian oil.
Due to the Columbus Day Holiday in the US, the oil inventory data will be released one day later than usual, with the American Petroleum Institute (API) will releasing its oil stockpile figures on Wednesday, followed by the Energy Information Administration (EIA) on Thursday.
US Tech 100
US equity indices traded mixed on Monday, while the bond markets were closed due to the Columbus Day Holiday. This however offered little respite for equities, as especially the technology index NASDAQ (US Tech 100) was under pressure. However the Dow Jones Industrial Average (US 30) even managed to closed with a small gain. Equity futures were then seen again lower on Tuesday, as the bond markets reopened and the yield on 10 Year US Treasury Notes further advanced above 3.25%.
Rising yields on equities in the context of steady rate hikes by the Federal Reserve are seen as dangerous for the equities market, since on one hand higher interest on fixed income, makes investment in riskier equities comparably less desirable, while higher interests on companies’ debt can make them less profitable.
Shares of the electric car maker Tesla (NASDAQ:TSLA) (-4.36%) closed lower for the fifth trading session in a row, reaching a level below $250 for the first time in more than six months. Reports indicate that many analysts are still skeptical whether the improved production will result in better financial results in the Q3 quarterly report.
The earning season is starting to take shape as some of the key American banks, such as Citigroup (NYSE:C), Wells Fargo (NYSE:WFC) and JP Morgan Chase (NYSE:JPM) are scheduled to release their quarterly earnings on Friday.
