S&P Made Another Record Higher, While Dollar Tumbled on Fed Bet

Financial markets' responses to the lackluster job report were very clear, investors are expecting Fed to delay tapering of stimulus and rate hike as the US is yet to find sustainable momentum in job growth. S&P 500 jumped to close at another record high of 1754.67. 10 year yield tumbled to close at 2.512%, the lowest level since July. The dollar index extended recent down trend and is back pressing 79 psychological level after hitting an eight month low. Economists are generally expecting Fed would not scale back the open-ended $85b per month asset purchase until at least March next year. Indeed, uber-contrarian Marc Faber even argued that Fed would need to increase the size of the purchase. Meanwhile, Fed fund futures suggested that there only a slightly higher than 50% chance for Fed to raise rates in April 2015, comparing to earlier pricing of nearly 60% chance.

The EUR/USD jumped to near 2 year high on this week's rally and is pressing 1.38. The EUR/JPY also surged to the highest level in more than 4 years. The strength in the common currency is impressive so far. But it should be noted that in crosses, the EUR/CHF, the EUR/GBP, and the EUR/AUD are staying in range this week. And indeed, the swissy and aussie are both having a mild upper hand against the euro. So, it's advised note to get too excited by the news headlines but rather look at the more complete picture. Overall, we'd expect the order of strength to be Aussie, Swissy, euro, Sterling.

Australian dollar is lifted by surprisingly strong inflation reading today. Headline CPI rose 1.2% qoq in Q3 versus expectation of 0.8% qoq and Q2's 0.4% qoq. Year-over-year, CPI moderated to 2.2%, down from Q2's 2.4% yoy but was way above expectation of 1.8% yoy. The data affirmed the view that RBA will stay on hold this year. And indeed, based on current swaps data, traders are seeing 85% chance that RBA will keep the rates at 2.5% in 2013, up from around 77% yesterday, and sharply up from the 54% pricing back in the end of last month.

Looking ahead, BoE will release MPC meeting minutes today. BoC will announce rate decision and is expected to keep rates unchanged at 1.00%. US will release import price index and house price index while eurozone will also release consumer confidence.