Dollar is rather mixed this week, firm against the euro, Swissy and Canadian, but weakened against the Sterling, Aussie, Kiwi and yen. US equities also lacked direction as DOW and S&P 500 are stuck in tight range near to the record high. Investors remained cautious ahead of the two key event risks this week, including the ECB meeting and US non-farm payroll report. However, bond traders seemed to be jumping the gun. 10-year yield staged a strong rally to close at 2.662% overnight, comparing to October's low of 2.471%. 30-year yield also jumped to close at 3.758% versus October's low of 3.565%.
The stronger than expected ISM indices were seen as a factor triggering repricing of Fed expectations. The ISM non-manufacturing index improved to 55.4 in October while the ISM manufacturing improved to 56.4. In particular, the employment component of ISM non-manufacturing jumped to 56.2, and that's the second highest reading since March. The FOMC statement released last week sounded like Fed is still open to December tapering. While the general consensus is that Fed wouldn't scale back the asset purchase before March, some investors are quietly betting on and earlier schedule.
Nonetheless, it should be noted that Fed officials' speeches so far sounded quite dovish. San Francisco Fed Williams said yesterday that Fed should continue the bond buying program until outlook for labor market improves "substantially". While the economy economy has made a lot of progress over the past year, "data over the last several months have kind of undermined a little bit that confidence that we are going to continue to make that kind of progress without continued monetary support". And, he didn't see the start of a "self-powered growth" yet. Earlier this week, Fed governor Powell said monetary policy is likely to remain highly accommodative for some time. St. Louis Fed Bullard said inflation has remained low and he would like to see inflation to return to 2% before tapering to begin. Boston Fed Rosengren said the monetary policy will likely "need to remain accommodative for some time" to achieve full employment within a "reasonable forecast horizon".
Elsewhere, New Zealand dollar was boosted today by stronger than expected growth in employment, which rose 1.2% qoq in Q3. Unemployment dropped back to 6.2%. UK BRC shop price dropped -0.5% yoy in October. Australia trade surplus narrowed to AUD -0.28b in September. UK data will be the focus again today with industrial and manufacturing production featured, as well as NIESR GDP estimate. Eurozone will release PMI services final and retail sales, plus German factory orders. Canada will release building permits and Ivey PMI. US ill release challenger job cuts and leading indicators.