Our introduction to a September 27 post:
This is such a tricky game we play. Macro theory says we get a stronger currency with higher yields. Until we don't. Because macro theory also says higher inflation gives us a weaker currency,
And catching that inflection point is critical to all the commodity bets denominated in dollars.
As the old-timers used to say: "Pay attention or pay the offer."
The DXY dollar index is at 93.815 down from its October 12 peak-for-this-go-round of 94.557.
From Marc to Market:
Overview: Investors seem undeterred by the firm oil and gas prices and have taken stocks and bonds higher today. Stronger risk appetites are also evident in the foreign exchange market, where the dollar is weaker against most currencies. The JP Morgan Emerging Market Currency Index is higher for a third day after falling for the previous six. The strong recovery in US equities yesterday encouraged the MSCI Asia Pacific Index to extend its advance. It has now risen in five of the past six sessions. Europe's Dow Jones Stoxx 600 gapped slightly higher, and US futures indices are poised to also gap higher. The US 10-year yield that had pushed above 1.60% at the end of last week and early this week has eased to about 1.53%. European benchmark yields are also softer. Poor employment data helped push Australia's 10-year yield down six basis points to 1.62%. The dollar is trading heavily, led by the Antipodeans and Scandi currencies. The euro is above $1.16 to reach its best level since October 4. Sterling is punched above $1.37 to set a new high for the month. After nesting for a few sessions, the Canadian dollar is at its best level since early July. Turkey's president dismissed three members of the central bank's decision-making team, sending the lira to new lows, a notable exception to the firm emerging market currencies. Gold is consolidating yesterday's sharp reversal that led to its biggest advance in six months. It is testing the 200-day moving average around $1795. November WTI remains firm, holding above $80 after the API estimated that US oil inventories rose by over five million barrels, which, if confirmed by the EIA, would be the biggest increase in more than six months. The CRB Index slipped yesterday, and it was the first back-to-back decline this month.
Asia Pacific
While many countries are wrestling with strong increases in consumer prices, China is not one of them. The September CPI slipped to 0.7% year-over-year. It is the fourth consecutive decline. An important factor continues to be the weakness in food, and especially pork prices. The decline in food prices accelerated to -5.2% in September year-over-year from -4.1% in August and -3.7% in July. Non-food prices are also tame. They rose by 2.0% year-over-year and have been around that pace for the past prior few months. The core rate, excluding food and energy, rose by a modest 1.2%, unchanged for August and slightly lower than in July. Producer prices are a different story. They accelerated to a 10.7% year-over-year pace, up from 9.5% in August and somewhat faster than expected. Rising energy prices, including record-high coal prices, were the main driver.
The market is looking through Australian jobs data. It shed 138k jobs in September, which is more than expected, and follows a 146k loss in August. The participation rate plunged to 64.5% from 65.2%, helping to moderate the unemployment increase to 4.6% from 4.5%, lower than anticipated. A bright spot was that almost 27k full-time positions were created. The lockdowns are easing, and economic activity is likely to improve going forward.
The lower chamber of Japan's Diet was formally dissolved today to prepare for elections at the end of the month. Prime Minister Kishida has not been in office for more than a few weeks, but the dominance of the LDP means that it will retain a majority. Still, the LDP likes to work in a coalition with a small party that seems to signal a cooperative stance. Kishida is struggling to strike the right chord and has talked about a "new capitalism" whose meaning is vague. He has played down an initial overture toward raising capital gains tax and now seems to be focusing on boosting pay for some public sector workers and strengthening the tax break for companies that increase wages. A sizeable fiscal stimulus bill is now expected after the election....
....MUCH MORE
