Risk aversion kicked into high gear during the New York session, yet the safe-haven dollar barely took advantage despite higher U.S. bond yields. Wall Street saw a bloodbath in equities, with indices chalking up more than 3% in losses.
Instead, the lower-yielding Japanese yen found itself on top while the higher-yielding commodity currencies took the biggest hits, with the Loonie at the very bottom of the pile.
- Canadian building permits up 0.4% vs. 0.5% forecast
- U.S. headline PPI up 0.2% in September as expected, -0.1% previous
- U.S. core PPI also up 0.2% in September as expected , -0.1% previous
- U.K. NIESER GDP estimate predicts another 0.2% growth figure
- U.S. final wholesale inventories up 1.0% vs. 0.8% forecast
- Barnier: Much of withdrawal deal already in agreement with U.K.
- Fed official Evans: Could pause with hikes once rates reach 3%
Risk aversion extends its stay
Global equity markets were already in the red during the earlier session, yet seller still put the pedal to the metal as the trading day went on. Market analysts pinned the blame on higher U.S. bond yields stemming from stronger tightening expectations, likely weighing on business and consumer spending down the line.
U.S. stock indices were down more than 3% for the session, with the tech sector rout accounting for most of the losses that dragged the S&P 500 on its largest one-day fall since February.
- Dow 30 index is down 831.83 points to 25,598.74 (-3.15%)
- S&P 500 index is down 94.66 points to 2,785.68 (-3.29%)
- Nasdaq is down 315.97 points to 7,422.05 (-4.08%)
However, the POTUS assured that these moves were just corrections, once again throwing shade on the Fed for hiking rates too quickly. Fed official Evans did suggest that they might pause with tightening once interest rates hit 3%.
Bond yields were mostly higher for the session before bond-buying took place later on and snapped up those gains.
Gold ticked slightly higher on risk-off flows while crude oil took hits despite expected supply disruptions from Hurricane Michael along the Gulf coast. It didn’t help Black Crack’s cause that the EIA lowered its global demand forecast by 60K barrels per day this year, although it did hike estimates for 2019.
Brexit deal within reach?
On a less downbeat note, EU negotiator Barnier suggested that a Brexit deal might be done by next Wednesday as the U.K. is in agreement with 80-85% of the divorce terms. He hinted:
“Negotiations with the UK continue this week intensively, day and night, in the goal set by the leaders of the 27 that the agreement is ‘in reach’ at the time of the European Council of 17 October, next Wednesday.”
According to Barnier, this would be possible only if PM May is willing to drop some key demands involving the Irish backstop border. He reiterated:
“Our proposal tries to help the UK in managing the negative fallout of Brexit in Northern Ireland in a way that respects the integrity of the UK.”
Major Market Mover(s):
Yen pairs found themselves deep in the red as the Japanese currency was the main beneficiary of safe-haven flows, outpacing the U.S. dollar even with a rebound in yields.
USD/JPY sank from 113.20 to 112.27; EUR/JPY fell from a high of 130.50 to a low of 129.24; GBP/JPY slid from 149.09 to a low of 147.86; AUD/JPY is down to 79.30, and NZD/JPY tumbled from 73.18 to 72.48.
The comdoll gang hung out on the losers’ table for almost the entire trading day, with the oil-related Loonie chalking up the largest declines of ’em all.
USD/CAD popped up from 1.2964 to 1.3057; CAD/JPY plummeted from 87.36 to test the 86.00 handle; EUR/CAD climbed from 1.4910 to a high of 1.5054, and GBP/CAD rallied to 1.7235.
Watch Out For:
- 11:50 pm GMT: Japanese PPI y/y (dip from 3.0% to 2.9% expected)
- 12:00 am GMT: Australia’s MI inflation expectations (4.0% previous)
- 5:00 am GMT: BOE Governor Carney’s speech in IMF annual meeting
- G20 Summit to kick off today