Traders from the U.S. and Canada were off on market holidays but that didn’t stop the Greenback from chalking up gains against its peers as the newest Fed member signaled room for more hikes.
A bit of risk aversion also helped lift the safe-haven dollar while equities and crude oil found themselves in the red zone. Meanwhile, the euro and pound struggled to stay afloat while Brexit and Italy’s debt stayed in focus.
- U.S. banks closed for Veterans Day
- Canadian banks closed for Remembrance Day
- U.K. PM May: Brexit talks reaching their endgame
- New FOMC member Daly: Too soon to tell if December hike needed
- Daly: Forecast of two to three rate hikes over the next period
- Daly: Neutral rates between 2.5% to 2.8%
- U.S. President Trump: Hopes there would be no oil output cuts
- New Zealand food price index posted 0.6% drop after earlier 0.1% decline
Risk-off in thin trading
After a gloomy turnout in the earlier session, the lack of any major catalysts during U.S. market hours kept traders sulking about prevailing geopolitical risks like Brexit and Italy’s debt.
It didn’t help that a sharp selloff in Apple and Goldman Sachs shares dragged equity indices around 2% lower:
- Dow 30 index is down 602.12 points to 25,387.18 (-2.32%)
- Nasdaq is down 206.03 points to 7,200.87 (-2.78%)
- S&P 500 index is down 54.79 points to 2,726.22 (-1.97%)
Crude oil took additional hits on Trump’s call for avoiding oil supply restrictions, likely a response to Saudi Arabia’s plans to curb output to account for weaker demand. The POTUS tweeted:
Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!
— Donald J. Trump (@realDonaldTrump) November 12, 2018
Remarks from FOMC member Daly
The FOMC gang welcomed the newest kid on the block, San Francisco Federal Reserve Bank President Mary Daly, who will be a voting member in the next month’s policy decision.
In response to a question on a December hike after her speech at the Regional Economic Development for Eastern Idaho Conference, Daly said:
“I think it’s premature to say that it’s definitely needed.”
She did forecast that two or three hikes are possible “over the next period of time, with the exact timing not being certain.” Daly also mentioned that her estimate of neutral rates stands at 2.5% to 2.8%.
More on Brexit
A lot of market attention remained transfixed on Brexit as it could determine the fate of the U.K. economy and the rest of Europe after all. No biggie.
In true British fashion, No. 10 once again sought to provide reassurance during her speech at the Guildhall, stating:
“The negotiations for our departure are now in the endgame. We are working extremely hard, through the night, to make progress on the remaining issues in the Withdrawal Agreement, which are significant.”
As to what kind of “endgame” remains in question, however, as the standoff on the Irish border backstop is still a sticking point. Some say that the talks on Wednesday could signal whether or not an agreement could be struck in time to prep for a special Brexit summit later this month.
Major Market Mover(s):
EUR & GBP
The European tandem found themselves behind their forex peers as market watchers remained wary of Brexit talks and Italy’s debt. Sterling was actually off to a strong start before weakening odds of a special Brexit summit this month came in play.
EUR/USD is down from 1.1262 to 1.1226; EUR/JPY sank from 128.28 to 127.66; EUR/NZD dipped to a low of 1.6683 but managed to pull up to 1.6708, and EUR/CHF is down to 1.1341.
GBP/USD retreated from a high of 1.2937 to 1.2856; GBP/JPY fell from a high of 147.25 to a low of 146.24; GBP/NZD sank to 1.9128, and GBP/CHF is back down to 1.2989.
USD & JPY
The scrilla was able to hold on to its top spot thanks to risk-off flows and Fed tightening prospects despite lower liquidity during the holiday trading. It did encounter some competition from the lower-yielding yen, though.
USD/JPY tossed and turned from 113.86 to a low of 113.75 then back to 113.90; USD/CHF advanced from 1.0095 to 1.0113; AUD/USD slipped to .7099; USD/CAD is up to 1.3245, and NZD/USD fell to .6717.
Watch Out For:
- 12:30 am GMT: Australia’s NAB business confidence index (previous reading of 6)