What A Difference The Weekend Made

What a difference the weekend made.  There is a resilience today that was not seen at the end of last week.  Questions over the Ai-meme, which drove the semiconductor index down 7.2%, have eased today, despite S&P cutting Meta’s rating outlook at the end of last week. Last week, France escaped a Moody’s downgrade, but at the end of the week saw its outlook cut by Fitch.  At the end of last week, December WTI reached a contract high near $105. The reports suggesting that Washington will give the negotiations more time has pressured December WTI below $100, which appears to be one of the factors that may be behind the lower bond yields today. 

The US dollar is mixed. Most European currencies are higher but the Norwegian krone, which might have been knocked back (~0.70%) by the pullback in oil prices.  The dollar-bloc currencies and the Japanese yen are also weaker.  Tomorrow is the US midterm election.  There does not seem to be a strong statistical pattern for the dollar around the election.  However, one of the most regular patterns is that the S&P 500 tends to do well in Q4 of the midterm election year, and the third year of a presidential term (2027) is the strongest year of the presidential cycle. 

Prices 

G10

• Softer than expected German inflation helped dragged the euro lower ahead of the weekend after being turned back from a four-day high near $1.1215. The euro was sold to almost $1.1135 before stabilizing. After a quiet opening today, the euro climbed in late Asia Pacific turnover and briefly traded above $1.1235 in the early European activity. Support now is seen in the $1.1180-$1.1200 area. 

• The dollar recorded the session low against the yen ahead of the weekend in early North American activity, slightly nicking the JPY157 level. After rising for three consecutive sessions, the greenback has a three-day fall in tow coming into today. The dollar nearly covered its recent range in the last six sessions: It approached JPY156 on October 23 and peaked in the middle of last week near JPY158.35. The US dollar is trading firmer today and is knocking on the JPY158 area, where options for around $1.1 bln expire today.   A move above last week’s high will likely run into offers in the JPY158.50-60 area. 

• Sterling initially surged to nearly $1.3435 in early activity last Friday. It was the highest level since mid-September and frayed the 200-day moving average. The momentum stalled and session lows were recorded in the North American morning (~$1.3375). Sterling settled slightly below the (50%) retracement objective of the losses from the late August high (~$1.3675) that is found slightly above $1.34.  Last week’s gains were extended to almost $1.3450 today before sellers emerged early in the European morning and pushed sterling back to almost $1.34. Support is seen in the $1.3380-$1.3400 area. 

• The Canadian dollar strengthened ahead of the weekend. The Loonie did not seem distraught over the sharp equity losses. The US dollar was sold to almost CAD1.3940, the lowest level since mid-September. The weekly close was below CAD1.3965, a retracement objective, targeting the CAD1.39 area next.  It is trading sides so far today, inside the pre-weekend range.  Initial resistance is seen around CAD1.40. 

• The Australian dollar was practically unchanged last week. It consolidated mostly between about $0.7015 and $0.7050. It did briefly trade a little above its 200-day moving average, which is nearly $0.7060 today. The Aussie is trading quietly with a lower bias ahead of tomorrow’s central bank meeting, where many expect the last hike of the cycle to be delivered. It was sold to around $0.7010 in Europe today. It has not closed below $0.7000 since October 19. 

EM 

• The dollar was greeted by sellers ahead of the weekend after it made a new high for the year against the Mexican peso (~MXN18.9265). It fell to almost MXN18.7700 in the North American afternoon, even as the Nasdaq Composite and S&P 500 were making new session lows. This is the kind of price action often associated with topping patterns. The dollar’s losses have been extended to almost MXN18.70 today. While we may see a deeper pullback, it is not clear that a top is indeed in place. A break below MXN18.65 would be encouraging, and a push below MXN18.50 would boost confidence that a high is in place. 

• The dollar briefly traded below CNH6.65 in Europe ahead of the weekend. The offshore yuan drifted lower through the North American afternoon. The dollar recovered to about CNH6.6540. It took another step down today and reached almost CNH6.64254. For the past five weeks, the PBOC has raised the dollar’s fix once a week. The fix was set at CNY6.7146 (CNY6.7138 before the weekend). 

• The dollar fell for the second session against the Indian rupee. The greenback briefly traded below INR94.70, a seven-day low. Lower oil prices seemed like the most important catalyst. Still, the dollar settled little changed on the day (~INR94.90), and slightly above the opening level (~INR94.89).  

Other Markets

• Asia Pacific and European equities shrugged off to some extent the headwind from the sharp losses in North America before the weekend. The Philadelphia Stock Exchange Semiconductor Index was chopped by 7.2%, the largest single day loss since June and the capped the fourth consecutive weekly decline that has seen in fall a cumulative 21%. The S&P 500 gapped lower and settled below 7600 for the first time since mid-September. The Nasdaq Composite also gapped lower. It reached its lowest level since the end of July. Both indices are trading higher in the futures market.  Asia Pacific equities were mixed. While Japanese and Taiwanese equities fell, South Korea’s Kospi rose by 2.25%, and Shanghai and Shenzhen rose more than 1%. India’s indices rose almost 1.7%. After snapping a four-day rally before the weekend, the Stoxx 600 is up about 0.15% through the European morning. 

• Benchmark 10-year yields were mostly lower in Europe before the weekend, though the 5.5 bp increase in France was an anomaly. Its premium over Germany widened by around nine basis points to 165 bp, narrower by a mere two basis points on the week, after it escaped a downgrade from Moody’s. Fitch cut France’s outlook to negative ahead of the weekend, but the French bonds are bid today and the premium over Germany is a couple of basis points narrower. UK Gilts are leading the decline in European rates today and are off nearly six basis points. The 10-year US Treasury yield briefly fell below 4.90% and settled a little more than 35 bp lower on the month. It is nearly 4.92% now. 

• Gold and silver fell hard ahead of the weekend and new lows for the year were recorded. Gold was “devalued” by about 3.5% as its fell to $3876. It was the worst day for gold since the end of August. It steadied today and recovered to almost $3920 before sellers reemerged. It is now straddling $3900.   Silver was beaten back around 5.8% before the weekend. It was the third consecutive decline, and silver fell by ~8.8% on the week. It posted its first weekly close below $50 since last November. It is consolidating today between about $49.40 and $50.50.  

• December WTI reached almost $105 ahead of the weekend, a new contract high and settled firmly. Dec WTI rose for the fifth consecutive week last week and by about 18% in October. There have been numerous press reports playing up discussion in the Trump Administrations about re-escalating the conflict with Iran after Tuesday’s midterm election. Reports suggesting that the US may give the negotiations more time have weighed on oil prices, and Dec WTI is trading below $100. It traded below last week’s low (~$99.45). 

Data

• The US sees the final manufacturing PMI. The preliminary reading was 56.0. It was at 55.9 in September and 52.5 last October. It has not fallen since June. The ISM manufacturing runs a little less hot. It was at 54.5 in September and may have ticked up in October, though new orders and employment may have softened. Lastly, with Q3 GDP out last week, today’s September construction spending is unlikely to grab much attention. Still, for the record, the median forecast in Bloomberg’s survey is for a 0.5% gain after a 0.9% increase in September. 

• Canada’s October manufacturing PMI is due. It was at 51.5 in September. It has fallen two months in a row after peaking at 53.5 in July.

• Mexico reports its October IMEF surveys. They function like a local PMI. The highlight of the week is the central bank meeting on November 5. It is expected to stand pat. 

• The eurozone’s final October manufacturing PMI is 52.7, a little above the flash estimate of 52.4. It peaked in September at 52.9, a cyclical high. Last October it was at 50.0.

• The UK’s final October PMI was confirmed at 52.8. This year’s peak was in April at 53.7. Last October it was 49.7.  

• Australia’s manufacturing PMI peaked in January at 52.3.  It chopped around a bit and were back at 52.0 in July and August before falling to 49.6 in September. It remained there in October. Melbourne Institute’s inflation survey ticked up to 4.9% year-over-year from 4.8%. It is a new high since the end of 2023.  

• Japan’s final October PMI confirmed the flash reading of 53.3. It was the second consecutive slowing after reaching 54.9 in August. Last October, it was at 48.2.

• China’s “official” PMI was poor.  The manufacturing, non-manufacturing, and composite PMIs all fell below the 50 boom/bust level. The manufacturing PMI fell to 49.3 from 50.1. The non-manufacturing PMI fell to 49.7 from 50.2, and the composite fell to 49.7 from 50.7. The RatingDog manufacturing PMI, reported today, slipped to 52.0 from 52.1.  Although Beijing has announced some stimulus measures recently, and the change in the benchmark policy rate is tantamount to a small rate cut, pressure appears to be growing for more support.