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Overview: A combination the US and China moving away from the trade brink, more US trade agreements (and frameworks) in Southeast Asia (Cambodia, Thailand, Vietnam, and Malaysia), and a strong showing by Milei's party in Argentina have boosted risk appetites in today's activity. The US S&P 500 and Nasdaq are poised to gap higher for the second consecutive session. The greenback is mostly softer but if were not for the Australian dollar's strength (~0.6%), encouraged by less than dovish comments by the central bank governor, the other G10 currencies are up less than 0.2% and the Swiss franc is the laggard, off 0.1%. Most emerging market currencies are also stronger. The PBOC set the dollar's reference rate at a new low since the middle of October 2024 (CNY7.0881 vs. CNY7.0928 before the weekend). 

Equities among the large markets in the Asia Pacific region rallied strongly today. The Nikkei and South Korea's Kospi gained around 2.5%, while China, Hong Kong, and Taiwan gained more than 1%. Indonesia and Vietnam were notable exceptions falling by around 1.8%. Europe's Stoxx 600 is nursing a small loss (clocks were turned back by an hour yesterday), while the bond markets are narrowly mixed. The 10-year US Treasury yield is up nearly two basis points to 4.02%. Canada's 10-year yield is slightly softer. Gold has been sold to a three-day low near $4025 after finishing last week near $4113. Last week's low was near $4000, and a break would likely trigger another round of liquidation. December WTI recorded the month's high before the weekend (~$62.60) but has come under pressure today. It has been sold to about $60.65 and is now hovering around $61.00. 

USD: The Dollar Index fell to a three-day low near 98.70 after the CPI rose slightly less than expected last month. It snapped back a little through 99.00 before consolidating. It is trading in a tight range of about 15-ticks below 99.00 today. The consolidative price action still looks constructive. There are a couple of October regional Fed surveys, the Conference Board's consumer confidence, and house prices, but there is one big event, and that, of course, is the FOMC meeting. The outcome is as foregone a conclusion as these kinds of things get, and that is after the September CPI, which rose on a year-over-year basis for the fifth consecutive month. The Fed funds futures have nearly fully discounted a quarter-point rate cut, and the 2-10-year yield curve slope of ~50 bp is at the lower end of where it has been since the Fed's cut last month. Given the level of bank reserves and some pressure in the money markets, the Federal Reserve will likely address the balance sheet run-off (QT). The market has another 25 bp cut nearly fully discounted for the December meeting as well. It seems unreasonable to expect Chair Powell to endorse it fully, but he may indicate the bar is low.

EURO: The euro has forged a shelf around $1.1575. But it needs to rise above the $1.1655-70 area to lift the technical tone. It has held below $1.1650 today, where 640 mln euro options expire today. There are three highlights this week and today's ECB survey of inflation expectations is not one of them. Still, for the record the one-year projection of 2.9% compares with 2.8% in August. The three-year outlook was unchanged at 2.5%. On Thursday, the eurozone is expected to report that the economy grew by 0.1% in Q3, the same is in Q1. The year-over-year rate is seen slipping to 1.2% from 1.5%. German and Spain inflation data will be released too. A few hours later, the ECB will announce it did not do anything, and President Lagarde will talk about it. The following day, the preliminary October CPI will be published. A 0.1% increase on the month will keep the year-over-year rate at 2.2%. The core is expected to be steady too at 2.4%. 

CNY: Encouraged by signs that Washington and Beijing moved away from the brink and a sharply lower dollar fix today, the greenback has fallen from CNH7.1260 at the end of last week to CNH7.1065 today. It had been in a roughly CNH7.11-CNH7.15 range since late September. Meanwhile, the PBOC continues to guide the yuan a higher slowly. The high dollar fix for the year was recorded a couple of weeks after the US "Liberation Day" near CNY7.2135. It was set at CNY7.0881 today (CNY7.0928 before the weekend and CNY7.0973 a week ago). It is the lowest since mid-October 2024. China reported September industrial profits today. Year-to-date, on a year-over-year basis, profits rose by 3.2%. Last September, they fell by 3.5% and in September 2023, they were off 9%. Only a few sectors seem to be profitable, and part of it seems to stem from lower input. Presidents Trump and Xi meet in South Korea on October 30. 

JPY:  The Japanese yen was the easily the weakest of the G10 currencies last week, losing nearly 1.4%. Anxiety over the new government's fiscal policy intentions, dramatic rally in oil, and the recovery in the US 10-year yield weighed on the yen. The market also seemed to give up lingering ideas that there will not be a hike by the BOJ this week. The greenback initially tested the high set earlier this month near JPY153.25 where sellers were met who drove it back to about JPY152.65. A break of the JPY152.30 area is needed to suggest a high may be in place. The Japanese economy was particular weak in August, but it looks to have recovered in September, and we will see later this week with the industrial output and retail sales update. Tokyo's October CPI ahead of the weekend will have something for everyone: the headline is expected to slip (2.4% vs. 2.5%), the core rate may tick up (2.6% vs. 2.5%).and the measure excluding fresh food and energy maybe flat at 2.5%). 

GBP: Despite better-than-expected retail sales and PMI before the weekend, sterling bled lower and was sold to a new low for the week near $1.3290. It held above $1.3300 today but has not mustered the strength to overcome $!.3340. The economic calendar is light of market moving reports this week. The middle of the week sees consumer credit and mortgage lending figures. Little to drive sterling, in any event. Next week's BOE meeting is around the corner (November 6). The odds of a cut, reflecting in the indicative pricing in the overnight swaps market, have increased notably in recent weeks, but is slightly less than 25%. As recently as October 8-9, there was less than a 10% chance discounted. On October 17, it was up to almost 13%.

CAD:  The suspension of US-Canadian trade talks pressured the Canadian dollar ahead of the weekend, but after the dust settled it finished the pre-weekend session little changed. Canadian stocks and bonds rallied. President Trump announced a 10% additional levy on Canada. The greenback snapped a three-day decline. However, after a brief foray above CAD1.40 early today, the greenback has been sold slightly through last week's low near CAD1.3975. Support is seen in the CAD1.3930-50 area. The outsized response to an ad by Ontario seems to reflect the poor state of the relationship in the first place. Canada's economic diary is light until a few hours before the FOMC meeting concludes on October 29, when the Bank of Canada's decision will be announced. The market is confident (~87%) of a rate cut. That would bring the overnight target rate to 2.25%. The market suspects this will be the last cut in the cycle and has a little less than a 50% chance of another cut in the first half of next year. We suspect the odds are higher. The same economic forces that will get the Fed to cut several times next year will likely get the Bank of Canada to cut at least once. 

AUD: For slightly more than two weeks, the Australian dollar, without fail, has traded straddled the $0.6500-level. Today is the first day it has held above $0.6500. It entered a band of resistance that extends from $0.6535 to $0.6560. The Aussie is trading above the 20-day moving average (~$0.6540) for the first time in two weeks. The futures market had a 55% chance of a cut next week discounted before the weekend. It has fallen to almost 16% today, seemingly encouraged by RBA Governor Bullock's comments, which seemed to recognize the conflicting signals of firm inflation and softening labor market. Wednesday, the market may learn that inflation accelerated in Q3 to 2.9% year-over-year pace, up from 2.1% in Q2. The underlying trimmed mean and weighted median measure measures likely remained elevated around 2.7%. The rise in the unemployment rate (4.5% vs. 4.3%), reported earlier this month, can partly be explained by the increase in the participation rate. Householding spending slowed in August (0.1%), but after a three-month run that averaged a monthly increase of 0.6%. 

MXN: The peso initially strengthened on news that Milei's party did better than expected in the legislative elections in Argentina. The greenback slipped below MXN18.40, as its late gains last week were unwound. Still, it is near sessions in the European morning near MXN18.45. Mexico reports September's good trade balance today. It has averaged a $66 mln a month shortfall this year through August. In the first eight months of last year, the deficit averaged almost $2.25 bln a month. In Jan-Aug 2024, which includes only a little bit of the volatility around last year's election, the dollar averaged around MXN17.7050. In the first eight months of this year, the dollar averaged about MXN19.63, a nearly 11% gain. At the same time that the deficit has narrowed, so has the main source of hard currency--worker remittance. They have average $5.06 bln a month through August this year and $5.38 bln in the first eight months of last year. Separately, Brazil's Lula holds out the possibility of a trade deal with the US to lower the 50% tariff, according to press reports. 

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