United States
Weekend polls in the US suggested that a Trump victory, previously considered likely by many major capital pools, might not be as certain as anticipated. This uncertainty prompted a significant reaction in the markets, resulting in a decrease in US yields and a weaker dollar. The US 10-year yield dropped about nine basis points, settling around 4.30%, and the two-year yield fell by four basis points to approximately 4.16%. The dollar weakened against all G10 currencies, with most emerging market currencies, especially in Central Europe and the Mexican peso, strengthening. Equities showed mostly positive trends with Tokyo markets closed for a national holiday, while most major markets in the Asia Pacific rose, except for India. US index futures also showed strength.
Tomorrow’s US election is dominating discussions, as polls indicate a highly competitive race. Some polls suggest that Harris may be gaining momentum, with higher voter turnout potentially favoring her. Many anticipate a prolonged vote count and verification process. Additionally, the Federal Reserve’s upcoming meeting is another key focus. The market expects the Fed to overlook strong Q3 GDP (2.8%) and an unusual October jobs report, with a 95%+ chance of a quarter-point cut anticipated this week. The market also shows growing confidence in a potential quarter-point cut in December.
Eurozone
The Eurozone’s focus is somewhat eclipsed by upcoming US events, but the release of the final October manufacturing PMI earlier today was noteworthy. It rose to 46.0 from the initial 45.9, marking the first monthly increase since May, though it remains below 50 since June 2022. Germany’s PMI was revised upward, while France’s remained steady. Spain and Italy both reported differing trends. With key European central bank meetings this week and the US election and FOMC meeting, Sweden’s Riksbank is likely to implement a half-point cut, while the Bank of England is expected to cut rates by a quarter-point. The Norwegian Norges Bank is anticipated to hold steady. Central Europe sees Poland’s central bank meeting without expected changes, while the Czech central bank’s upcoming meeting may result in another rate cut.
United Kingdom
In the UK, after a sharp sell-off, sterling stabilized ahead of the weekend. Despite the euro’s volatility, sterling recorded an inside day, reaching a three-day high but remaining capped at $1.30. Market discussion revolves around the post-budget gilt sell-off, with yields continuing to rise. The yield was close to 4.20% before the budget and is now near 4.47%.
China
In China, attention is on the Caixin service and composite PMI due for report, following a slight increase in the official service PMI and a rise in the manufacturing PMI, which contributed to a stronger composite reading. The market is focusing more on potential fiscal initiatives from this week’s National People’s Congress session, with expectations for a significant fiscal package. Such a package is anticipated to be more effective if funded by the central government rather than local governments.
Japan
Japanese investors and officials are closely watching this week’s final October service and composite PMI, along with labor earnings and household spending figures. Despite the yen remaining steady against the dollar following the decline in US rates, Japanese officials have remained relatively quiet.
Canada
The Canadian dollar reached new two-year lows towards the weekend, with the US dollar nearing CAD1.3950. The gap between US and Canadian two-year premiums has widened significantly since the end of August, now exceeding 110 basis points, the largest since 1997. The US dollar was last above CAD1.40 in May 2020.
Australia
Australia’s focus this week includes the final PMI and trade figures. Attention is particularly on the central bank meeting, where no immediate action is anticipated despite softer Q3 CPI data. The market does not expect the first interest rate cut until next May, which some may argue is a prolonged wait. The Australian dollar, which faced a five-week losing streak, saw its downward momentum stall recently.
Mexico
The Mexican peso strengthened ahead of the US jobs data before reversing direction. Following the unwinding of some election-related trades, the dollar was sold to about MXN20.07 in the Asia Pacific markets and consolidated mainly below MXN20.15. Support is anticipated in the range of MXN20.00-MXN20.05 today.
