Dollar Mixed as Markets Await Fresh Drivers

  • US rates have yet to recover back to last week’s highs
  • Yesterday, the US reported a budget deficit for FY2018 ended in September of -$779 bln
  • We believe that the deficit is the elephant in the room with regards to the dollar
  • Italy formally submitted its draft budget to the EU; UK reported labor market data
  • RBA released its minutes overnight; New Zealand reported Q3 CPI
  • China reported September CPI and PPI
  • Turkey August IP rose 1.7% y/y; National Bank of Hungary is expected to keep rates steady at 0.90%

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Drivers for the Week Ahead

  • With US yields backing off last week, the dollar rally has been put on ice
  • US reports September retail sales today; FOMC minutes will be released Wednesday
  • The UK has a heavy data week; all eyes are on Brexit talks
  • China data deluge begins; US Treasury releases its semiannual FX report to Congress
  • Central banks of Hungary, Korea, and Chile meet this week

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Dollar Steadies as Equity Markets Calm

  • The stock market rout has taken a pause even as US yields are recovering at the long end
  • Some in the Trump administration have tried to walk back criticism of the Fed
  • Italy’s parliament voted yesterday in favor of the government’s draft budget
  • Sterling bulls got a cold dose of reality from the Democratic Unionist Party
  • China reported September trade; Trump and Xi may meet on the sidelines of the G20 meeting
  • MAS tightened policy at its semiannual meeting with a slight increase in the slope of its S$NEER trading band
  • Moody’s is scheduled to review South Africa’s rating today

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Dollar Soft as Equity Markets Remain Under Pressure

  • The equity market has taken the focus off the bond market, at least for now
  • Lower US rates are helping to keep the dollar soft; US reports September CPI data
  • Markets are left wondering if an equity market correction will stay the Fed’s hand in December; the short answer is no
  • Fitch warned that it sees sizeable risks to Italy’s new fiscal targets
  • EU and UK officials warned that obstacles remain in getting a Brexit deal in place
  • Sweden reported higher than expected September CPI
  • Turkey August current account surplus was $2.56 bln, the first surplus since 2015; Peru central bank is expected to keep rates steady at 2.75%

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Dollar Firms on Higher US Rates and Italy Challenges

  • US rates are moving higher and has helped the dollar firm
  • Markets will be particularly sensitive to US September PPI data today and CPI tomorrow
  • Deputy Prime Minister Salvini said he’s “absolutely sure” that Italy’s 10-year spread to Germany won’t reach 400 bp
  • UK reported August trade, IP, and monthly GDP but markets are focusing more on reports that a Brexit compromise is within reach
  • Norway reported September CPI
  • EM FX remains under broad pressure, but some unexpected developments have allowed some currencies to catch a bid

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Dollar Remains Bid as US Returns From Holiday

  • The US bond market reopens today and we suspect US rates will be the market focus again
  • Italy remains in the crosshairs as the war of words continues
  • Markets seem to be more optimistic about a Brexit compromise ahead of some key meetings
  • The yen has outperformed in recent days and has resisted the dollar rally
  • Press reports suggests the Trump administration is concerned about the yuan’s recent weakness
  • Hungary September CPI rose 3.6% y/y; Mexico September CPI is expected to rise 5.0% y/y

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Drivers for the Week Ahead

  • The rise in US rates continues to be the main driver for global markets
  • Markets will be particularly sensitive to US September PPI Wednesday and CPI Thursday
  • Fed speakers are numerous this week
  • Italy remains in focus after the European Commission informally rejected Italy’s draft budget late Friday
  • Markets have turned a bit more positive on a Brexit compromise after EU official comments last week
  • China returned after a week-long holiday and the PBOC promptly cut reserve requirements for commercial banks
  • Peru and Singapore central banks will meet this week

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Dollar Firm Ahead of Jobs Report

  • The rise in US rates remains the key driver for global markets
  • It’s clear that Fed officials still have the power to move markets between FOMC meetings
  • The highlight today will be the US jobs report
  • Canada will report September jobs data today too
  • Italy remains in focus as more details of the draft budget emerge
  • We are seeing a real EM positioning washout this week, with weak longs getting punished
  • Korea, Philippines, and Taiwan reported CPI overnight; Colombia reports CPI later today
  • Banco de Mexico delivered a hawkish hold yesterday; RBI delivered a dovish surprise

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Dollar Rally Intact as US Yields Enter New Phase

  • The rise in US yields has entered a new phase
  • Details of the Italian draft budget are emerging and they’re not good
  • After holding up relatively well, it is EM’s turn to lead the move lower
  • UK Prime Minister May’s speech at the annual Tory conference turned out to be a bit of a non-event
  • During the North American session, the US reports September Challenger job cuts, weekly jobless claims, and August factory orders
  • Markets are really running with the most recent Brazil poll numbers; Banco de Mexico is expected to keep rates steady at 7.75%

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