- US October consumer confidence 102.5 vs 106.5 expected
- Richmond Fed manufacturing composite index -10 vs. 0 last month. Expected -5.
- US August CaseShiller 20-city house price index +13.1% vs +14.4% y/y expected
- Philly Fed non-manufacturing regional business activity -14.9 vs +2.5 prior
- 10 years ago today, Powell warned against everything he would later do
- As expected, Jeremy Hunt to remain as UK Chancellor of the Exchequer
- US treasury auctions off $42 billion of two-year notes at a high yield of 4.46%
Markets:
- Gold up $5 to $1653
- US 10-year yields down 15 bps to 4.08%
- WTI crude oil up 46-cents to $85.04
- S&P 500 up 60 points to 3856
- GBP leads, USD lags
The bond bid returned in a big way today and that led to a sharp selloff in the US dollar and rally in equities.
There wasn't a clear catalyst for the strong shift in markets that occured at 9 am ET. It was coupled with poor housing data and later with weak consumer confidence numbers and a soft Richmond Fed. The bad-news-is-good news mindset is certainly cemented but data alone leaves us wanting in terms of explanations for the big market moves.
I tend to see all roads leading back ot the UK. Yesterday looked like a big unwind of a pair trade on gilts and Treasuries as they headed in opposite directions. That led to unusually large selling in T-notes and today might have been the normalization combined with some FOMO on 4% guaranteed money. Another theory is the Treasury bond buybacks could be promoting a bull steepener.
The fall in USD/JPY looked like it could be intervention for a moment but the selling was uniform in all major pairs so that's unlikely, though it surely comes as some relief to Japanese officials as the pair now trades just below 148.00.
Cable was the big winner on the day as gilt yields fell to 3.6% and Sunak named Hunt as Chancellor. The message about fiscal responsibility has undoubtedly been received and the market expects something like austerity now.
At the same time, Europe gas prices have fallen in the last month and the market has been slow to factor that in. EUR/USD is approaching parity after breaking above the year-long downtrend.
Commodity currencies kept pace with the move but Australia and New Zealand outperformed. There was some talk of stimulus out of China and that's something to keep in mind.
After the US equity close, poor earnings from Microsoft and Google are weighing, with Nasdaq futures down 1%.
