Headlines:
- Dollar gains cool off for the time being
- Weekly update on interest rate expectations
- BOE cuts bank rate by 25 bps to 4.75%, as expected
- BOE governor Bailey: We still need to see services inflation to come down more broadly
- Fed to cut interest rates at a quarterly pace after December - JP Morgan
- Deutsche Bank now sees base case for ECB terminal rate forecast at 1.50%
- Eurozone September retail sales +0.5% vs +0.4% m/m expected
- Germany September industrial production -2.5% vs -1.0% m/m expected
- Germany September trade balance €17.0 billion vs €20.9 billion expected
- Germany October construction PMI 40.2 vs 41.7 prior
- Halifax October house prices +0.2% vs +0.2% m/m expected
Markets:
- AUD leads, USD lags on the day
- European equities higher; S&P 500 futures up 0.2%
- US 10-year yields up 1.5 bps to 4.441%
- Gold up 0.3% to $2,667.91
- WTI crude down 1.0% to $70.99
- Bitcoin down 1.3% to $74,981
There wasn't much follow through to the post-election moves yesterday, at least not for the US dollar. The greenback is seeing gains cool off with a retracement across the board, some more than others. Of note, AUD/USD is rebounding strongly by over 1% to 0.6635 as the antipodeans bounce back on the day.
There's no major catalyst per se but perhaps the aussie and kiwi are benefiting from investors feeling more confident about China's ability to respond to Trump's pressure. That is evident by the strong bounce in Chinese stocks and gains in the yuan currency today.
Besides that, the dollar is seen retracing gains elsewhere with EUR/USD up 0.4% to 1.0768 and USD/JPY down 0.4% to 153.95 on the day. There wasn't too much action with the dollar just gradually losing a little bit of ground during the session.
We also had the BOE policy decision but that went more or less as expected. But the central bank did highlight the potential of inflation being more persistent and that is keeping the pound up as well. GBP/USD is up 0.5% to 1.2940, up from around 1.2905 before the BOE decision.
In the equities space, US futures continue to stay a little more optimistic but European indices are shrugging off the losses from yesterday - at least for now. The DAX is leading gains with a political shift brewing in Germany after the government's collapse in the past 24 hours. The tariffs story is suddenly in the back seat again there.
As for bonds, yields are much calmer today in the US. 10-year yields are up by just 1.5 bps to 4.44%, so that's not indicative of much follow through as part of the Trump trade. In Europe though, German bund yields are on the rise as political risks are causing a stir in the regional bond market. So, that's one to watch out for in the weeks ahead until Scholz calls a snap election.
