CAPITALDIGEST MARKET REVIEW, 28/10/2024

EURO, YEN CLIMB AS DOLLAR RALLY TAKES A BREATHER

The euro and Japanese yen strengthened on Thursday as the U.S. dollar paused after rallying to a nearly three-month high, with the greenback only briefly moving off earlier lows as data supported views for slower rate cuts by the Federal Reserve. Weekly initial jobless claims fell to 227,000, below the 242,000 estimate of economists polled by Reuters, while continuing claims rose to a nearly three-year high. The Fed is likely to discount the climb earlier in claims this month due to distortions from Hurricane Helene. A separate report from S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, rose to 54.3 this month from a final reading of 54.0 in September. A reading above 50 signals expansion. The greenback has climbed in 16 of the past 18 sessions, on pace for its fourth straight week of gains, as a run of positive economic data has quieted expectations about the size and speed of the Fed’s rate cuts, which has also lifted U.S. Treasury yields. “We’re looking at some profit-taking here,” said Joseph Trevisani, senior analyst at FXStreet in New York. “But underneath that, of course, has been the shift in rates and the shift in perception about what the Fed is going to do. And that hasn’t changed so for the moment, we’re kind of holding.” The yield on benchmark U.S. 10-year notes US10YT=RR fell 4.6 basis points to 4.196% after hitting 4.26% in the prior session, its highest in three months. The dollar index =USD, which measures the greenback against a basket of currencies, fell 0.37% to 104.05, its first decline after three straight sessions of gains, with the euro EUR= up 0.39% at $1.0823 after hitting a nearly four-month low of $1.076 on Wednesday.

STERLING RISES AFTER REPORT STOKES SLOWER BOE RATE CUT VIEW

Sterling firmed against the dollar and the euro on Thursday, alongside a rise in British government bond yields, as investors assessed the outlook for the Bank of England’s monetary policy. The pound firmed 0.4% to $1.29695 against the dollar, not far from the $1.30 mark after sliding to the lowest since mid-August in the previous session. A Guardian report on Wednesday said that British finance minister Rachel Reeves will change how the government assesses the public finances to free up room for billions of pounds in extra capital spending upped the chances of the BoE keeping rates higher for longer. Yields on British government bonds rose as money markets priced in a roughly 89% chance on a quarter-point interest rate cut by the BoE at its November meeting, down from a 100% probability earlier this week. “Higher yields can be a symptom of concern about fiscal policy, but that’s not translating into a weaker sterling, so I would not exaggerate too much about the fiscal concern yet,” said Kenneth Broux, head of corporate research FX and rates at Societe Generale. Investors are cautiously awaiting Reeves’ budget plan next Wednesday, after she has warned some taxes will have to rise after identifying a 22 billion-pound fiscal hole soon after the Labour Party came to power in July. The latest survey of British business activity showed companies reported the slowest growth in 11 months in October, as uncertainty ahead of the Labour government’s first budget dampened confidence. Overall, the dollar index =USD stalled after hitting a near three-month high of 104.570 in the prior session, aiding major currency pairs’ rise.

SOUTH AFRICAN RAND FIRMS; PLATINUM GROUP METALS STOCKS SOAR

South Africa’s rand gained against a weaker dollar on Thursday while local platinum group metals (PGMs) producers’ shares soared over concerns about supply sanctions on top palladium producer Russia. At 1520GMT, the rand traded at 17.6825against the dollar ZAR=D3, about 0.6%stronger than its previous close. “The rand is trading higher today, boosted by a weaker dollar that is lifting emerging market currencies,” Zain Vawda, market analyst at MarketPulse by OANDA, said. The dollar index =USD was last down about 0.2%against a basket of major currencies, pausing a recent rally fuelled by bets on a slower pace of interest rate cuts by the Federal Reserve and a potential second presidency for Donald Trump. With no major domestic economic data releases due in South Africa on Friday, the risk-sensitive rand is set to take cues from the direction of the dollar. Johannesburg-listed PGMs miners surged on Thursday as global palladium prices rose after the U.S. asked its G-7 peers to consider sanctions on top-producer Russia. The shares of Anglo American Platinum AMSJ.J and Northam Platinum NPHJ.J closed more than 13% higher. The blue-chipTop-40 .JTOPI index closed about 0.45% higher. South Africa’s benchmark 2030 government bond ZAR2030 wasstronger, with the yield down 15 basis points at 9.355%.

DOLLAR ADVANCES AFTER DATA AS EYES TURN TO JOBS REPORT

THE dollar index rose on Friday (Oct 25), with the greenback set to lock in a fourth straight week of gains after data this week kept interest rate expectations for the US Federal Reserve in check while investors looked towards next week’s key payrolls report. A run of positive economic data has quieted expectations about the size and speed of the Fed’s rate cuts, which has also lifted US Treasury yields. The Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 0.5 per cent last month after an unrevised 0.3 per cent gain in August and above the 0.1 per cent rise estimated by economists polled by Reuters. Investors are now focusing on the October government payrolls report this week, which is likely to be impacted by a strike at Boeing and two hurricanes that hit the US south-east. “We had a massive recalibration in economic expectations for the US and that process seems to have largely run its course, the Fed’s policy trajectory looks much more reasonable and interest rate differentials between the US and other major economies are stabilising here,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “Clearly payrolls data is the key variable, and it is still an open question as to whether September’s number was an outsized move or an aberration, a statistical aberration and so, next week’s report will help to clarify that, but the reality is that we also are going to be taking it with a huge grain of salt.

CANADIAN DOLLAR EXTENDS WEEKLY LOSING STREAK ON BOC RATE CUT

THE dollar index rose on Friday (Oct 25), with the greenback set to lock in a fourth straight week of gains after data this week kept interest rate expectations for the US Federal Reserve in check while investors looked towards next week’s key payrolls report. A run of positive economic data has quieted expectations about the size and speed of the Fed’s rate cuts, which has also lifted US Treasury yields. The Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, jumped 0.5 per cent last month after an unrevised 0.3 per cent gain in August and above the 0.1 per cent rise estimated by economists polled by Reuters. Investors are now focusing on the October government payrolls report this week, which is likely to be impacted by a strike at Boeing and two hurricanes that hit the US south-east. “We had a massive recalibration in economic expectations for the US and that process seems to have largely run its course, the Fed’s policy trajectory looks much more reasonable and interest rate differentials between the US and other major economies are stabilising here,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “Clearly payrolls data is the key variable, and it is still an open question as to whether September’s number was an outsized move or an aberration, a statistical aberration and so, next week’s report will help to clarify that, but the reality is that we also are going to be taking it with a huge grain of salt.”s