CAPITALDIGEST, MARKET REVIEW. 4TH OCTOBER 2021.
MONDAY 27/9/2021 – U.S. DOLLAR GAINS, TRACKS RISE IN TREASURY YIELDS
The U.S. dollar advanced for a second straight session on Monday, bolstered by the rise in Treasury yields ahead of a slew of Federal Reserve speakers this week who could affirm expectations of the start of asset purchase reduction before the end of the year. U.S. benchmark 10-year Treasury yields hit a three-month high of $1.516% on Monday. Fed officials, including one influential board member, on Monday tied reduction in the Fed’s monthly bond purchases to continued job growth, with a September employment report now a potential trigger for the central bank’s bond “taper.” Fed Chair Jerome Powell, who will join Treasury Secretary Janet Yellen, speaks before Congress on Tuesday. The dollar index , which measures the U.S. currency against six major rivals, rose 0.1% to 93.37. The greenback also extended gains after data showed new orders and shipments of key U.S.-made capital goods increased solidly in August, rising 0.5% in August amid strong demand for computers and electronic products.
But the market has been more focused on the U.S. Treasury market.
Dollar banknote is seen in this illustration taken May 26, 2020. /Dado Ruvic/Illustration/File Photo By Tom Westbrook SINGAPORE The dollar began the week firmly on Monday with investors in a cautious mood ahead of several central bank meetings, headlined by the Federal Reserve, while looming catastrophe at indebted developer China Evergrande added to markets’ fragility. In thin trade, owing to holidays in Japan and China, the euro nursed losses from its weakest week in a month, slipping slightly to touch a four-week low of $1.1721. Sterling and the Australian and New Zealand dollars were also pressured toward new troughs. The kiwi, at $0.7024, and sterling, at $1.3722, made three-week lows as did the Aussie which fell 0.1% to $0.7253. [AUD/] “The U.S. dollar is having a bit of a rebound,” said Westpac analyst Imre Speizer, drawing support, he added, both from an expectation of imminent asset purchase reductions from the Fed and from caution as equity markets begin to get the wobbles. “Everyone is eying the Fed, waiting for a tapering signal.” The U.S. dollar index rose very slightly to a month-high 93.263. The yen held at 110.01 per dollar. The week brings central banks in Japan, the UK, Switzerland, Sweden, Norway, Indonesia, the Philippines, Taiwan, Brazil, South Africa, Turkey and Hungary as well as elections in Canada and Germany — though traders are mostly focused on the Fed.
TUESDAY 28/9/2021 – STERLING DROPS MORE THAN 1% AMID U.S. YIELDS SURGE, UK FUEL CRISIS
Sterling fell more than 1% versus dollar and euro on Tuesday as a steep rise in U.S. Treasury bond yields and fears for the economic impact of a shortage of gas in Britain overshadowed Bank of England comments about a possible interest rate rise. U.S. yields have surged since last week’s Federal Reserve meeting where it said it may start tapering stimulus as soon as November and flagged interest rate increases could follow sooner than expected. Tuesday’s remarks from Fed Chair Jerome Powell signalled nervousness about inflation, and pushed U.S. 10-year yields above 1.54% to the highest since mid June and also led markets to price higher future inflation. “It is all about U.S. Treasuries today as yields climb higher in early trading, placing the whole G10 under pressure,” said Simon Harvey, senior FX market analyst at Monex Europe. British 10-year gilt yields also rose to the highest since the pandemic started above 1%. But concerns have also grown about how gas and petrol shortages could impact the British economy. “Concurrent to the rising price concerns is the fact that the UK is also currently facing a fuel distribution issue,” said Jeremy Stretch, Head of G10 FX Strategy at CIBC Capital Markets. “If the latter (fuel shortage) were to persist that would amplify concerns over the growth profile”. Some petrol station pumps ran dry in British cities and vendors rationed sales as a post-Brexit shortage of truckers triggered panic buying and raised fears that hospitals would be left without doctors and nurses.
WEDNESDAY 29/9/2021 – POUND HITS END-2020 LOWS AS UK FUEL FEARS PERSIST
Sterling hit its lowest since end-2020 against the dollar on Wednesday, erasing all its gains for the year as concern about soaring natural gas prices and almost a week of petrol shortages in Britain outweighed a recovery in global equity markets. The pound generally trades in line with global risk sentiment and was hit by a global equity selloff on Tuesday when investors braced for future rate hikes from global central banks, most notably the U.S. Federal Reserve. Although stocks staged a recovery on Wednesday, sterling extended its Tuesday losses and fell another 0.7%, to its lowest since Dec. 28 against the dollar at $1.3440. The two consecutive daily drops – on a two-day basis, the worst since September 2020 – have left the pound flat against the dollar for the year. Sterling was at one point the best performing G10 currency in 2021, boosted by high expectations for an economic rebound in Britain on the back of the country’s vaccination programme. That narrative has crumbled under the weight of a post-Brexit shortage of lorry drivers that has sown chaos through British supply chains in everything from food to fuel, raising the spectre of disruptions and price rises in the run-up to Christmas. Drivers have been panic-buying fuel for almost a week, leaving pumps dry across major cities, after oil companies warned they did not have enough truck drivers to move petrol and diesel from refineries to filling stations.
THURSDAY 30/9/2021 – DOLLAR SLIPS FROM 1-YEAR HIGH ON WEAK DATA, CONSOLIDATION
The dollar edged lower from a one-year high on Thursday in choppy trading, pressured a little bit by a rise in U.S. weekly jobless claims, with investors also consolidating gains after a steep rise the last few sessions. The greenback overall has been supported by the spike in U.S. Treasury yields amid expectations the Federal Reserve will taper its monetary stimulus beginning in November even as global growth slows. Thursday’s economic data, though, dented some of the dollar’s strength. U.S. initial jobless claims rose for a third straight week to 362,000 for the period ending Sept. 25, data showed. Economists polled by Reuters had forecast 335,000 jobless applications for the latest week. That said, another report confirmed that U.S. economic growth accelerated in the second quarter, at a 6.7% clip, thanks to pandemic relief money from the government, which boosted consumer spending. “Even if the U.S. dollar falls back a bit further in the near term, we expect it to resume its recent rally in due course,” Joseph Marlow, assistant economist at Capital Economics, wrote in a research note.
FRIDAY 1/10/2021 – U.S. DOLLAR SLIDES FOR 2ND DAY, BUT OUTLOOK STAYS UPBEAT
The dollar fell for a second straight session on Friday, tracking declines in U.S. Treasury yields, as investors booked profits after recent sharp gains, though the decline was viewed as temporary. U.S. 10-year Treasury yields were last at 1.484% , down nearly six basis points. For the week, the dollar index posted its largest percentage gain since late August, as investors looked to the Federal Reserve’s reduction of asset purchases in November and a possible rate hike late next year. Cautious market sentiment due to COVID-19 concerns, wobbles in China’s growth and a Washington gridlock ahead of a looming deadline to lift the U.S. government’s borrowing limit has lent support to the dollar, seen as a safe-haven asset. “The more hawkish stance appears to have been the key factor driving the dollar higher in late September,” said Marc Chandler, chief market strategist, at Bannockburn Global Forex. “However, more immediately, fiscal policy is the focus, though investors appear to be looking through it, as many find it inconceivable that the U.S. would default on its debt,” he added. In afternoon trading, the dollar index slid 0.3% to 94.046, having gained 0.8% this week, the largest weekly rise since late August. Friday’s batch of U.S. data was mixed, adding to dollar weakness ahead of the weekend. U.S. consumer spending increased more than expected in August, posting a 0.8% rise, but consumption was weaker than initially thought in July, dipping 0.1% instead of gaining 0.3%. Inflation remained elevated, but not by much. Core inflation as measured by the personal consumption expenditures (PCE) price index, excluding the volatile food and energy components, was up 0.3% in August, unchanged from previous month.