JASPER’S MARKET SQUAWK 31-10-2023

Markets Rebound on Dollar Weakness

Risk appetite rose Monday following easing fears of a Mid-East spillover, upbeat earnings, and a well-received reduction in the government’s deficit to $776B. US equities rose on a softer dollar, with analysts now expecting an earnings growth of 4.3% compared to 1.6% in early October.

Chart: GBPUSD

Key Factors for Today

• Markets Rebound as Dollar Weakens, Earnings Expected to Grow by 4.3%
• BOJ Disappoints, But the Japanese Currency is Bouncing Back
• WTI Slumps 3% as Mid-East Fears Ease, China’s PMI Adds to Concerns
• Euro Gains Despite German Data, EURUSD Attempts $1.065
• China’s Manufacturing Contracts, Possibly Weighing on Aussie
• UK Mortgages at Lowest Since January, Reinforces BOE Hold

BOJ Disappointed on MonPol Front, But Tweaked YCC Language

The BOJ went against recent belief it would let bond yields past the 1% band, disappointing speculators and pressuring the Japanese currency. However, the bank redefined the upper limit of 1% as a loose “upper bound” and removed a pledge to defend it with unlimited bond purchases. USDJPY was down 0.30% to 149 on Monday but found support there and is seen rising past 150 early Tuesday.

WTI Slumps 3% on China and IEA as Mid-East Fears Wane

Oil prices dropped around 3% on rising confidence the Israel-Hamas war will remain regional and concerns about softening demand following. WTI reached a low of $82.50 as Chinese PMI fell into contraction from 50.2 expected to 49.5, and following IEA analysis, Germany’s consumption will fall about 90K bpd this year, a 4% reduction in 2023. The round $80 level is next support, with resistance expected at $83.50 a barrel.

German Data Mixed But Still Show Slowdown

The euro reversed four straight sessions of losses with a gain of 0.52% to %1.0617 despite Germany’s inflation easing and growth shrinking in Q3. CPI inflation fell 70 basis points to 3.8%, lower than forecast at 4%, with the fast figure showing deflation. Its GDP contracted to -0.1% quarterly and 0.3% annually but beat estimates of -0.3% and -0.7%. If the rally continues, EURUSD could reclaim $1.065; otherwise, support lies at $1.056.

China’s Manufacturing Falls Into Contraction

China’s manufacturing PMI declined to 49.5 in October from 50.2 the month prior, falling into contraction. Total new orders also dropped to 49.5 versus 50.5 in September, with exports slugging to 46.8. The news was taken poorly by Asia, with AUDUSD seen falling towards 0.6330 Tuesday, nearly fully reversing Mondya’s gains at 0.6374.

UK Mortgages Show Further Property Market Slug

British lenders approved over 43K mortgages in September, the lowest number since January, with net approvals for remortgaging to around 20K, the lowest since January 1999. The sluggish property market has reinforced market expectations of a BOE hold, with analysts suggesting a peak rate and a more dovish stance going forward. GBPUSD still rose on the back of a weaker dollar, but under $1.22 prices may remain under pressure, exposing $1.21 again.

On The Docket

• French Inflation Rate
• EA GDP Growth
• EA Inflation Rate
• Canada GDP
• CB Consumer Confidence
• API Crude Oil Stock Change
• Jibun Bank Manufacturing PMI
• OPEC 2022 World Oil Outlook

FX 1-Day Relative Performance (USD)

• Aussie and Kiwi 0.41% and 0.27% down
• Euro 0.16% in red, Pound 0.20% lower
• Loonie 0.13% lower, Franc down 0.02%
• Japanese yen 0.75% lower down
• Gold 0.09% down, Silver 0.47% lower
• Crude and Brent up by 0.51% and 0.45%
• Natural gas 0.48% higher