Upbeat earnings continued to drive equities higher on Tuesday, but it appears that the Treasury’s reduced borrowing didn’t have the expected impact on yields. The shorter-term yields came under pressure as the deficit projection looked at Q4, but the 10-year ended higher on the back of stronger US data.
Chart: EURUSD
The Japanese yen tumbled to a one-year low against the dollar following the BOJ’s decision to ditch the upper YCC ceiling to close widening rate differentials. Japan’s top currency diplomat, Masato Kanda, stated that authorities were ready to intervene to address any sort of excessive moves, but nothing so far. USDJPY will likely remain biased up while trading above 150.80 and the 150 round support, exposing 33-year highs past 152.
US consumer confidence dropped to a five-month low in October, but it beat estimates of 100 to 102.6, adding to a series of hot US prints released in the past few weeks that JP has to deal with. Last month’s CC was also revised upward from 103 to 104.3. Meanwhile, employment costs unexpectedly accelerated in Q3, pressuring the Fed to maintain high rates until inflation is notably lower. The 10-year rose 0.86%, sending the US index 0.50% higher to 106.70 and leaving behind support at 106.32.
Eurozone inflation dropped from 4.2% to 2.9% in October compared with expectations of 3.1%, primarily attributed to base effects from energy’s spike last year. However, the economy contracted by 0.1% in Q3, potentially leading to a recession. ECB’s Joachim Nagel emphasized the need to avoid premature easing as the bank has effectively reduced interest rates by just keeping at it. The European currency was trading up near $1.0675 but reversed to end 100 pips lower against the greenback, closing at $1.0574 and bringing $1.05 into focus.
During its Cabinet meeting last week, Iraq agreed to increase crude oil exports to China by 50% and its daily production capacity of the Rumaila oil field in a blow to the US for its influence in the Middle East. Despite a better-than-expected API build (1.35M vs 1.6M), oil traded lower in Tuesday trading, weighed by easing tensions in Gaza after Hamas pledged to release several hostages following a deadly strike at a refugee camp and a call for a “general cease-fire” from international powers. Losing the round support at $80 could instigate further pain towards $79.30 a barrel unless bulls reclaim $82.50.
China’s unofficial Caixin manufacturing PMI fell to 49.5 in October, marking the first contraction since July and missing analysts’ forecasts at 50.8. Manufacturing conditions deteriorated due to weak foreign demand, and business confidence for the year ahead is not expected to improve. USDCNY rose 0.22% to 7.34, with a break of 7.3470 opening the door to 7.3683.