U.S. Dollar Gains Could Be Extended by Fed Minutes Readout — Market Talk
0934 ET - The U.S. dollar's recent run-up could maintain momentum based on what today's Fed minutes reveal, Infinox's Thadeu Dos Santos says in a note. While an October rate hike has been largely priced out, any evidence of broad support for further hikes could rebuild short-end yields and extend the dollar's gains, the analyst says. A more cautious readout could reverse those gains, he says. After that, Thursday's jobless claims report will provide another potential catalyst, indicating whether the latest signs of labor market weakness is broadening, the analyst says. ([email protected])0852 ET - Treasury yields push higher after two sessions where they fell, as markets wait for Fed minutes and a 10-year auction. Oil rises 1% and the dollar strengthens. Investors will scrutinize the discussions that led the central bank to raise rates for the first time in three years. Inflation data due next week will set expectations for the next move, which is currently priced in as a hold. The Treasury is auctioning $39 billion in 10-year notes. High yields have attracted buyers in recent tenders. The 10-year yield rises to 5.347% from 5.270% yesterday. The two-year increases to 4.823% from 4.789%. The 30-year is at 5.752%, a level not seen since 2002. ([email protected]; @ptrevisani)0846 ET - Use of AI in Canadian organizations has risen more than eightfold in three years but governance is still catching up, says Chartered Professional Accountants of Canada. Its poll of 5,000 CPAs in the country found organizational AI use rose to 43% this year from 5% in 2023, and nearly three-quarters now use AI at least weekly in their professional work. Respondents also report AI is delivering tangible benefits. Still, the study finds that while 67% of CPAs report having access to approved AI tools for professional use, only 45% report a formal AI policy and just 34% say their organization has implemented either employee training or a formal AI strategy. ([email protected]; @RobbMStewart)0829 ET - Ether falls to a two-and-a-half week low as surging long-term Treasury yields damp risk appetite. "With Treasury yields still elevated and bitcoin struggling to decisively break higher, investors have become more selective across crypto, and ether remains especially sensitive to shifts in liquidity because it tends to trade as a [more highly risk sensitive] digital asset," Zaye Capital Markets analyst Naeem Aslam says in a note. Meanwhile, institutional demand is weaker with U.S. spot ether exchange traded funds recently recording outflows, he says. Ether falls 4.4% to as low as $2,572, LSEG data show. ([email protected])0820 ET - The FOMC minutes will be closely examined as investors try to glean clues on the thinking of policymakers when they raised rates last month. BMO's Ian Lyngen says a common theme among investors before the Fed meeting was that Chairman Warsh needed to hike to maintain credibility, and not directly as a result of recent data. "The degree to which a similar 'credibility hike' framework was discussed on the Committee will be notable and imply that the forward path of hikes will be more gradual, consistent with the latest Williams comments," Lyngen says. He adds that he'll also watch for how the FOMC is viewing the balance of risks to its dual mandate, which may provide insight on its appetite to continue hiking "or whether the market could be justified in viewing September's move as truly a one-off hike." ([email protected])0800 ET - Despite intensifying competition, European manufacturers shouldn't seek to cut off trade with China, Marion Muehlberger and Ursula Walther at Deutsche Bank in a note. Germany has shown an increasing willingness to use EU trade-defense tools to protect itself from intensifying Chinese competition, they say. "The preferred outcome is derisking rather than decoupling. Europe and China would continue trading and investing with one another, but with reduced strategic dependencies, greater reciprocity and better market access for European firms." Europe's priority should be restoring competitiveness through lower energy costs, faster permitting, infrastructure and deeper capital markets, they say. "Trade-defense tools can offer temporary relief, but lasting success will depend on stronger domestic productivity and innovation." ([email protected])0758 ET - Expansion isn't in the cards for most small Canadian firms, fresh research suggests. Only 7% of smaller businesses plan to grow or diversify significantly over the next 12 months, says the Canadian Federation of Independent Business. A third of businesses say they aren't growing due to cost and economic pressures, and 59% of those respondents cite a tax burden. The federation's research shows that three in five companies would use tax savings to increase employee wages if the small-business tax rate was cut, 48% would pay down debt and 47% wold expand their business. ([email protected]; @RobbMStewart)0755 ET - The Swiss franc's recent strong performance in response to French fiscal concerns confirms it retains its safe-haven status, Rabobank's Jane Foley says in a note. "Switzerland's textbook credentials for a safe haven are strong." It runs a current account and budget surplus, has a credible central bank and strong and transparent systems of governance, she says. The franc is also liquid. However, the Swiss National Bank's policy rate is 0% and it could also use interventions to weaken the franc, she says. The euro falls 0.6% to 0.9308 francs after reaching a 10-week low of 0.9258 Friday, LSEG data show, and Rabobank expects it remain around 0.93 in coming weeks. ([email protected])0739 ET - With $39 billion in 10-year notes slated for sale, today's Treasury auction will be closely watched to see how eager investors are to scoop up the debt. There were hopeful signs from Tuesday's 3-year auction according to BMO's Ian Lyngen. He called the 3-year auction "well received" compared to the 2-year, 5-year and 7-year auctions last month. Still, he said the modest stop-through of 0.2% left the stop rate at 4.932%--the highest for the sector since 2006. "The stop through ended the streak of five consecutive auction tails, a dynamic that bodes well for the 10-year auction," Lyngen said. "The outright level of yields proved enticing enough to bring in buyers for 3s, perhaps the same outcome will be the case for the 10s." ([email protected])0723 ET - The dollar's rally could lose steam if Treasury yields ease ahead of the Federal Reserve's October 28 meeting, UniCredit's Roberto Mialich says in a note. Investors could view currently high U.S. yield levels as a buying opportunity, taking some shine off the dollar, he says. "A decline in U.S. yields could reduce safe-haven demand." However, political tensions across the eurozone could also act as a brake against a full-fledged recovery in the euro versus the dollar. The rise in U.S. yields appears driven by a market overreaction to the Fed's signals about raising interest rates further rather than long-term fundamentals, he says. The euro falls 0.6% to $1.1191 after reaching a 16-month low of $1.1160 Monday, LSEG data show. ([email protected])0717 ET - U.K. government bonds, or gilts, appear little priced for fiscal risks related to the October 28 budget, Ebury's Matthew Ryan says in a note. Gilts have traded relatively calm in recent weeks compared to bonds in continental Europe and the U.S., he says. "In some ways this is not overly surprising, given that the U.K.'s fiscal situation, while far from pristine, is not as dire as France's, but we also think the risk is underpriced ahead of the budget later this month." The risk of more significant tax rises and higher borrowing is gaining traction among market commentators but is yet to show up in gilts, he says. Ten-year gilt yields rise 8.2 basis points to 5.456%, according to Tradeweb. ([email protected])0709 ET - Sweden's latest inflation figures are modestly negative for the krona, Monex Europe strategist Barry van der Laan says in a note. Headline CPIF inflation rose to 1.5% in September, as expected, while core inflation remained at 0.5%, below forecasts. "On balance, these figures are unlikely to derail the Riksbank's tightening plans, but they give policymakers some room for patience," he says. The anticipated acceleration in headline inflation provides no fresh impetus to raise interest rates, while lower-than-expected core inflation could temper expectations for near-term tightening, he says. The euro falls 0.1% to 11.2306 krona, reversing initial gains after the data, as French debt concerns weigh on the single currency. ([email protected])