FX News Today
European Outlook: The global stock rally continued in Asia overnight, with broad gains following on from rallies on Wall Street and in Europe on Thursday. The Nikkei 225 closed up 1.45% at 18, 765. FTSE 100 and U.S. stock futures are also moving up, but oil prices dipped and the front end WTI future is trading below USD 50 per barrel. Hopes that the ECB will extend its asset purchase program at current levels have been underpinning markets and some seem to hope also for an abolition of the deposit rate floor for purchases or even a foray into stocks to ensure sufficient supply. But while improved economic fundamentals may not prompt the ECB to withdraw from markets at a time when political uncertainty remains high and high debt countries remain reliant on the ECB to keep yields down, the risk is that an ECB compromise proposal could spark disappointment and a correction of inflated markets. The calendar also has French non-farm payrolls as well as Bank of France business sentiment.
Bank of Canada Policy: Steady for an Extended Period; The Bank of Canada delivered the expected lack of change in the policy rate alongside acknowledgement of recent positive developments domestically and internationally. Yet a still cautious tone on the growth and inflation outlook remained, which kept a wait-and-see approach to policy firmly in place. The outlook remains for no change in the currently accommodative policy setting for an extended period of time.
A light has been shone on sterling’s flash crash of October 7 by an FT report citing unnamed officials with knowledge of the BoE’s Prudential Regulation Authority investigation into the incident, in addition to market traders. To recall, the pound dove from 1.2600 to 1.1400 in the space of 40 seconds in the early hours of Asian trading of Friday, October 7. The suggested catalyst seemed pretty innocuous by the standards of post-Brexit discourse, being remarks from France PM Hollande saying that “it is not possible … to leave the EU and get the advantages without the obligations.” The FT’s sources pinpoint the source of the flash crash, which occurred after an initial flurry of selling, to a trader at Citigroup, who placed a large number of rapid-fire sell orders placed in Tokyo using an electronic tool known as “Aggregator.” The sell orders met with zero buying interest due to “extremely illiquid” market conditions and a prevailing extreme bearishness about the pound in the wake of the Brexit vote. Safety nets to prevent a “looping” of sell orders didn’t kick in, apparently. The FT’s BoE source said that human error and the use of a “poorly calibrated execution algorithm” were among the possible reasons for the sell-off.
Yesterday’s US Data Reports: U.S. JOLTS report showed job openings fell 97k to 5,534k in October after climbing 178k to 5,631k in September (revised higher from 5,486k). The job openings rate also rose to 3.7% from 3.6% (revised down from 3.7%). Hirings slid 22k to 5,099k following a 147k drop to 5,121k previously (revised from 5,081k). That resulted in a steady 3.5% hiring rate. Quitters declined 66k to 2,986kk after September’s 43k increase to 3,052k (revised from 3,070k). The rate was unchanged at 2.1%. This report on October jobs won’t impact the FOMC or the markets.
Main Macro Events Today
- ECB Outlook – That the ECB will announce an extension of its asset purchase program is pretty clear, but the question for today is whether monthly purchase volumes will be tapered and what additional steps the ECB will take to ensure a sufficient amount of supply. While there will be updated staff projections, this is ultimately a decision that will be based not so much on economic data, but on the question whether Eurozone peripheral markets can withstand a withdrawal of support and changing the EUR 80 bln into an upper limit rather than a monthly target may be a compromise in times of heightened uncertainty, with a 6 months program extension and a change of the EUR 80 bln monthly purchases from a “target” to an “upper limit”.
- US Initial Job Claims – Initial claims data for the week of December 3 is out later and expectations are for the headline to fall to 255k from 268k last week and 251k in the week before that. Claims have been striking a remarkably tight path of late and look poised to average 251k in November, down from 258k in October.
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