A tense calm prevails in the markets. A state of anticipation may prevail in the markets as the US presidential election approaches. This nervous calm raises questions about the results of the election, which may be delayed in being announced, which contributes to increasing the state of anxiety. Some believe that the vote may just be the beginning of a new phase of competition, as the winner may be announced before the counting process is complete, which raises controversy over the votes.
Meanwhile, the dollar is trading in narrow ranges, while some other currencies are showing noticeable strength. The Australian and Scandinavian currencies are leading this trend, as the Reserve Bank of Australia decided to keep interest rates as they are. The bank indicated that inflation may not return to target levels until 2026, reflecting a state of caution in monetary policy.
As for currencies in emerging markets, they generally remain more stable, but there are some exceptions in the Asia-Pacific region and Central Europe, such as the weakness of the Mexican peso. These fluctuations in the currency markets indicate the geopolitical and economic tensions surrounding global markets.
Markets hold firm amid volatility
Markets continue to perform strongly across the Asia-Pacific region. South Korea and Australia advanced, while Hong Kong and China led the way, posting gains of more than 2%. In Europe, the STOXX 600 index rose slightly, but failed to hold onto early gains, losing 0.33%.
US index futures are showing a strong trend. Benchmark 10-year bond yields remain flat. European yields have also risen by around 3-5 basis points. Although the UK 10-year Treasury yield peaked at 4.53% last week, it remains strong, heading towards 4.50%. In the US, the US 10-year Treasury yield rose 2 basis points to 4.30%.
Economic situation in Asia-Pacific
The Reserve Bank of Australia kept interest rates on hold as expected. It also revised down its economic forecasts. The bank cut its growth forecasts and indicated that inflation would not return to target until 2026. Governor Bullock added that the interest rate path that markets had expected was “as good as anything”. As a result, there was little change in swaps and interest rate markets.
In another development, the October composite and services PMIs were released. The services PMI has remained above 50 since January, coming in at 51.0 last month, above the flash estimate of 50.6 and better than September’s 50.5. Elsewhere, the composite PMI came in at 50.2, up from the flash estimate of 49.8, ending two months of readings below 50, due to a decline in manufacturing activity.
In China, the services PMI and composite data showed a notable increase. The services PMI jumped to 52.0 from 50.3, while the composite rose to 51.9 from 50.3. China’s National People’s Congress is now in session, with speculation that a multi-year fiscal initiative will be announced at the end of the week. Trade and reserves figures will be released in the coming days, followed by CPI and PPI data on Friday.
In Japan, the final services PMI and composite are due tomorrow, while cash earnings data will be released on Thursday. Meanwhile, markets are watching the implications of the Democratic Progressive Party’s political support for the Liberal Democratic Party. This could lead to a smaller supplementary budget, as well as raising the income tax threshold from 1.03 million yen to 1.78 million yen, which would ease the burden on part-time workers. However, the change is expected to cost the government around 7-8 trillion yen, or about 10% of annual revenue.
Dollar moves in currency markets
The dollar fell to a fresh low against the yen in early North American trading. It reached 151.55 yen, approaching the 200-day moving average. However, the dollar quickly recovered to 152.20 yen, settling in the consolidation zone above 152 yen. $1 billion worth of options were traded at 152.50 yen, which expires today.
In bond markets, the yield on the 10-year US Treasury note rose. After hitting a low of 4.26%, the yield rose to 4.32% in the afternoon. The rise may have been driven by a sale of $58 billion worth of three-year notes.
The Australian dollar hit a five-session high locally, at $0.6620. But it started to retreat in European morning trading. If the Australian dollar breaks above the $0.6630-50 level, it could rise further, targeting $0.6700.
The US dollar recovered from a three-week low of 7.0870 Chinese Yuan, rising to 7.1130 Chinese Yuan. The dollar has been in a tight range at the upper end of the range it recorded yesterday against the yen and the offshore yuan. So far today, the dollar has been trading between 7.1045 Chinese Yuan and 7.1175 Chinese Yuan. Meanwhile, the People’s Bank of China set the reference exchange rate to the dollar at 7.1016 Chinese Yuan, compared to 7.1203 Chinese Yuan the day before.
As for gold, it fell to a six-day low near $2,725, but saw a slight recovery to $2,739 during the day. The highest level recorded by gold yesterday was $2,748, but it was unable to maintain this rise.
On the other hand, OPEC+’s decision to postpone the production increase had a positive impact on the oil markets. Iranian threats against Israel also contributed to stimulating the market. West Texas Intermediate crude rose in December to above $72 for the first time since Oct.
