Dollar Begins Mostly Slightly Lower, and Risk is On to Start the Week

thought about the world over the weekend and decided it did not look so bad.
Global stocks and bonds are higher today, helped by favorable economic data and
corporate earnings. 

 The dollar is lower against most major
and emerging market currencies. 
The pullback is modest.  The
Australian dollar is leading the majors with a 0.4% gain.  The others are
up less than half as much.  Among the emerging markets, the South African
rand is in the post position, with almost a 0.9% gain, while the Thai baht and
Mexican peso next, but up less than half as much (~0.35%).  

The MSCI Asia-Pacific Index is up 0.4%. Chinese
shares were up the most in the region with the Shanghai Composite gaining 1.2%
to reach a nine-month high.   The Communist Party leaders hold a
plenum session, and there is speculation
of fiscal support.  

Meanwhile, China’s yuan continues to slip
lower, and the offshore yuan, which is only seven-years-old,
is at record lower. 
The onshore yuan is off 1.5% this month. 
Eastern and central European currencies have fallen further, as has the South
Korean won, Turkish lira, and Singapore dollar.  Sterling is off 5.6%,
while the euro has fallen 3% this month, to put the yuan’s move into perspective.  

European bourses are broadly higher. The
Dow Jones Stoxx 600 is up 0.5%, to one-month highs, led by financials (+1.2%)
and energy (+0.5%).   The 14% rise in Royal Philips corporate
earnings are the energy sector.  Despite Fitch cutting Italy’s credit
outlook to negative, Italian bank shares are rallying 2.2% today.  The
bank index is at its highest since the UK referendum.  Deutsche Bank
shares are also up 2% today.  

The eurozone
flash PMI improved, which is consistent with the continued trend growth in the
The composite PMI rose to 53.7 from 52.6., which is the best of
the 2016 and well above the consensus of 52.8.   Germany’s rebounded
smartly.  The manufacturing PMI rose to 55.1 from 54.3, well above
expectations and the strongest reading since Q1 14.  The services PMI
jumped to 54.1 from 50.9, the single biggest monthly rise in this
three-year-old time series.    The composite rose to 55.1 from
52.7, completely recovered from the August and September
pullback.    Separately, we note that the latest polls suggest
Merkel’s support has improved, and the better economic performance will not

The flash
French PMI was less inspiring.
  The good news is that
manufacturing recovered above the 50 boom/bust level for the first time since
February.  It averaged 48.9 in Q3 and 48.2 in Q2.  In October it
stood at 51.3.  The service PMI fell to 52.1 from 53.3.  It is the
lowest since July, and just above the Q3 average of 52.0.   This pushed the composite to 52.2 from

European bonds are
Portugal’s 10-year yield is off nine bp after DBRS maintained
its investment credit rating and outlook.  Spanish 1o-year yield is five bp lower.  A sufficient number of
Socialists will abstain from the confidence vote, allowing Rajoy and the PP to
head up a minority government and avoid going to the polls for the third time
in a year.   Fitch cut Italy’s outlook to negative before the
weekend, but Italy’s 10-year bond yield is 2.5 bp
the premium over Germany is a tad smaller.  

Earlier Japan reported a larger than expected
September trade surplus.
  The balance almost always improves in
September.  The September trade surplus
increased to JPY498.3 bln from a JPY18.7 bln deficit in August. 
Economists had expected exports to have deteriorated, but they improved. 
Exports were off 6.9% from a year ago.  In August they were off
9.6%.  Exports to the US fell 8.7%.  Exports to China, Japan’s
biggest export market, fell 10.6%, while exports to the EU rose 0.7%. 
Imports fell 16.3% in September, after a 17.3% slide in August. 
Separately, Japan’s flash manufacturing PMI rose to 51.7 from 50.4, for the
second consecutive month above 50.  It had been below that threshold since

It is a light week for market-moving US economic
data, with the highlight being the first
estimate of Q3 GDP later in the week. 
Today’s features the Markit
preliminary manufacturing PMI.  However, more attention may be on Fed
officials ahead of the quiet period before next week’s FOMC meeting. 
Today, Dudley, Bullard, Evans, and Powell speak.   The views are well
known, and they seem to think a rate hike this year is still appropriate
barring a new shock.  Evans is the
dove in the group.  

The Canadian dollar saw follow through selling in early Asia after the large
data-driven sell-off ahead of the weekend.
  The US dollar spiked to
almost CAD1.3380 before settling in a CAD1.3320-CAD1.3360 range.  
The euro, yen, and sterling are consolidating within the
pre-weekend ranges.  The euro held the last Friday’s low near $1.0860 but
has been unable, in the European morning, to poke through $1.09.  
Sterling recovered from the Asian dip toward $1.2185 but ran out of steam ahead
of the pre-weekend high near $1.2260.  Intraday technicals warn of a push lower in North America. 
Dollar-yen is flat, largely in a JPY103.80 to JPY104.00 band.  


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