It was an up and down kind of week for risk as traders jumped back and for between Evergrande headlines from China and monetary policy speculation.
After the initial dump in risk, the Canadian dollar was the one to rule them all by Friday, likely benefiting from the run higher in oil prices as well as on the post-Fed return to risk move.
Notable News & Economic Updates:
- Crypto prices plummet on Monday amid global market fears
- Gold rises on Tuesday Evergrande fears persist,
- Swiss National Bank resumed interventions in second quarter – on a small scale
- Eurozone flash PMI points to slower growth as bottlenecks curb activity and input price gauge hits 21-year high
- Federal Reserve holds interest rates steady, says tapering of bond buying coming ‘soon’
- Oil prices rise over $1 after report of big draw in U.S. crude stocks
- The Fed is evaluating whether to launch a digital currency and in what form, Powell says
- Evergrande chairman attempts to reassure investors on bond coupon payment
- Norway hikes rates, becoming the first central bank in the developed world to do so
- Brazil’s central bank hiked interest rates, hints at one more next month
- Market expectations for Bank of England rate rise shift to early 2022
- Eurozone flash PMI points to slower growth as bottlenecks curb activity and input price gauge hits 21-year high
- Evergrande stays silent on its $83 million dollar bond interest payment, leaving investors in limbo
- Bitcoin and ether slide as China intensifies crackdown on cryptocurrencies
- Return to school has caused a surge in covid-19 cases in under-vaccinated counties
- Oil hits highest in almost 3 years as supply tightens
Intermarket Weekly Recap
Intermarket price action was pretty uniform this week as traders mainly moved on broad risk sentiment flows. This week, those flows were mainly influenced by the situation in China with the Evergrande Group’s debt crisis.
There was fear that wide-reaching financial market contagion was a possibility, and likely why we saw a big dip in risk assets like equities and oil prices on Monday, while gold, Treasury bonds, and the Greenback saw gains.
This persisted into the Wednesday trading session where we saw a turn in broad risk sentiment, likely on news that the PBOC injected $18.6B of liquidity into the banking system to help cool down market fears.
The latest monetary policy statement from the Federal Reserve also came on Wednesday, with a little bit of a hawkish tilt but still no solid start date to tapering.
These two developments combined are the likely catalysts for the shift in risk sentiment towards positive heading into the Thursday Asia session where asset performance flipped what we saw on Monday: the Dollar, gold, and bonds moved lower while equities, oil, and crypto rallied.
And speaking of crypto, it was a wild run for the nascent asset class. Not only did it drop like a rock early in the week on Evergrande news before rallying after the Fed meeting, but traders were hit with more FUD on Friday with more crypto crackdown news from China.
Performance among the top cryptos was mixed at the end of the week with BTC (-8.50%) and ETH (-10.16%) down, while some of the top altcoins like LUNA, AVAX, and HEX closed Friday in the green.
As far as the major currency pairs, the action was pretty in line with the usual tendencies when broad risk sentiment dominates. The safe-haven currencies (e.g., JPY, CHF, & USD) outperformed when fear was higher earlier in the week, but then price action got a bit choppy after the Fed’s statement on Wednesday.
It seems that traders began to focus on specific currency stories at this point, including fast-approaching monetary policy statements from both the Swiss National Bank and Bank of England, and a fresh round of flash manufacturing PMI data from around the globe.
In the end, the Canadian dollar ended up taking the top spot, possibly benefitting not only from the positive shift in risk sentiment on Wednesday but also from rising oil prices as data showed a decline in inventory. It’s also likely that speculation is growing that the Bank of Canada will raise interest rates as Canada’s data continues to improve.
USD Pairs
- NAHB Housing Market Index: 76 in September vs. 75 previous
- Labor, building material shortages depress U.S. single-family housing starts
- U.S. House approves bill to suspend debt limit, fund government
- U.S. home sales fall, house price inflation cooling
- The Fed’s new Dot Plot after its September rate meeting
- House GOP squeezes Pelosi on bipartisan Infrastructure Bill
- Weekly jobless claims total 351,000, worse than expected
- Flash U.S. Manufacturing PMI at 60.5 vs. 61.1 in August; Services Business Activity Index at 54.4 vs. 55.1 in August
GBP Pairs
- U.K.’s property asking prices hit record high as buyer demand heats up – Rightmove
- UK public sector borrowing sees second highest August on record
- U.K. flash manufacturing PMI down from 60.3 to 58.3
- U.K. flash services PMI down from 55.0 to 54.6
- BOE opens the door for 2021 rate hike as inflation seen above 4%
- UK consumer morale wilts under cost-of-living crisis
- UK retail sales growth slows to 6-month low in Sept – CBI
EUR Pairs
- German PPI rose 1.5% in August
- In August 2021, the Economic Sentiment Indicator (ESI) eased in both the EU and the euro area (-1.5 points).
- French flash manufacturing PMI down from 57.5 to 55.2 vs. 57.1 forecast
- French flash services PMI down from 56.3 to 56.0 vs. 56.1 forecast
- German flash manufacturing PMI down from 62.6 to 58.5
- German business morale falls as ‘bottleneck recession’ bites
CHF Pairs
- Swiss trade surplus narrowed from 5.30B CHF to 5.06B CHF
- SNB kept rates unchanged at -0.75% as expected
- Swiss National Bank: No reason to change
- Evergrande debt problems not just a local issue – Swiss National Bank
CAD Pairs
- Canadian PM Trudeau wins elections but short of majority
- Canada new house prices rise 0.7% in August
NZD Pairs
- New Zealand services activity contracts in August
- New Zealand credit card spending sank by 6.3% in August
- RBNZ’s Hawkesby quashes bets on aggressive rate hike in October
- New Zealand consumer confidence dips in Q3
- New Zealand posts 2.144B NZD trade deficit in August
AUD Pairs
- Australia PM Morrison says trade talks with EU will take time
- Australia’s central bank wary in case Delta slows recovery
- Australian regulators closely watching home loan boom-RBA
- Australian Private sector contraction shows signs of easing in September
- Australia should do more to contain housing bubble, climate change-IMF
JPY Pairs
- BOJ keeps policy steady, offers bleaker view on exports, output
- BOJ Governor Kuroda’s comments at news conference
- BOJ more downbeat on exports, output even as recovery seen on track
- Japan’s Sept manufacturing activity growth slows – flash PMI
- Japan CPI halts 12-month decline, still well below BOJ target
