View from London: 10-Year Yields Caught in a Crossfire

10/30/2017 11:38 am EST

Focus: CURRENCIES

Robert Savage

Partner & CEO, CCTrack Solutions

The driver for the day isn’t forex but rates with U.S. 10-year yields caught in a 2.35%-2.55 crossfire with PCE central to keeping markets seeing the forest for the trees, writes Bob Savage, CEO of Track Research Monday.

The U.S. Northeast had an anniversary storm to remember the pain and suffering of Hurricane Sandy five years ago. The fifth-year gift is usually wood and this seems to be the case for today.

The mess of water and wind will make commuting to New York miserable but nothing like the weeks of trouble from 2012. Estimates are 600,000 without power and many streets flooding and blocked by downed trees. The markets move on, and so the anniversary moment passes like the weather. Perhaps that is the key lesson for today as month-end trading descends upon bonds and stocks with the push for profit taking rather than extending trends.

The news flows supported less fear and more greed as the Catalonia situation calmed – protests in favor of staying with Spain, more calls for peaceful solutions while U.S. rates fell back ahead of the Mueller indictment and speculation of Powell being the front-runner for Trump’s FOMC chair pick. Defense Secretary Mattis’s visit to South Korea added to geopolitical fears – as he noted the U.S. would never accept a nuclear North Korea.

Also late Friday, S&P upgraded Italy to BBB and affirmed its UK rating. The only big forex movers overnight before Europe was in the New Zealand dollar (NZD/USD) and Japanese yen (JPY/USD) where lower U.S. rates drive JPY gains – along with some mixed retail sales and talk of Kuroda getting the nod for another 5-years at the BOJ - while NZD fell.


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Over the weekend, NZ’s Finance minister warned, reforming RBNZ’s policy mandate could potentially lower interest rates. Iceland had its share of troubles this weekend with the snap election leading to a fragmented vote where PM Benedkitsson’s Independents led by winning 16 seats of the 63 – leaving him the task of rebuilding a minority government.

The data from the EU continues to be robust with economic sentiment back to January 2001 levels. Confidence is also high that the ECB will remain on QE at a tapered rate so equities hold, periphery bonds rally – euro (EUR/USD) follows but 1.1680 holds for now and that USD is on watch today for Powell, Mueller and the FOMC tilt.

The driver for the day isn’t forex but rates with U.S. 10-year yields caught in a 2.35%-2.55 crossfire with PCE central to keeping markets seeing the forest for the trees.

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