The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.
1144 ET - At its meeting next week, the European Central Bank cannot avoid talking about France, Berenberg economists say in a note. The response should be three-fold, the economists say. "First, to the extent that the French creeping crisis is affecting the outlook for growth and inflation in the eurozone as a whole, the ECB needs to take that into account." This strengthens the case for staying on hold, and indeed markets have already scaled back their expectations for rate hikes in the last four weeks. Second, the ECB may signal in a worsening crisis that it has tools such as the Transmission Protection Instrument to shield other countries from contagion. Third, the ECB will stress it can only support France if Paris returns to more sustainable fiscal policies. (edward.frankl@wsj.com)
1127 ET - Bitcoin is up 0.5% to $81,568, turning around along with the Nasdaq Composite after tech and AI stocks slumped the prior day. While bitcoin has felt that pressure, the fact that it's managed to stay above the $80,000 mark is a point of optimism for cryptocurrency investors, says James Butterfill of CoinShares in a note. "Bitcoin has remained relatively resilient this week despite another bout of volatility across risk assets." Butterfill says that the fundamentals for bitcoin remain mostly balanced, but "a surprise October hike would likely be more disruptive than a well-signalled December move" from the Federal Reserve. The Fed will decide whether to hike or leave interest rates unchanged in its meeting next week. (kirk.maltais@wsj.com)
1111 ET - Toronto's CD Howe Institute think tank says the Bank of Canada should keep its policy rate unchanged next week, bucking consensus among traders for a quarter-point increase to 2.50%. The institute's monetary-policy panel says Canadian data suggest core CPI remains around the BOC's 2% inflation target, making it "difficult to make the case for a hike." Panel members who advocated for a rate hold add there are major events in coming weeks -- such as U.S. midterm results, the federal budget plan, and a Dec. 31 deadline on U.S. auto tariffs -- which could influence inflation dynamics and the output gap. (paul.vieira@wsj.com; @paulvieira)
1059 ET - The probability of sharp interest rate cuts by the Fed next year has increased in derivative markets, according to Barclays research. Investors are increasingly paying up for protection against steep Fed rate cuts rather than rate hikes, the bank's analysts say in a note. Despite the Fed's September hike, "the probability of policy rates being below 3% over the next year has actually increased since before the September FOMC." Barclays expects short-term yields to fall faster than long-term ones as the Fed cuts. (paulo.trevisani@wsj.com; @ptrevisani)
1043 ET - Part of the acceleration in real retail sales in Canada in 3Q is thanks to a strong handoff from the prior quarter when FIFA World Cup spending and government stimulus checks were supportive, according to CIBC Capital Markets' Katherine Judge. The economist says the weak end to 3Q retail trade in volume terms that was suggested by the advance estimate for September isn't a good sign for 4Q spending, with elevated gasoline prices still eating into discretionary spending power at a time when the labor market is under pressure due to trade uncertainty. Headline sales rose 1.2% on-month in August and by an estimated 0.7% in September. (robb.stewart@wsj.com; @RobbMStewart)
1032 ET - A rise in Canadian retail sales in August mainly was due to a rebound from the month before rather than any genuine strengthening in demand, says Capital Economics' Bradley Saunders. Still, the economist says there still were signs in the data that households are showing resilience amid higher gasoline prices. "That will add to the Bank of Canada's concerns that weak demand is becoming less of a barrier to firms passing on higher energy costs, supporting a hike next week," Saunders says. Retail sales rose 1.2% on-month in August, more than enough to reverse the prior month's fall.(robb.stewart@wsj.com; @RobbMStewart)
1017 ET - Resilience in Canadian spending numbers supports the expectation the Bank of Canada will raise interest rates next week, Desjardins' Oskar Stone reckons. Retail sales rose 0.2% on-month in August, rebounding from weakness in July and roughly in line with estimates. Sales were up broadly, and sales excluding autos and gasoline were a solid 1.1% higher. The flash estimate suggests sales rose 0.7% in September, with goods prices up for the month it suggests sales volumes were likely flat, Stone says. He estimates 3Q GDP growth is tracking at around 2%. (robb.stewart@wsj.com; @RobbMStewart)
1001 ET - Firm Canadian retail sales for August highlights consumer resilience amid ongoing uncertainty, but a softer September points to cooling momentum heading into the final quarter, Bank of Montreal's Shelly Kaushik says. Retail sales rose 1.2% on-month in August, a tick below the flash estimate, with trade up in all sectors and across six of 10 provinces. Sales also were up 1.2% in volume terms, which Kaushik says puts monthly GDP in line with the 0.2% rebound forecast by Statistics Canada. The preliminary estimate for September sales points to a 0.7% rise, which the economist says was likely largely driven by higher prices. (robb.stewart@wsj.com; @RobbMStewart)
0856 ET - Treasury yields edge higher following Thursday's decline as markets grow convinced the Fed will hold rates steady next week despite rising oil prices. Threats of escalation in the Middle East push Brent crude up 2% to $115 a barrel. Meanwhile, markets price in 92% odds of a Fed hold, according to CME, although a hike is expected for December. U.S. manufacturing and services PMIs at 9:45 a.m. ET are expected to tick lower, according to a WSJ consensus. The October University of Michigan consumer sentiment index, at 10 a.m., is also expected to decline. The 10-year yield is at 4.984% and the two-year at 4.682%, both on pace for a weekly decline. (paulo.trevisani@wsj.com; @ptrevisani)
0844 ET - The launch of the first Swiss-regulated bitcoin ETF this week is better suited to meet the needs of wealth clients and fund selectors than the traditional ETP structure, says Sygnum Bank. Exchange-traded products for bitcoin have existed for years but are typically debt instruments, so investors hold a claim on the issuer and don't physically own the cryptocurrency. A fund under the Swiss collective-investment law ring-fences the asset, meaning bitcoin is owned directly by the investor, which better meets institutional investor requirements, Sygnum Chief Investment Officer Fabian Dori says. "There is now a real choice of structure between direct tokens, an ETP, or a fund." (joseph.wilkins@wsj.com)
0836 ET - Limited partners across the Gulf are increasingly favoring European private markets funds over U.S. managers, according to Asante Capital. "Interest in Europe has been a lot more pronounced over the past 12 to 18 months since Donald Trump took his second term," says Asante director Frank Glock. "A lot of investors are overexposed to the U.S. dollar and are mindful of this, coupled with recent geopolitical tensions and macro development driving lot of investors to Europe, which was historically neglected." The U.S. remains the yardstick for private market allocations, but more minds are looking to pan-European fund managers as a result, Glock adds. (joseph.wilkins@wsj.com)
0830 ET - The U.K.'s composite PMI rose to its highest level in October since the Iran war started, indicating the economy is still weathering higher energy and borrowing costs well, Capital Economics' Paul Dales says in a note. "This will further embolden the Bank of England to raise interest rates from 3.75% to 4.00% at its meeting on Nov. 5 and probably to 4.25% before too long," he says. The reading is consistent with what is shaping up to be a 0.7% quarterly rise in third-quarter GDP being followed by a 0.3%-0.4% gain in the fourth quarter, Dales says. Actual GDP growth has recently been stronger than PMIs suggested, though it excludes the retail sector, which data on Friday showed is weakening, he says.
Comments