KTA Macro Weekly Wrap 27/10/17
Louise Griffin, Relationship Development Manager at Knightsbridge Trading Academy
Friday, October 27, 2017
This week in the G10 currencies, USD emerged as a clear winner while commodity currencies such as AUD, CAD, and NOK all fell sharply. There were some sharp moves seen in the currencies market after ECB’s decision to taper. The ECB introduced a reduction in asset purchases to € 30bn from € 60bn currently, only limited to the first nine months of 2018. Though this was on expected lines, the ECB president Draghi’s comments that the purchases are unlikely to come to an abrupt end at the end of September, gave EUR a bearish bias. A sharp sell-off in CAD, NOK, AUD and SEK was largely on the back of dovish tone emerging from their respective central banks. The policy divergence theme between USD and the other G10 currencies was the main reason for the dollar strength as rising yields in the US were in contrast to the other G10 currencies. GBP was the number two currency this week helped by the above-expected GDP figures; however, there are now growing concerns that even if November rate hike goes ahead this will be a one-off over the coming quarters. In the equities space, the Nikkei 225 has closed at 22008, up 2.57% for the week. The European equity markets are also looking to end the week strong, with DAX up 1.8% and CAC up 2.34%, respectively. As for US equities this week, a rise in US yields is weighing on the US equities with S&P 500 and Nasdaq -0.27% and -1.16% so far. In the rates market, the German and the US 10-year yields have diverged this week; German and US 10-year yields are now trading at 0.42% and 2.47%, respectively. In the energy space, the Brent has rallied this week, testing the 2+ year high of $59.50 so far; oil is buoyed by comments from the Saudi Crown prince over the extension of OPEC headed production cuts and expectations of an improving global economy. In terms of the central bank monetary policy meetings next week, apart from the BoE rates decision, we will have the Fed and BoJ rates decision.