Equities in Europe and across the world are on a solid footing as sentiment shifts into a more optimistic mood as base commodities and oil have been bolstered by news of oil production decreases in the United States. Further contributing to the shift in sentiment is news out of China that foreign exchange reserves at the People’s Bank have fallen less than expected. This indicates that capital outflows out of China have abated relative to earlier in the summer when the rate of decline was more than double that of September’s and also signals that some of the continuing pressure on the PBoC to devalue the renminbi has subsided. Continuing onto Japan, we have seen a counterintuitive rally in the Nikkei while the Bank of Japan opted to maintain rates at its most recent meeting despite signs of broad weakness in the Japanese economy. This move has the yen losing ground versus its American, European and British counterparts while the uptick in commodity prices have seen the Aussie and Kiwi dollars strike a positive tone as the currencies of both commodity producers and emerging markets gain ground versus the greenback.
Positive manufacturing and industrial production figures released in the UK this morning have the sterling on the ascendance versus both its European and North American counterparts. This is a return to form for one of 2015’s strongest performing currencies yet also highlights pervasive weakness in continental Europe which has many market participants gambling that the European Central Bank may increase its stimulus program at its next meeting later this month. Despite the uncertainty regarding the trajectory of the European economy, the euro is gaining ground on the dollar while equities continue to rally as the 5 week high in Brent Crude has propped valuations of miners and oil producers.
While equity futures suggest the good vibes will continue when trading resumes in North America, the good news for commodities and stocks has not been as favourable for the greenback, with the buck hammered by a broad based retreat against the majority of its crosses. Driving this, is news out of the states that monthly oil production declined by 120k barrels a day, illustrating that the sharp selloff in crude beginning last year is finally beginning to negatively impact production of the physical commodity as the results of the enormous reduction of investment within sector begin to take hold. With this and expectations of a rate hike by the Fed subsiding on the back of weak payroll data, the loonie has taken off, gaining as much as 4 cents versus the big dollar in less than a week with all signs pointing to a potential continuation of this reversal. With US crude inventories set to be released later this morning you can bet that today will be an eventful one for dollar traders.
Further reading:
GBP/USD a sell around 1.5350, USD/JPY range trade, EUR/USD awaiting a flag breakout
Commodities rise, major stuck – tension rises towards Fed minutes [Video]
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