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There was no shortage of overnight developments for financial markets to mull over, though currency and money markets seem to be more intrigued by the headlines than global equities have.   The free-fall of the Japanese Yen has picked up momentum overnight, driving USDJPY into the mid-117s after the monetary policy statement and the press conference from Bank of Japan Governor Kuroda reiterated the dovish sentiment that accompanied the acceleration of the BoJ’s balance sheet expansion at the end of October.   The increase in popularity of using the Yen as a carry trade was due to comments from Kuroda that there is a chance CPI will fall below 1%; with the BoJ Governor adding that the central bank would make steady efforts to achieve its 2% price target as early as possible.   The Nikkei started the overnight session on strong footing in response to the positive close on Wall Street, but was unable to hold onto those gains despite a weakening Yen and finished its session down 0.32%.

Transitioning our attention to Europe, major bourses are mostly trading in positive territory ahead of the North American cross, though the FTSE is lagging its peers after the release of the monetary policy minutes from the last MPC meeting at the Bank of England.   Still focusing on how the relatively dovish Quarterly Inflation Report last week would filter over into the discussion at the last MPC meeting, market participants were slightly surprised to see a more relatively balanced discussion in regards to inflation concerns, along with the fact that both Weale and McCafferty persisted with their hawkish dissents.   With the minority dissents favouring immediate rate hikes and some in the majority tipping their hat to tightening conditions in the labour market spurring forward-looking inflation guidance, the Pound was able to generate some modest buying interest overnight pushing GBPUSD into the high-1.56s ahead of the North American data drop.

Heading into the North American open, energy investors are keying in on the failure of the Keystone XL pipeline bill to make it through the Senate, defeated by just one vote as Landrieu was unable to rally enough support to force President Obama into making a decision on the controversial pipeline.   The Loonie has been trading heavy since the blockage of the bill, though the longer-term implications for Canadian energy seem to be negligible.   Once the Republicans gain control of the Senate next year the decision on Keystone will be one of the first items on the agenda, and will likely be able to garner the support necessary to put it in front of the President.   Reports are suggesting that at this juncture there might not be enough support to override a presidential veto, but with Obama faced with Republicans controlling both chambers of Congress, he is likely going to have to choose his veto battles wisely, and the Keystone XL is likely a compromise he will be willing to make.

On the North American economic data front, Building Permits and Housing Starts in the United States for the month of October came in with mixed readings, as permits saw modest monthly growth to beat the median analyst expectation, while starts ended up losing a bit of steam and came in below forecast at an annualized print of 1M.   As such, the DXY is exhibiting little reaction to the news, with S&P futures trading in-line with pre-release levels, just slightly in negative territory.   Front-month WTI is again trying to reclaim the $75/barrel level, but the price action is having little influence on Loonie which has seen the Keystone XL decision lift USDCAD back into the mid-1.13s.

Still to come later in the session, the meeting minutes from the last FOMC meeting will be released at 14:00EST, with market participants closely watching the panel’s language to glean any clues about the future timing on interest rate hikes in the US.   The statement after the meeting was relatively hawkish as the Fed upgraded their assessment on labour market conditions along with ending their asset purchase program, so there seems to be a sense in financial markets the minutes from the meeting will reflect this hawkish tone.   We would argue the greater risk is of the minutes illustrating a dovish slant due to a more in-depth discussion around inflation expectations, of which the market is not positioned for.   Given Kocherlakota’s dovish dissent at the last meeting, the doves on the board might get more airtime in the meeting minutes and act as a weight on the USD.

Further reading:

US housing starts miss, building permits beat in October

GBP/USD: Trading the British Retail Sales