Sentiment Hushed as Durable Dollar Climbs with Yields

Markets look for clues in JOLTS data and FOMC speeches  

The current market picture is one of stubborn inflation, rising yields, and expectations of a nearing Fed announcement of the taper timeline, specifically in the November FOMC meeting. Global growth has somewhat slowed as the consequences from the energy crisis hamper economies.

That said, markets will try to extract clues from Fed speakers over the week especially after the disappointing NFP payrolls from Friday. Rising yields are aiding the earlier rate lift-off advocates, while providing the greenback with buoyancy. Stronger dollar data may tick the boxes for the Fed and increase the likelihood of a clear taper announcement on the horizon, which markets have already priced in.

The August JOLTS forecast missed the forecast of 10.9 coming in at 10.44 mln, from a revised July number of 11.10 mln. It’s not clear whether the result supports the narrative that faltering employment data is due to supply issues. If this is the issue, this could provide the dollar with more fuel.

Furthermore, the dollar may also receive extra strength from the vote out of the House of Representatives regarding the extension of the debt-ceiling, which is expected to be positive.

The dollar index is around 94.47, while 10-year yield at 1.63% remains buoyant. The euro is looking feeble around $1.1540, while the pound is faring slightly better at $1.3595, despite the UK dealing with a rather full plate.

Should dollar data meet expectations and yields continue to float higher, the greenback is likely to retain its appeal.

The USD/JPY pair traded up to a 34-month high of 113.70 as the dollar’s haven demand increased in an environment of subdued global growth, inflation concerns and rising yields.

Eurozone and UK feel the heat

The eurozone remains dampened by the energy crisis, facing rising transportation costs and supply constraints. Pricing of wholesale goods have risen in Germany with the index rising by 0.8% from August to September 2021. Furthermore, a rise by 13.2% in wholesale trade pricing in September 2021 in contrast to September 2020 due to increased prices of raw materials, signals a gloomy picture around inflation and pricing for consumers.

Moreover, the German October ZEW survey at 22.3 came in slightly weaker than expectations of 23.7. This signalled an optimistic economic picture yet has failed to aid the already lagging euro. The ECB is still emanating a dovish tone and the picture for the euro remains dull in the current domain of persisting inflation, slower global growth, energy issues and the dollar’s haven attractiveness. The softer eurozone data may give ECB doves the playing cards to keep hawks at bay at least until December, regarding QE.

The UK remains worst hit by the energy crisis and supply shortages. Moreover, looming post-Brexit issues of a hard border between Ireland and Britain continue to weigh on the UK, along with a costly trade war with the eurozone adding to the negative pressures on the pound.

On top of that, a weaker decline in the number of people requesting unemployment benefits has not assisted the currency, even on a minor drop in unemployment to 4.5% and an average earnings improvement to 7.2%, as opposed to the forecast of 6.9%.

The energy crisis in the UK, as well as the supply shortages and trucker issues, are more likely to weigh on the pound, resulting in softer volatility or underperformance for a while longer.

FOMC Members Clarida and Bostic are scheduled to speak at 15:15 and 16:30 GMT respectively.

Later at 17:01 GMT US 10-year notes will be auctioned off and it will be interesting to see if foreign buyers will participate with yields on the rise.