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Market Brief, North America

Price action slows into US inflation print

Good morning. The dollar and long-term Treasury yields are holding steady, equity futures are pushing upward, and the Canadian dollar is inching forward. We see four primary factors driving currencies ahead of the North American open: Relative interest rate differentials are moving against the dollar after yesterday’s Federal Reserve minutes showed officials turning wary on raising rates too much. According to the record of the September policy meeting, “Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the committee’s goals had become more two-sided,” with “all participants” agreed on the need...

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Markets rebound on dovish Fedspeak

Risk appetite is improving after a flock of Federal Reserve officials executed what looked a lot like a communications pivot yesterday, shifting away from the higher-for-longer message that dominated rhetoric for months. Speaking at an economics conference, the Dallas Fed’s Lorie Logan suggested that a rise in the bond term premium – the yield difference demanded by investors for taking long-term risk – “could do some of the work of cooling the economy for us, leaving less need for additional monetary tightening”, and her colleague Vice Chair Jefferson said “We are in a sensitive period of risk management, where we...

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Currencies flatline into jobs reports

The dollar and Treasury yields are under pressure ahead of a non-farm payrolls report that could shed more light on how the economy is holding up amid the most aggressive monetary tightening cycle in decades. The trade-weighted greenback is almost unchanged relative to yesterday’s levels, with week-to-date gains at just 0.2 percent, while ten-year Treasury yields are holding at 4.73 percent, well off Tuesday’s 4.87 percent high. The pound is struggling to gain momentum after the Bank of England’s Ben Broadbent yesterday articulated a change in the central bank’s reaction function, appearing to suggest that growth risks were beginning to...

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Markets reverse yesterday’s reversal

A global relief rally is unwinding as markets take a more skeptical view on the likelihood of a shift in Federal Reserve policy. Early in yesterday’s session, a series of data releases helped diminish expectations ahead of tomorrow’s non-farm payrolls report and push odds on a final 2023 rate hike back below coin-toss levels: Payroll processing firm ADP said the private sector created just 89,000 jobs in September, well below forecasts for 160,000 or more. The Institute for Supply Management (ISM) services index weakened more than projected. And West Texas Intermediate prices suffered the biggest reversal this year, falling by...

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Yield surge punishes global markets

Tumult in Treasury markets is worsening after the US manufacturing sector showed signs of stabilization and several Federal Reserve officials doubled down on “higher for longer” rhetoric. Ten-year yields topped 4.7 percent in yesterday’s session for the first time since October 2007 – and are holding there – while their inflation-adjusted equivalents are sitting near 2.32 percent The dollar is steamrolling through currency markets, sitting near a 10-month trade-weighted high as its major counterparts retreat. Equites are – predictably – softer, crude prices are down, and implied volatility measures are pushing upward once again. Governor Michelle Bowman – one of...

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