Elsewhere, the strong mood in Europe this morning is not providing notable positive contagion into emerging markets, where the USD strength is beginning to hurt. An FT article (paywall) this morning points out the scale of EM borrowing (some $100 billion since the outbreak of Covid-19) and rightly wonders at the ability for emerging markets to repay this debt. With USD liquidity growth slowing from the initial huge splash, the risk to EM is enormous if the resurgence of Covid-19 or any other threat keeps the global recovery weak or worse. US political dysfunction is another risk across markets as well, keeping new US stimulus possibly bottled up until after a new US Congress sits in January.
One EM currency that may be eyeing specific outcomes is the Russian ruble, as USDRUB accelerated higher to close last week in a move that doesn’t seem particularly driven by oil fundamentals. Ruble traders and owners of Russian assets may be eyeing the strength of Joe Biden in the US election polls, as Biden and the Democrats are seen as likely to be far less friendly to Russia than Trump on accusations of prior interference in US elections and the poisoning of Russian opposition leader Navalny. The ruble is close to its Covid-19 panic lows than most other major EM currencies, save for the Turkish lira, where even last week’s 200 basis point hike failed to stem the selling, with the lira tumbling to new cycle lows this morning.
The G-10 rundown
USD – the USD strength beginning to ease somewhat by lunchtime in Europe on very strong risk sentiment all morning long in Europe. Considerable work to be done by the USD bears to reverse the recent rally impulse.
EUR – as noted in today’s Saxo Market Call podcast, European banks are in the dumps, with the broad banking index of equities touching its lowest level since the 1980’s. Is there any EU recovery without a proper cleanup of the banking system? The mood is very positive today, but let’s see if that lasts.
JPY – the Japanese yen is hanging in better than one would expect on a day in which European equities are ripping some 2-3% higher. Part of the resilience likely down to sympathy with USD moves in the crosses and a local weakness here in the reflationary narrative (commodity prices
GBP – sterling firmer on the developments noted above and plenty more where that came from if we get clear signals that the two sides are moving toward a deal later this week as the latest Brexit talks get under way tomorrow.
CHF – the positive mood in Europe rubbing off ever so slightly on CHF, with EURCHF have a poke at 1.0800 again this morning - the bigger level there is 1.0900. The latest weekly sight deposit data showed negligible change (no real intervention ongoing last week).
AUD – the Aussie is disappointing here, suggesting that the story for the Aussie is more linked to commodity prices and the reflationary story more than risk sentiment per se, as liquid, risky assets are putting in a stellar performance today, while iron ore remains stuck near a two-month low. Still, structural weakness for AUDUSD only really arrives with a forceful move below 0.7000.
CAD – the USDCAD bounce has been gentler than the USD bounce elsewhere, with CAD showing its tendency to track USD direction in crosses like AUDCAD (big mover that one recently)
NZD – the kiwi generally following the Aussie’s lead, though in the AUDNZD cross, the kiwi extended aggressively stronger last week – the latest distraction is the 1.0750 area, the last major Fibo (61.8%) of the rally wave from July and August, though bulls there need a negative NZD catalyst and move above 1.0800-50 to rekindle their hopes.
SEK – the positive mood in Europe rubbing off more easily on SEK aftter EURSEK shot above its 200-day moving average last week, likely on doom-and-Covid-19-gloom. Lets’ see if that moving average, now near 10.56 provides any support.
NOK – the krone suffered a brutal decline last week and risk-on in Europe is finally seeing the currency put in a show of support. A lot of work to do to reverse the damage -
Upcoming Calendar Highlights (all times GMT)
1345 – ECB President Lagarde in parliamentary hearing
1400 – UK Bank of England Governor Bailey to Speak
1430 – US Dallas Fed Manufacturing
1800 – US Fed’s Mester (Voter) to Speak