CURRENCY MARKET WRAP
As of Wed Oct 9th, Singapore Time zone UTC+8
U.S. Dollar Index, +0.12%, 99.09
USDJPY, -0.33%, $106.94
EURUSD, -0.10%, $1.0960
GBPUSD, -0.59%, $1.2220
USDCAD, -0.09%, $1.3321
AUDUSD, -0.05%, $0.6729
NZDUSD, +0.11%, $0.6297
U.S. Producer Price Index for final demand declined 0.3% m/m in September (consensus +0.1%), as did the index for final demand less food and energy (consensus +0.2%). Price declines were broad based, and not just energy-related, which is indicative of an environment characterised by weaker demand.
The U.S. Commerce Department placed 28 more Chinese firms on its Entity List for their role in fostering violations of human rights against a Muslim minority in China. Beijing’s foreign ministry spokesman denied the allegations and warned about possible retaliation, with a report suggesting China could even leave this week’s discussions one day early. Selling pressure in risk assets appeared to level off after China’s Global Times reported that China remains sincere in reaching a comprehensive deal and intends on proceeding “calmly”, more reprieve came after after Fed Chair Powell said the Fed plans on expanding its balance sheet, but quickly faded into the close on news that the U.S. will impose visa bans on Chinese officials linked to the human rights abuses.
With regards to Powell’s announcement of more easing, “I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis.” – Powell Cites. Goldman assumes a roughly $15bn/month rate of permanent OMOs, enough to support trend growth of the balance sheet plus some additional padding over the first two years to increase the size of the balance sheet by $150bn, restoring the reserve buffer and eliminating the current need for temporary OMOs. That strategy would result in balance sheet growth of roughly $180bn/year and net UST purchases by the Fed of roughly $375bn/year over the next couple of years.
U.S. Treasuries ended a volatile session on a higher note amid growth concerns and an unexpected decline in producer prices for September. The 2-yr yield declined four basis points to 1.42%, and the 10-yr yield declined two basis points to 1.54%. The U.S. Dollar Index increased 0.12% to 99.09. WTI crude declined 0.3%, or $0.13, to $52.66/bbl.
STOCK MARKET WRAP
S&P500, -1.56%, 2,893.06
Nasdaq, -1.67%, 7,823.78
Nikkei Futures, -0.11%, 21,357.5
S&P 500 fell 1.56% on Tuesday following a series of trade developments that exacerbated concerns about upcoming trade talks and global growth prospects. All 11 S&P 500 sectors finished lower in a risk-off session. Nine sectors lost at least 1.0%, including a 2.0% drop in the financials sector. The real estate sector (-0.5%) declined the least.
Many of the China-sensitive semiconductor stocks, including Ambarella (AMBA 51.79, -5.43, -9.5%), underperformed as many of these companies derive a sizable portion of their revenue from China. The Philadelphia Semiconductor Index dropped 3.1% on Tuesday.