Intraday Market Thoughts

Yen Crosses, Yields Push, Stimulus Awaited

by Adam Button
Oct 6, 2020 17:18

Powell speech came and went and indices remain in tight ranges, following a strong US open. Rising Treasury yields and yen crosses highlighted rising appetite for stimulus and deficit spending in the US. The Swiss franc was the top performer while the yen lagged. The ECB faces a tough test on what to do next. This week's Premium video (English+Arabic) is posted below, highlighing the application of the latest chart analog and top-down approach into metals and FX. 

The combination of Trump's leaving the hospital and increased odds of the economic stimulus is further aiding indices. Meetings between Mnuchin and Pelosi will continue Tuesday after an exchange of proposals.

It remains challenging to handicap the odds of a deal and the likelihood it will get through the Republican-controlled Senate, but the jump in Treasury yields highlights the potential for $1.5-$2.2 trillion in additional spending, with the growth/inflation impulse behind it. The move was led by long-dated bonds as 30-year yield rose 8 bps to above the mid-June and August double top. At 1.58%, 30s also crossed the 200-day moving average for the first time since March 2019.

A number of yen crosses also made significant moves and breaks of the recent ranges to the upside.

Beyond the guessing game on stimulus, the general willingness of both parties in Washington to consider more spending just before the election highlights the change in the electoral mood: Austerity no longer wins elections and that has repercussions far beyond the US vote.

Polls continue to show a moderate-to-high likelihood of a blue wave and that would enshrine a series of stimulus measures. Monday was a taste of the price action that will persist in financial markets if that comes.


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