Today the US equities found new all-time highs but failed to hold on to them, the US dollar dropped and then dropped some more, but is likely to reverse this trend if the FOMC mention a rate hike sooner than the markets expect and Treasury Secretary Yellen gave the Biden administration a green light to raise the debt ceiling.
Treasury Secretary Janet Yellen stated earlier she would support the Democrats if they decided to use the reconciliation bill to pass the debt ceiling hike in case Republican lawmakers kept refusing to compromise. Raising the debt ceiling would be required for the Government to spend the dollars gained after the US treasury sold new debt into the markets.
The comments from the US Treasury Secretary came after the Dow Jones Industrial Average tipped its hat to the 36,000 level, 20 years after the book of the same name said it would. The US dollar retreated from its highs from the London session but accelerated lower after the economic data and Yellen’s comments.
Tesla and energy stocks led the equity gains on the first day of the new month, as investors look forward to the Federal Reserve's policy meeting and October's jobs report on Wednesday and Friday respectively. This Wednesday, the Federal Reserve is expected to announce its intention to reduce its $120 billion monthly bond purchases by $15 billion, and investors will be eagerly anticipating information about when the US intends to raise interest rates.
The benchmark US 10-year yield rose today by 1.48% from the London open but following some slightly disappointing US data the yields held around the 1.580-1.590 zone after touching the 1.60 at the US Open. The higher interest rates put a stop to the Nasdaq following the S&P and Dow to new all-time highs in the US session, though the tech index had popped higher just before today's futures open, before then falling to fill some of the gap left after Fridays melt-up continued into this week’s Globex open.
As reported by today's Institute for Supply Management (ISM) report, manufacturing activity in the United States declined in October compared with September. According to the Purchasing Managers Index (PMI), manufacturing slipped to 60.8%, but that was enough to beat market expectations.
Today's figures show manufacturing increased for the 17th straight month, with demand and consumption also increasing month-over-month. Despite rising prices, demand remains strong, with prices paid coming in at 85.7 against the previous reading of 81.2.
Today's London session saw a first increase in the UK Purchasing Managers' Index (PMI) in five months, according to IHS Markit data.
IHS Markit Director Rob Dobson shared positive sentiment, saying that
"A slight improvement in new order growth, led by the domestic market, suggests the trend in demand is stabilizing following its recent slowdown. Businesses also remain relatively optimistic about the year-ahead outlook, with 62% expecting production to be higher."
The pound was unable to capitalize on the weakening greenback today with some of the bearish sentiment coming from the row between France and the UK around fishing rights in the English Channel. Cable is likely to trade within these tight ranges until the Bank of England monetary policy event on Thursday, though a surprise from the Fed on Wednesday may expand this range first.
Overall, the forex markets are not showing a clear risk-on or off sentiment within the markets, though the Swiss franc is currently the strongest of the currencies we monitor.
Last week I pointed out that the USDCHF was testing a rising trend line for the 4th time. At the time of writing the currency pair has dropped through the trend line and is looking for a lower close for today. My target to the downside still remains the lows of 2021 assuming there are no buyers at the possible demand zone between the 0.9010 and 0.905 levels.