Gold, Crude Oil Ease But Upside Risks Prevail

Risk sentiment is improved compared to Friday as tensions in the Middle East didn’t escalate as much as feared during the weekend. Hamas released two hostages and humanitarian aid started to enter Gaza from the Egyptian border. But tensions remain extremely high and risk of serious escalation prevails as Israel stepped up air raids in Gaza and Hezbollah could drag Lebanon into war, and spread tensions through the region.

Bank of Japan Officials Considering New Changes to Yield Curve Control

The Japanese newspaper Nikkei reported this weekend that Bank of Japan officials are considering new changes to their yield curve control as domestic bond yields move higher in tandem with those in the US. The Japanese 10y bond yield sets a new high at 0.87% this morning, approaching the maximum tolerable 100 bps around the 0% BoJ-target.

Bank of Canada to Likely Stay on Pause After Dip in Inflation

The Bank of Canada looks set to keep its overnight rate unchanged at 5.0% at its October meeting amid more sluggish-than-expected growth and signs that inflation is cooling off again. Rates in Canada last went up in July when headline inflation had started to creep up following the rise in oil prices. But the effects from higher energy costs appear to be dissipating as the consumer price index increased by less than expected in August.

ECB Meets But No Fireworks Expected

The European Central Bank is holding its penultimate meeting for 2023 on Thursday, a week before the Fed gathering. This fact alone increases the pressure on the ECB to avoid shocking the market with its announcements. To be fair, unlike September, this gathering is expected to generate fewer headlines, especially as the market is assigning a 1% probability for a 25bps rate move; a rather odd situation considering the current rate hiking cycle is theoretically still alive. 

Japanese Yen Flirts with 150, PMIs Next

The Japanese yen is trading quietly on Monday. In the European session, USD/JPY is trading at 149.98, up 0.07%. The yen showed little movement last week, hovering just shy of the symbolic 150 line. The lack of movement has continued today, but dollar-yen broke above 150 very briefly in the Asian session, during hours with low liquidity.

November Flashlight for the FOMC Blackout Period

We expect that the Federal Open Market Committee (FOMC) will leave the target range for the federal funds rate unchanged at 5.25%-5.50% at the conclusion of its next meeting on November 1. Financial markets are essentially priced for no change as well.

GBP/USD Drifting, UK Employment Report Next

The UK delayed has delayed the release of employment and unemployment data until Tuesday, after releasing wage growth last week. Wages including bonuses dropped from 8.5% to 8.1%, which is still very high and is driving inflation. Job growth is expected to drop by 198,000 in the three months to September, after a massive decline of 207,000 previously. The unemployment level is expected to remain at 4.3%.

Short Term Consolidation Might be in the Cards

We hold our view that short term consolidation might be in the cards, but that medium-to-long term underlying market sentiment remains bearish for bonds. For the US 10-yr yield, the October correction low around 4.5% in the reference.

Cryptocurrency Market Capitalization Sets Year's High

Amid the frenzy over expectations that the SEC will approve applications for spot bitcoin ETFs, the cryptocurrency market capitalization reached USD 1.25 trillion this morning, for the first time in 2023. Expectations have increased following reports that the US Securities and Exchange Commission will not appeal a court ruling that the rejection of Grayscale Investments' ETF application was improper.

Crypto Market Explodes with Growth

The crypto market cap has risen over 7.3% in the last 24 hours to $1.25 trillion. It is the highest valuation since April when fears over the safety of money in the regional banks drove the influx. The formal reason was further speculation around the launch of a spot ETF on Bitcoin. At the same time, the liquidation of short positions intensified the amplitude, as the wave of triggered orders came at a time of low market liquidity.