Rising Treasury yields boost the buck, tech outperforms

* Trump closes Harris’ polling lead in swing states, USD rallies to multi-week high

* 10-year Treasury yield jumps as investors monitor Fed speeches before blackout

* EUR/USD breaks down towards 1.08, GBP/USD through 1.30, USD/JPY above 150

* US stocks catch their breath at top of earnings-heavy week

FX: USD broke to the upside and closed above the 200-day SMA at 103.78. The next upside target for the bulls is 104.08. Treasury yields pushed higher through the October peak, with the 10-year at levels last seen in late July. Its 200-day SMA is at 4.19%. Persistent inflation and weak US fiscal policy (“fiscal excess) are being blamed, though they are probably longer-term issues for the dollar. A Trump victory and last week’s solid data including retail sales, prove the US consumer is very much alive and kicking. We will be watching Fed officials’ commentary this week ahead of the blackout period for the November FOMC meeting on November 7.

EUR closed on its lows for the day and last week’s low at 1.0810. Dovish comments from ECB officials supported a rate cut in December. But they also point to a jumbo-sized 50bps move as highly unlikely. Markets had been pricing in around a 20-25% chance of that taking place in mid-December. There are around 115bps of cut priced in for 2025.

GBP dipped under 1.30 again and finished very close to last week’s low at 1.2973. The 100-day SMA sits at 1.2959. A 25bps BoE November rate cut is baked in. Greater flexibility of pricing to the dovish end, together with some positioning ahead of next week’s UK Budget and the US election a week later might push GBP/USD decisively below 1.30.

USD/JPY moved above 150 on higher Treasury yields. The 100-day just crossed under the 200-day SMA, which sit just above at 150.75 and 151.31 respectively. Japan’s largest labour union group said on Friday that it would seek wage hikes of at least 5% in 2025. These negotiations will be important for assessing the scope for further rate hikes from the Bank of Japan. Inflation has come lower this year, with Bank of Japan’s favourite measure, CPI excl. fresh food declining to 2.4% in September, according to data Friday morning.

AUD underperformed and dipped lower on the subdued risk mood. The 200-day SMA is at 0.6626, with the swing low from September at 0.6621. USD/CAD advanced north again to fresh swing highs above the April peak at 1.3846 before paring gains. This comes ahead of Wednesday’s BoC meeting. Markets have all but fully priced in a 50bps cut now, leaving the door wide open for the Bank to deliver.

US Stocks were mixed with outperformance in tech and the Nasdaq. The S&P 500 closed 0.18% lower to settle at 5,854. The tech-laden Nasdaq 100 added 0.18% to finish at 20,361. The Dow settled down 0.8% at 42,923. Technology was the only sector to finish in the green with all others lower. Nvidia and Apple outperformed while Google and Netflix also enjoyed gains. Those middle two megcaps report their earnings next week. Tesla, Coca-Cola, IBM and IBM are some of those companies publishing their results this week. The latter was the top gainer on the Dow as the plane maker reached a tentative labour deal with the union to end a strike.

Asian stocks: Futures are in the red. Asian stocks were mixed with competing drivers over the weekend. The ASX 200 was boosted by material, resources and mining sectors. The Nikkei 225 regained the 39k level amid mild gains. The Hang Seng and Shanghai Composite were mixed with weakness in tech offset by the slightly bigger than expected PBoC rate cut.

Gold broke through $2700 on Friday and made another fresh record top at $2740 yesterday before settling very marginally lower on the day. Rising Treasury yields didn’t help though support is underpinned by safe haven demand on Middle East tensions and US election uncertainty. De-dollarisation amid growing concerns about a rising US debt pile and fiscal policies have also buoyed gold bugs.

Market Thoughts – USD continues higher on data and Trump polling

Last week saw retail sales continue the recent streak of upside surprises, with the headline growing 0.4% m/m, propelled by a 0.7% m/m gain in the control group. This has pushed economists to raise their Q3 GDP forecasts up to 3% and implies a strong carryover effect for Q4. This data is released in a couple of weeks’ time.

More importantly, the data reinforces the broader view that the US consumer remains a robust backbone of the country’s strong growth, helped by household fundamentals that are still very supportive. The election and potential policy shifts may soften spending, but they likely do not amount to a looming downturn. The figures also again highlight the limited implications of consumer sentiment indicators, which have, contrary to the hard data, suggested cautiousness throughout this post-pandemic recovery. Will that hard data ever roll over?

Also gaining traction is the “Trump Trade”. This is a significant factor in the run up to the election, which is two weeks today. Former President Trump shows no loss of momentum in the polls as the polling aggregator ,538, averages show him now leading in four of seven Swing States. In betting markets, his chances of victory have swung more dramatically in his favour in recent days (61% to 39% for Harris). However, we note that the Wall Street Journal ran an article late last week noting a handful of accounts have been placing large bets of similar amounts near $30 million in crypto in favour of Trump winning. A Red Sweep would typically see stocks (defence, energy, banks, growth) , gold, crypto and the dollar likely outperform.

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