No cut from OPEC - USD Gains Broadly

Market Brief

In the forex markets, USD rallied broadly after yesterday’s US holiday hiatus. EURUSD dropped to 1.2450 on heavy USD buying while USDJPY rose to 118.30. The USDKRW and USDMYR both dropped roughly 0.8%, pushing Asia EM FX lower. AUDUSD and NZDUSD were uninspired dropping to 0.8486 and 0.7830 respectively (now trading as the petro-currency). USDRUB was well bid, as oil collapsed (due partially to decision not to cut supply by OPEC) rising to 49.999. As the Swiss prepare to round-out voting on the critical “gold” referendum, EURCHF was stuck at 1.2020 with speculation that SNB is involved. Asia regional equity indices were mixed. The Nikkei rose 1.23% and Shanghai climbed 1.99% (helped by the weaker yen) while the Hang Seng was up marginally and Kospi dropped .10%. S&P futures are pointing to a higher open while the FTSE (which is energy heavy) is expected to fall as oil prices continue to slide.

In Japan, a slew of data illustrates the initial inflation and growth boost due to 'Abenomics' is fading. Japan's October nationwide CPI inflation eased to 2.9%y/y vs. 3.0% exp, from 3.2% in September. Core CPI excluding the impact due to the VAT hike weakened 0.9% y/y. Industrial production was a bright spot rising 0.2% m/m (consensus for a 0.6% y/y drop ) in October following a 2.9% m/m increase in September. However, the consumer is not faring well as retail sales declined 1.4% m/m, worse than the estimated fall of 0.5%.

In Switzerland, traders will be watching Swiss Kof leading indicator which is expected to rise from 99.8 to 100.0 in November. However, the real focus will be referenda results this Sunday. The outcome should be released around 4cet on Sunday. The latest polls suggest that the “no” votes have the majority indicating that spillover into EURCHF and Gold should be limited. We believe gold strategies should be to sell current rally as referendum dissappoints.

Elsewhere, Euro area flash HICP inflation is expected to drop from 0.4% y/y in October to 0.3% y/y in November. Swedish GDP growth is anticipated to weaken from 0.7% q/q in Q2 to 0.2% q/q in Q3. While OPEC decision not to cut will clearly be disappointing to Canadian policy makers, today GDP is expected to ease from 3.6% y/y to 2.1% y/y in Q3.