Citi

European Open

Higher US Treasury yields across the curve led to USD being bid during the Asian session, with US 2Y yield notching an 18 month high of 0.3108%. DXY, consequently, was sighted at 93.41. Asian equities mostly traded in the red, with the notable exception being HSI, which was buoyed by PBoC’s pledge to ensure a “healthy property market”. Oil prices continued their rally during the Asian session, with Brent breaking $80/bbl, a 2 year high, and WTI extending its gains.

Central bank speak remains topical, with the appearance of Powell and Yellen before the Senate Banking Panel (15:00) and Riksbank’s Ingves’ speech on economic outlook (15:00 BST) being the 2 major central bank speeches to monitor today. We also look forward to HKD’s Trade Balance (09:30 BST), ARS’s Economic Activity Index data (20:00 BST), MXN’s Unemployment Rate NSA (12:00 BST) and BRL’s BCB Monetary Policy Minutes for September (time unknown).

Credit Agricole

Asia overnight

Sentiment is caught in the vice grip of higher UST yields as well as oil prices. Several FOMC member re-iterated that the labour market had met the criteria for the tapering of asset purchases to begin in November. Oil prices continue to head higher on the threat of an energy crunch. The potential for higher energy prices to generate more inflation is adding to upward pressure on global yields. Most Asian bourses were trading lower at the time of writing, but S&P 500 futures were slightly in the green. Australian government bond yields were dragged higher by UST yields and led to the AUD outperforming the rest of the G10 during the Asian session. Higher oil meant that the CAD was not far behind the AUD. The JPY was the underperformer in the Asian session.

EUR: Sintra on my mind

With the inconclusive German election behind us and now likely to be followed by a lengthy period of party negotiations, the FX market focus will now turn to the ECB forum on central banking, on the topic “Beyond the pandemic: the future of monetary policy”, which kicks off today. In particular, we believe that the ECB and other central bank officials due to speak today (including Christine Lagarde, Luis De Guindos, Fabio Panetta and Isabel Schnabel of the ECB, as well as the Fed’s Jerome Powell and the BoE’s Catherine Mann among others) and in the near-term can confirm the prospect for a gradual monetary policy normalisation from here.

Given that the event is taking place against the backdrop of lingering worries about China as well as broader stagflation fears, a more hawkish central bank speak could weigh on risk sentiment in the very near term. While the EUR could remain close to the lows on the back of post-election uncertainty in Germany. That said, we think that any evidence from the ECB speakers today that a more robust economic recovery and a more persistent inflation overshoot in the Eurozone could pave the way further policy normalisation from here could ultimately prop up the EUR as we head to another very strong HICP inflation print on Friday.