Dollar rallies on Euro weakness, Bitcoin spikes higher

A continuing dollar rally was today’s highlight, with weak Eurozone data causing a Euro sell-off. Bitcoin spiked on renewed hopes for a Blackrock Bitcoin ETF. The broadly-based Russell 2000 led equities higher. US markets reacted to upbeat earnings reports from Coca-Cola and GE, with Google and Microsoft due to report after the bell.  In bond markets, short-dated yields rose in anticipation of another Fed Fund rate rise, while longer-dated bond yields fell. The oil price continued to fall on profit-taking.

Bottom line: Risk-on.

TODAY’S MAJOR NEWS

Eurozone activity sharply lower, Euro slips

Business activity took a surprise turn lower this month in the Eurozone as demand softened according to the latest Purchasing Managers Index (PMI) survey released today. The euro dropped on the release, with traders assuming that the ECB might need to take a more dovish approach to interest rate policy. This creates more challenges for the European Central Bank, which faces ’stagflation’ combining lingering inflation and a slowing economy

• The Eurozone PMI dropped to 46.5 in October, down from 47.2 last month, the survey’s lowest reading outside the Covid era in more than ten years. (A reading below 50 indicates contraction).

US PMI indicates modest growth, especially in services

In the US, the flash reading of the PMI composite index indicated modest growth, with slight growth in the service sector and no growth in manufacturing. This is confirmed in data from the Richmond Fed, whose manufacturing index of 3 was down from 5 the previous month, with a number above zero here suggesting month-on-month growth. In other words, the US economy may be stagnating, but it remains resilient and continues to evade the recession predicted by so many

• The PMI composite index flash estimate for October came in at 51.0, suggesting very modest growth for the overall economy
• The manufacturing index came in at 50.0, suggesting neither growth nor contraction but slightly above analyst expectations of 49.5
• The services sector index came in at 50.9, beating analyst expectations of 49.4

Bitcoin surges on ETF speculation

Bitcoin saw its most significant single-day jump in over a year, rising almost 12% to $35,000, once more fueled by speculation that the SEC will approve BlackRock's first spot bitcoin exchange-traded fund. This is still 50% shy of Bitcoin’s all-time high. Crypto traders pointed to the listing of BlackRock’s iShares Bitcoin Trust at the Depository Trust and Clearing Corporation (DTCC), rumors that BlackRock has begun seeding the fund, and data that showed large-scale liquidation of short positions in Bitcoin.

President Xi goes to the Bank to boost the Yuan

President Xi Jinping’s first visit to the People’s Bank of China in his 10-year tenure as president speaks volumes, indicating a direct interest in managing China’s substantial currency reserves at a time when the value of the yuan, now CNH/$ 7.32, is at its lowest level in nearly 16 years. Contrary to recent events, President Xi wants the yuan to be a solid alternative to the dollar in global trade, conferring political power on China. The yuan makes up just 3% of international trade, so he has a lot of work to do. Still, this is a big-picture development that dollar investors should monitor.

Magnificent Seven earnings reports due this week

The outperformance by tech stocks has become extreme. This week sees key earnings releases from group members making up almost a quater of US equity market cap: Google/Alphabet (+1.4% today) and Microsoft (+0.1% today) after the close, Meta/Facebook (-0.6% today) tomorrow, and Amazon (+1.1% today) on Thursday.

TODAY’S MAJOR MARKETS

Russell 2000 leads market bounce

• The Russell 2000 rose 0.6% in morning trade, with the Nasdaq and the S&P 500 up 0.4% and 0.3%, respectively
• Foreign equity markets also rallied overnight, led by a 0.5% rise in the DAX, with the Nikkei 225 and FTSE 10 0. Up 0.2%
• The VIX, Wall Street’s fear index, fell back to 19.6

Long-dated bond yields fall, short-dated yields rise, dollar rallies

• 10-year yields fell back to 4.83%, while 2-year yields rose to 5.10%
• The dollar index rose 0.7% to 106.2
• Versus the dollar, Sterling and the Euro were down 0.7%, while the Yen was down 0.1%

Oil slide continues

• Crude oil prices continued to fall, off 1.9% to $83.9 per barrel
• Spot gold prices were unchanged at 1,987 per ounce, while Silver was down 0.3% to $23.1 per ounce
• Grain and oilseed prices are mixed to mostly lower in relatively quiet trade.

Analysis by Arlan Suderman, Chief Commodities Economist: Arlan.Suderman@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com