Key Points:

US stocks soar in quiet trading on fiscal stimulus hopes

ECB declines to follow Fed with AIT

PBoC fixes USD/CNY higher to combat CNY strength

With the US out for the Columbus Day public holiday markets were quiet overall with the USD regaining some ground whilst all US indices soared higher. With the bond market closed there was no guide in understanding the divergence. Nasdaq added an impressive 2.56% with S&P500 1.64% and the Dow Jones 0.88%. Surprisingly the JPY outperformed on the day which is a break with risk on/off tradition with AUD/JPY the biggest mover to the downside and EUR/JPY’s inability to hold above 125.00 the stand out moves. Having breached 1930 Gold also fell back to settle at 1922 with the stronger USD, Oil was -2.73% at $39.49 as Libya announced plans to increase production. The BoE remained on the fence surrounding negative rates and various ECB officials confirmed that they are ready to act dependant on how the virus impacts the economy however they have no plans to follow the Fed with the average inflation target policy. EUR and GBP were largely unmoved on the day. PBoC held the key to most of the volatility yesterday after announcing a relaxation of reserve requirements for Forward FX, they then went and pitched the USD/CNY fix up almost 200BP’s to reinforce the move. USD gained in Asia in anticipation of the higher fix and retraced after it was confirmed. Buy the rumour, sell the fact. It was during the European session that the USD moved back higher, particularly against the AUD and NZD. With the US back today the comments surrounding any fiscal stimulus deal is likely to dominate price action, however ahead of that we will see Chinese Trade data for September and Employment data from the UK. For the US session on the data front CPI will be the main event.

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