The global financial environment can continue to be characterized as “risk averse”, where both bonds and stocks continue to sell off. We don’t like the look of the S&P 500 chart at all and note that any disappointment in earnings for mega-cap tech stocks this week could do quite a bit of damage to stock markets overall.
When it comes to the American calendar, it gets busier during the week. The highlight will be Thursday’s release of third-quarter US GDP data, where consensus now expects a staggering 4.3% quarter-on-quarter annualized figure. consumer driven. Friday follows the release of September’s core PCE deflator (the Fed’s preferred measure of inflation), which should still be on the rise, at 0.3% mom. So in theory, this data should offer nothing to dollar bears, and selling dollars seems more like a leap of faith, considering this is the best it can get for the dollar. Perhaps the most likely scenario for a lower dollar is one in which stocks fall so hard that the short end of the US curve revalues lower and long dollar positions are reduced.
Outside the US, we have plenty of evidence from business surveys released on PMIs this week. We also have many central bank meetings, including in the eurozone, Canada, Turkey, Chile and today in Israel. We would have thought that the Bank of Israel might refrain from cutting rates today as it is intervening to support the shekel.
The weekend also saw some surprising election results in Argentina, where the ruling party’s candidate, Sergio Massa, performed better than expected. However, he will enter a second round with the Libertarian candidate, Javier Milei, on November 19. Next month should offer little respite to the beleaguered Argentine peso, caught between Massa’s cash-funded spending plans and the animosity shown toward the peso by Milei. More on that from us later today.
Turning to the dollar, the DXY should continue to consolidate in a tight range of 106.00-106.50, but we can imagine protective stops being built on long positions in the DXY in the 105.55/75 area.