The dollar has been on the upside the last few days. After the rate increase announced by the Fed on September 26th, US employment data and fears about the budget in Italy have allowed the greenback to trade under 1.1500 against the euro. On Friday, the US unemployment rate was 3.7% – the lowest since 1969. Job creation was down, which was expected in light of the impact of Hurricane Florence, which hit the Southeastern United States in mid-September. The upward revision of August offset this figure. Italy, on the other hand, continues to be a source of concern for investors and its 10-year yield continues to rise: At 3.55% this morning, it is 300 points above its benchmark – Germany’s 10-year Bund. Deputy Prime Minister Matteo Salvini said his government would not back down on its draft budget that provides for a 2.4% increase in the deficit compared to 0.8% for the previous government. In addition, the Italian government has revised its growth forecast for 2018 downward from 1.5% to 1.2%. The target debt-to-GDP ratio is 130.9% for this year, 130% for 2019, 128.1% for 2020 and 126.7% for 2021.

Thirty to forty British Labour MPs would be willing to challenge Jeremy Corbyn and support Theresa May’s plan in order to avoid a no-deal Brexit. Such support would make an EU-UK deal possible next Monday. Following this news, the pound rebounded, gaining 1% against the dollar at 1.3165. It also gained ground against the Swiss franc, surpassing the 1.3000 bar.

With the signing of a new US-Mexico-Canada trade agreement, the Central Bank of Canada has one less problem in its hands. The economy is chugging along, and the unemployment rate is falling, as shown in the latest employment report on Friday (5.9% vs 6% the previous month). As a result, the markets have already considered a quarter point increase of 1.50 to 1.75% for the next monetary policy meeting on October 24th. This time, investors will want to know whether the central bank will continue to see the pace of its hikes accelerate as shown by the rates on December 2018, March and June 2019 futures.

For its part, Banxico – Mexico’s Central Bank – left its rate unchanged last Thursday at 7.75%. The institution still sees more downside and upside risks for the economy despite the USMCA trade agreement. For this reason, it prefers to keep the rates unchanged for the time being. The Bank slightly revised its inflation projections for this year citing rising oil prices, pressure on the peso and increasing protectionist measures around the world

In Brazil, the stock market and the currency have reacted positively to far-right candidate Jair Bolsonaro’s winning the first round of presidential elections. Mr Bolsonaro has gained the trust of the markets with an ultra-liberal program that provides for the privatisation of several state-owned companies, a drastic reduction of public spending and smaller government. He has obtained 46.04% of the votes in the first round and is, therefore, in a favourable position for the second round on October 28th.

After a few days, oil has begun to rise again. A fire at a refinery in Canada and the arrival of Hurricane Michael on the Gulf of Mexico are to blame. Although the hurricane’s path remains uncertain, platforms that account for about 40% of production in the Gulf of Mexico have been evacuated.

Gold had been oscillating around the $1,200/oz t bar, but now has gone under it. The US rate hikes that make gold less attractive and the strength of the greenback are the cause.

Aside from US inflation data, the economic agenda is sparse over the next few days, and we will have to wait until October 24th and 25th for the first central bank meetings

Levels

EUR/USD 1.1500 DOW JONES 26’430.57
USD/CHF 0.9915 SMI 8‘964.11
EUR/CHF 1.1405 BRUT 74.75
USD/RUB 66.04
XAU/USD 1’190.00