The financial markets continued in their short-term trends Thursday, meaning US yields moved higher, sending precious metals lower, while most of the FX pairs showed gains for the greenback.
Data during Asian session
Thursday started with investors looking at Japanese data, where industrial production on a yearly basis slipped to 9.3% from 11.6% previously, but monthly change dived deeper into negative territory. In addition, Japan's Retail trade year-on-year crashed to -3.2% in July, down from 2.4% in June. The Japanese economy remains under restrictions due to the latest COVID outbreak. The central bank and Japanese Prime Minister-elect Fumio Kishida said they need to do more to get the country out of the crisis.
Important Chinese data were also released during the Asian session. The non-manufacturing PMI improved markedly in September and rose to 53.2 from 47.5 in August. Furthermore, the manufacturing PMI rose to 50.0, from 49.2 in the last month. Improving Chinese numbers lifted sentiment, leading to small rallies in equity indices and commodities.
EU economic numbers
During the EU session, traders focused on the UK GDP data. The Office for National Statistics informed that the domestic economy grew 5.5% in the second quarter, better than expected and a notable improvement from the 1.6% decline in the previous quarter. However, despite the upbeat data, the Pound failed to start any meaningful rally, and it remained muted, trading near 1.3440, down 300 pips over the previous days.
Germany released its unemployment rate and unemployment change for September. The first stayed unchanged at 5.5%, while the latter improved marginally, from -53,000 to -30,000. Germany's inflation data will also be released today, possibly influencing the EUR/USD pair or the German DAX index.
US calendar also full
Later today, Federal Reserve Chair Jerome Powell continues to testify with US Treasury Secretary Janet Yellen about the Coronavirus and CARES Act before the Committee on Financial Services, US House of Representatives, in Washington DC. Unless they talk about "something new," financial markets should not be impacted, considering it is the third day of the testimony.
The US session will also bring the usual Thursday jobless claims. Initial claims are expected to fall notably, from 351,000 to 335,000, while continuing claims should also decline to 2.8 million from 2.845 million scored in the previous week.
Lastly, the final revision of the US Q2 GDP will be released, forecast to stay at 6.5%. Therefore, unless there is some significant deviation in the final number, market volatility should not be elevated.
As previously said, the ongoing trends in the markets might remain intact, meaning more US dollar strength and higher US yields. More near-term DXY upside is likely now that US real rates are more forcefully repricing the Fed’s Nov/Dec QE taper signal and the hawkish reshuffling of their dots, economists at Westpac reported today.