Several financial centers were closed today, October 9, for different national holidays. Markets were closed in Japan, Taiwan, Korea, and Canada, and there was a partial holiday in the US.
1. Chinese markets reopened after the national holiday last week. The equities rallied in a bit of catch-up, following the cut in reserve requirements for lending to small businesses announced at the start of the holiday period. The yuan fell 0.4% against the dollar, which had appreciated against most major and emerging market currencies while Chinese markets were closed.
China reported that its reserves rose by $17 bln in September. This extends the streak to eight months and brings the year-to-date increase to $98 bln. Note that the TIC data that extends through July shows China’s holding of Treasuries increased by $108 bln this year. This does not include the use of financial centers, like Belgium, which in the past some analysts have argued reflected Chinese activity, which for the record is off $21 bln through the first seven months of the year
2. After suffering its biggest loss in a year last week, sterling bounced back on Monday. It overshot the upper end of the resistance band we identified at $1.3160 and made it up to nearly $1.3185 late in the European morning before sellers emerged. We note that the Commitment of Traders showed that the net speculative position in the futures market was as long sterling as it has been in three years. Disaggregating the data showed that the more than 15k contract surge was largely a function of short-covering (profit-taking?) than new longs being established.
Sterling’s recovery from its test on $1.30 before the weekend was helped by a report suggesting the UK Prime Minister May is considering a cabinet reshuffle following the EU Summit on October 19-20. There was speculation that Johnson could leave, but this speculation, like Tillerson in the US, is chronic grist for the rumor mills. It is difficult to know the veracity, but beside a short-term impact, the UK’s challenges are so much larger than this or that cabinet official.
