A busy overnight session: Asian stocks had a poor performance. Gold dropped from $2,695 to $2,675 in a heartbeat, with the GCG5 basis widening to $55 from around $27 at the open. It is not clear what has been driving this move. Initially, there was some chatter about U.S. tariffs being the driver for short covering on GC futures, but the move appears to be liquidity-driven—or rather, "lack of liquidity"-driven. The dislocation in the EFP markets, which serve as a hedging mechanism, seems to be the answer, as GC futures volume is double the daily average.
As for the day ahead, the U.S. CPI is the main event. This will offer Fed officials another key look at inflation ahead of their next meeting. Swap trading currently projects about an 85% chance of a quarter-point rate reduction this month. We will also hear from the Bank of Canada (BoC) today. We expect them to cut the overnight rate by 50 basis points to 3.25%, with the STIR market pricing in 45 basis points of cuts for this meeting. Even though the central bank’s preferred core inflation measures in October moved slightly higher, it is not sufficient to derail another 50-basis-point cut. Domestic conditions should dictate the BoC’s policy decisions, as signalled by Governor Macklem. The extent of slack in the Canadian economy is consistent with the need to loosen policy more quickly. After December, another two 25-basis-point cuts are expected in January and March.
In other markets, Bitcoin rose 0.8% to $97,664.11, Ether rose 0.8% to $3,670.87, the yield on 10-year Treasuries jumped to 4.24%, and West Texas Intermediate crude rose 0.7% to $69.10 per barrel. EUR/USD opens below 1.05, and GBP/USD sits at 1.2740.
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