Marc Chandler

Marc Chandler

He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

Articles by Marc Chandler

Heightened Speculation of a BOJ Move Tomorrow did not Stop the Nikkei from Rallying or Yen from Slipping

Overview: The US dollar is trading with a mostly
softer bias against the G10 currencies. The notable exceptions are the Japanese
yen and Swiss franc. Ironically, speculation of a Bank of Japan rate hike
appears to have increased, while there is a risk that the Swiss National Bank
cuts rates this week. The Norwegian krone is the strongest of the major
currencies. The central bank meets later this week but is widely expected to
stand pat. The continued rise in oil prices may be buoying it. Most emerging
market currencies are softer. The MSCI Asia Pacific Index
snapped a seven-week advance last week but rebounded today. The Nikkei rallied
nearly 2.2%, its biggest rally in a month. Better industrial production data
from China may have helped the CSI 300 rally nearly 1%. Taiwan’s Taiex also

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Week Ahead: Central Banks

There has been a dramatic adjustment to US rates. The
two-year yield was near 4.40% before the US employment report on March 8 and it
reached near 4.73% before the weekend. The 25 bp surge is the largest weekly increase
since last May. For the first time in four months, the Fed funds futures strip
is no longer has at least three rate cuts discounted. The interest rate
adjustment underpinned the dollar, which rose against all the G10 currencies
last week.  Like
the US two-year yield, the 10-year yield also rose every day last week, and its 23 bp increase was the most since the last October. The Dollar Index’s 0.70% gain was the largest rise in eight weeks, and ended a three-week decline. Rising rates helped lift the greenback almost 1.4% against the Japanese yen, despite heightened

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Ueda’s Comments Weigh on Yen as the Market Awaits US CPI

Overview: The US CPI has become one of the most important high-frequency economic reports for the capital markets. The dollar is going into the report narrowly mixed against the G10 currencies. Comments by BOJ Governor Ueda about the weakness in consumption of non-durable goods was seen by some as reducing the likelihood of a change in policy next week.

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Forex Becalmed with the Greenback Mostly Firmer in Narrow Ranges

(Business trip will interrupt the commentary over the next few days.  Check out the March monthly here.  Back with the Week Ahead on March 9. May have some comments on X @marcmakingsense.) Overview: Outside of the Australian and New Zealand
dollars, which are off by 0.20%-0.25%, the other G10 currencies are little
changed and mostly softer in narrow ranges. A firm Tokyo CPI, mostly on base
effects and softer rates helped keep the US dollar below the recent highs
against the Japanese yen. Most emerging market currencies are lower, led by the
Malaysian ringgit. Meanwhile, the Hungarian forint is stabilizing after
extending losses to new record levels against the euro. The new news among US
data today is the ISM services. It is expected to have softened, but
disappointment could weigh on US

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March 2024 Monthly

Rarely are officials able to achieve the proverbial economic soft-landing when higher interest rates help cool price pressures without triggering a significant rise in unemployment or a contraction.

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Dollar Jumps

Overview: A less hawkish Reserve Bank of New Zealand and a slightly softer than expected January CPI from Australia appears to have sparked a broad US dollar rally.

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Weak US Durable Goods may Herald Pullback in Capex

Most of the G10 currencies are trading quietly in narrow ranges today. After a slightly firmer than expected national CPI reading, which still moderated, and a pullback in US yields, the Japanese yen is the strongest of the major currencies.

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Euro Bid in Europe but Unlikely to Sustain Gains Through North America

Overview: The dollar is beginning the new week mixed. The
dollar-bloc currencies and Japanese yen are softer while the European
currencies enjoy a firmer today. Among emerging market currencies, central
European currencies are trading with higher. The Turkish lira is the notable
exception. It is the weakest currency today, off about 0.65%. The Chinese yuan
is a little softer, but the dollar continues to be capped near CNY7.20. Last
week, more often than not, the North American session saw the dollar trade higher,
and we suspect that pattern may continue today. The euro is setting session
highs as North American traders prepare to enter the fray and the intraday
momentum indicators are extended. China’s CSI 300 snapped a nine-day advance today, falling 1%. Japanese
Taiwanese, and

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While the Greenback has Tended to be Sold in Asia this Week, it has Recovered in North America

Overview: Amid a light news stream,
the dollar is mostly in narrow ranges against the G10 currencies. Leaving aside
the Norwegian krone, the others in a +/- 0.15% against the dollar today. We
note that the technical tone of the euro and sterling have improved withe the
five-day moving averages crossing above the 20-day moving averages. On the
other hand, the dollar is approaching the year’s low set last week near
JPY150.90. Emerging market currencies are mostly lower, On the week, emerging
market currencies are mixed, though central European currencies are generally
fared best. Still, the JP Morgan Emerging Market Currency Index is likely to
finish the week lower. It has fallen every week so far this year. The
dramatic equity rally in the US yesterday helped lift most Asia Pacific

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Risk On, Dollar Sold

Overview: The
post-close rally in US tech stocks after Nvidia’s earnings has fueled risk-on
activity today. The Nikkei closed at record highs with a 2.2% rally. China’s
CSI rose for the eighth consecutive session as official discourage sales at the
open and close, and short sales in general. Europe’s Stoxx 600 is up more than
0.5% to recoup the small losses seen in the last two sessions. US indices are
poised to gap higher at the open. Benchmark 10-year yields are mostly1-2 bp
lower in Europe and the US Treasury yield is slightly lower near 4.30%.The dollar is heavier
across the board. The euro, sterling, and the Australian dollar reached their
best levels since the February 2 US employment report. The Canadian dollar and
Swiss franc are at the best level since the US CPI on February 13.

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China’s CSI 300 Rises for Seventh Consecutive Session and Offshore Yuan Strengthens for the Sixth Session

Overview: The dollar is trading quietly
after being sold yesterday. It is still soft against the dollar bloc and the
Swiss franc but is firmer against the other G10 currencies. Narrow ranges have
dominated. Emerging market currencies are mixed, with central European
currencies and the Taiwan dollar trading softer. The offshore Chinese yuan is
firmer for the sixth consecutive session. The highlights of today’s North
American session features minutes from last month’s FOMC meeting, a $16 bln
sale of 20-year Treasuries, and Nvidia’s earnings. Most large
equity markets in the Asia Pacific region fell but Hong Kong and China. The CSI
300 rallied four consecutive sessions before the Lunar New Year holiday and is
up in each of the three sessions since returning. Disappoint earnings are
weighing

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Dollar Slips but Dip may Offer New Opportunity

Overview: The US dollar is offered today. It is
trading softer against all the G10 currencies, with the yen the notable
exception, and it is flat. The Antipodean are leading the way, taking out last
week’s highs, as has the euro. That said, the intraday momentum indicators are
stretched as NY dealers return from the long holiday weekend. The Scandis are
also trading above last week’s highs. The yen, sterling, Canadian dollar, and
Swiss franc are still inside last week’s ranges. Most emerging market
currencies are trading with a firmer bias today, as well, led by central
European currencies. The Chinese yuan is also slightly firmer after banks cut
the five-year loan prime rate by 25 bp. A handful of Asian currencies are
softer, including the Thai baht following the Prime Minister’s call

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China Returns, the US is on Holiday, and the Dollar Consolidates

Overview: US markets are closed for President’s Day,
while China’s markets re-opened from the long Lunar New Year holiday. Mainland
stocks advanced, while the yuan slipped slightly. The US dollar is mostly
softer but in narrow ranges. The Antipodeans and yen lead, while the Swiss
franc the only G10 currency that is slightly softer. Most emerging market
currencies are lower, led by about a 0.5% loss of the South African rand. The
Mexican peso’s and South Korean won’s small gains are the exceptions. Stocks in the Asia Pacific
region were generally higher, led by China, but foreign inflows lifted South
Korea’s Kospi by 1.2%. Japan’s markets were mixed. Europe’s Stoxx 600 is
treading water. It advanced 1.4% last week, its fourth consecutive weekly gain.
US index futures are slightly firmer

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Week Ahead: China Returns and Flash PMI Featured after US Rate Adjustment was Extended

The US January CPI and PPI came in stronger than expected and this extended the recovery in US interest rates. In turn that helped underpin the dollar. We do not think the data itself changes the Fed’s stance. At least seven Fed officials speaking in the coming days will test this hypothesis. There are still several key reports before the data dependent FOMC meets again in about four weeks.

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Quiet End to a Busy Week

Overview:  The US dollar is winding down this week on
a quiet note. Most of the G10 currencies are trading within yesterday’s ranges.
On the week, only the Scandis are set to close with gains, though with a little
effort, the Australian dollar could too. The Japanese yen and Swiss franc are
the laggards off 0.65%-0.75% this week. Most emerging market currencies outside of
central Europe are firmer. The South African rand is the strongest this week,
followed by four Latam currencies (though not the Brazilian real ~-0.4%, in its
Carnival-holiday shortened week). The Nikkei drew closer to its record high
with modest gain that brought this week’s advance to 4.4%. Mainland shares that
trade in HK rose 2.7% today amid reports of heavy travel during the Lunar New
Year holiday, which encouraged

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Japanese Officials Weigh-In and Help Yen Stabilize, while Euro and Sterling Extend Losses

Overview: The market’s reaction to the firmer than expected
January CPI seems exaggerated. We do not think it was the game-changer for the
Federal Reserve that the market seemed to think. The dollar was driven higher,
and it is stabilizing today, though the euro and sterling extended their
losses, most of the other G10 currencies did not. After the yen’s six-week
slide did not elicit a response from Japanese officials, yesterday’s drop did,
and this may have helped steady the exchange rate today. However, the dollar’s
advance against the yen does not seem over. Emerging market currencies are
mostly heavier. The Mexican peso, which was the worst performer yesterday is
the best today with a minor gain of about 0.20%. After the sharp US
equity losses yesterday, Asia Pacific markets followed

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Sterling Buoyed by Labor Market Report Ahead of US CPI

Overview: The US dollar is enjoying a mostly firmer bias ahead
of today’s CPI report. Sterling is the strongest among the G10 currencies after
a more resilient than expected labor market report. The dollar extended its
gains against the Japanese yen to a new high since last November, but the
market seems cautious as it approaches JPY150, where large options expire today.
On the other hand, emerging market currencies are mostly faring better. The
Mexican peso and Polish zloty of notable exceptions and are nursing minor
losses. The Nikkei set new 30-year+ highs and at one point rose 3% today, the most
since November 2022 before settling up nearly 2.9%. It is about 2.5% away from a record
high. Most markets in the Asia Pacific region rose today, though Australia and
New Zealand were

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The Greenback is in Narrow Ranges to Start the Week

Overview: The foreign exchange market is quiet. The
Lunar New Year holiday shut most Asian markets. That, coupled with the light
news in Europe, have served to keep the dollar in narrow ranges against the G10
currencies. The Swedish krona, Norwegian krone, and Japanese yen are posting
minor gains against the greenback. The New Zealand dollar, which was strongest
major currency last week (1.4%) is off by almost 0.5% today, making it the
weakest today. RBNZ Governor Orr underscored the recent message that inflation
is still too high (~4.7%). Emerging market currencies are narrowly mixed
(+/-0.2%). Of note, India reports December industrial production and January
CPI shortly.The few equity markets in the
Asia Pacific region that were not on holiday today, including Australia, India,
and New

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Week Ahead: Will Soft US CPI and Retail Sales Mark the End of the Interest Rate Adjustment and Help Cap the Greenback?

The
markets are still correcting from the overshoot on rates and the dollar that
took place in late 2023. The first Fed rate cut has been pushed out of March
and odds of a May move have been pared to the lowest since last November. The
extent of this year’s cuts has been chopped to about 4.5 quarter-point move
(~112 bp) from more than six a month ago. The market has reduced the extent
of ECB cuts to about 114 bp (from 160 bp at the end of January and 190 in late
2023). The Bank of England is now expected to cut rates three times this year
(75 bp), which is nearly 100 bp less than was discounted at the end of last year. The extent
of Bank of Canada rate cuts this year has been halved to less than 80 bp from
160 bp in late December 2023. We suspect that the interest rate adjustment is

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Becalmed FX Market doesn’t Conceal the Greenback’s Strength

Overview: The foreign exchange market is
becalmed today, with most of the major pairs trading in narrow ranges. The
economic calendar is light and the North American session features benchmark
revisions in US CPI and Canada’s January employment figures. The US quarterly
refunding supply has been absorbed without much fanfare. The dollar-bloc
currencies and the Norwegian krone are firmer today. A bank forecast that the
central bank will hike rates later this month is lifting the New Zealand dollar
to new highs for the week near $0.6150. Emerging market currencies are narrowly
mixed today. Most of the freely accessible emerging market currencies are
lower, including the South African rand, Hungarian forint, and Turkish
lira. Japanese equities were mixed, and the Hang
Seng slipped in the

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Yen Tumbles to New Low on BOJ Comments

Overview: The dollar is narrowly mixed against most
of the G10 currencies as it continues to consolidate its recent gains. The yen is the notable exception, and
it was sold today, not in response to developments in the US Treasury market, a
frequent driver, but in response to comments by a deputy governor of the central bank,
suggesting a rate adjustment would not necessarily signal the start of a
tightening cycle, which some economists expected. Emerging market currencies
are also mostly narrowly mixed. Central European currencies are firmer, even
the Czech koruna, ahead of what is expected to be the second cut in the cycle
that began in December. More deflation readings from China did the yuan no
favors, but the yen’s weakness may have weighed on it, ahead of the long
holiday

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Sterling Moves Back into Previous Trading Range, but will it Hold?

Overview:  The dollar is trading with a
slightly heavier bias as some of its recent gains are pared. Sterling has moved
back into the $1.26-$1.28 trading range that dominated since the middle of last
December until the start of this week. The euro is also trading a little firmer
despite another large drop in German industrial output (-1.6%). The Japanese
yen, Swiss franc, and Norwegian krone are the notable exceptions with a softer profile.
Emerging market currencies are mostly firmer. Yet, the lower yielding
currencies G10 currencies are trading softer, among emerging market currencies
today, the high yielding ones are trading lower. These include the Turkish
lira, South African rand, and the Hungarian forint.Asia Pacific equities mostly
advanced, led by South Korea’s Kospi, which itself

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Greenback Consolidates Two-Day Surge

Overview: The US dollar is consolidating its the
two-day surge since the jobs data at the end of last week. The Reserve Bank of
Australia did not rule out additional rate hikes, and although the derivatives
markets do not think it is likely, the Australian dollar is the best performer
in the G10 today with a small gain. An unexpectedly strong German factory
orders report failed to help the euro much and it languished near yesterday’s
low. Sterling finally broke out of its $1.26-$1.28 range and is also moving
sideways in a roughly $1.2530-65 range. Signs that Chinese officials are stepping
up their support for the equities saw the CSI 300 jump around 3. 5% and the
Hang Seng surged by a little more than 4%. Among the large markets, Japan,
South Korea, and Australia fell. Europe Stoxx 600 is

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The US Dollar and Rates Rise Further

Overview: The US dollar and interest rates have continued to
rise after the strong employment report before the weekend helped drive home the
Fed’s message at last week’s FOMC meeting. The greenback has been bid to new
highs for the year against the G10 currencies but the Canadian dollar. The
dollar also rose to a marginal new high for the year against the Chinese yuan. Interest
rates are jumping, and the market has downgraded the chances of a May Fed cut
to about 75% from slightly more than 90% before the weekend. Before the
employment data, the Fed funds futures had almost 34 bp of cuts discounted by
the end of May and now 19 bp. The US two-year yield was at 4.13% last Thursday
and is now 4.44%. The 10-year yield is up six basis points today to bring its
three-day advance to more than

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Week Ahead: Markets Digest New Economic Divergence after US Employment Report

The US employment data blew away expectations, jumping by 353k,
nearly twice the median forecasts. That, coupled with the 0.6% rise in average
hourly earnings, which was also twice expectations, helped drive home the
Federal Reserve’s reluctance to endorse what had been market speculation of a
March rate cut and an aggressive rate cutting sequence. The dollar had softened
as US rates eased following the FOMC meeting and new strains among regional
banks (and some foreign banks with exposure to the US property market), but the
jobs data turned things around. US rates rose sharply, and the greenback
rebounded. US regional bank shares stabilized. 

The week ahead
is bound to be quieter. The economic highlight is the final January PMI, which
is rarely a market mover. The Reserve Bank of

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US Dollar Offered Ahead of Employment Data after US 10-year Yield Set New Low for the Year

Overview: The dollar is offered ahead of today’s US
jobs report, even though expectations are for solid if not spectacular jobs
growth of around 185k. The Australian and New Zealand dollars are leading
today’s move, while the euro approached $1.09, which it has not traded above
this week. Sterling neared the lower end of its $1.26-$1.28 trading range
yesterday and set a new high for the week today, slightly above $1.2770. Emerging
market currencies are mostly firmer as well, with the Turkish lira, South
African rand, and a couple central European currencies bucking the move. Gold is consolidating in a
narrow range above $2052 after approaching a one-month high near $2065
yesterday. March WTI fell by a little more than 5% of the past two sessions and
has stabilized today after slipping to

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The Euro and Australian Dollar Take Out January Lows to Start the New Month

Overview:  Federal Reserve Chair push against
speculation of a March rate cut as explicitly as could be imagined at
yesterday’s press conference lifted the dollar, while weighing on stocks. US
regional banks sold off sharply yesterday, and challenges emanating from US
real estate adversely impacted a Japan’s Aozora Bank and Deutsche Bank
quadrupled its loss provisions for such exposure. The greenback remains bid. The
euro and Australian dollar have been sold through January’s lows. The yen the
best performer among the G10 currencies despite the firmer yields. The US two-
and 10-year yields are up about three basis points to about 4.24% and 3.95%
respectively. European benchmark yields are
mostly 4-6 bp higher today. A dovish message from Sweden’s Riksbank has limited
the rise in the

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US Tech Sell-Off Challenges Risk Appetites Ahead of the FOMC

Overview: Ahead of the US Treasury’s quarterly
refunding announcement and the outcome of the FOMC meeting, the dollar is
trading higher against all the G10 currencies. With US high-flying tech stocks
posting steep losses after disappointing earnings reports, the currencies most
sensitive to risk-appetites, the dollar bloc and the Norwegian krone are the
weakest. Emerging market currencies are mixed. The South African rand,
Philippine peso, and Hungarian forint lead the advancers. The Czech koruna,
Taiwanese dollar, and South Korean won are the laggards, off around 0.4%-0.5%. The Nikkei recovered from
initial gap-lower losses and closed about 0.6% higher. However, Hong Kong and
mainland shares tumbled by more than 1%. Taiwan was off 0.8% and South Korea
slipped by less than 0.1%. Europe’s

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EMU Q4 23 GDP Stagnates, Underscoring Divergence with the US

Overview: The US dollar is mixed ahead of the start
of the FOMC meeting and is mostly in its recent ranges. The euro, which was
sold below $1.08 yesterday for the first time since mid-December is holding
above it today. The less-than-expected projection of US Treasury borrowing
requirements for Q1 and Q2 weighed on US rates, which, in turn, dragged the
greenback lower against the yen. It is trading near a four-day low, a
little above JPY147.00. The rally in US equities threatened to push the dollar
below CAD1.34, a two-week low. The dollar trading with a softer bias against
most emerging market currencies today, including the Hungarian forint, where
the central bank is expected to cut the base rate by 75-100 bp today (fourth
cut in the cycle). A new security law in Hong Kong
helped

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Oil Retraces Initial Surge, Euro Slips to Marginal New Low, while Sterling Hugs $1.27

Overview: Key developments today include the Hong
Kong court ordered liquidation of China’s Evergrande and the reversal of oil
prices after a sharp rally initially in Asia after separate attack in the
Middle East that killed US troops in Jordan and struck a Russian oil tank in
the Red Sea. March WTI, which settled near $78 ahead of the weekend, its best
level since the end of last November, rallied to about $79.30 before returning
to almost $77.50 and is now a little above $78. China’s CSI 300 rallied about
2% last week on the back of the cut in reserve requirements and other efforts
to support the equity market. It gave back nearly half of last week’s gains
today, even though the other large regional markets rose. Europe’s Stoxx 600 is
in a narrow range near the pre-weekend high, which

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February 2023 Monthly

The coming weeks will
likely continue the correction of the trends that began last month. The markets
recognize that tightening cycle is over. However, they swung hard, pricing in
aggressive easing by most of the G10 central banks, including the Federal
Reserve and the European Central Bank. Official comments and some
high-frequency economic data have encouraged participants to rein in their
expectations, reducing the odds of a rate cuts in Q1 and paring back the extent
of the cuts this year. The pendulum of market expectations reached an extreme. In
the first part of January, pricing of the Fed funds futures strip implied a
rate cut at each of the remaining seven FOMC meetings. While this is possible,
it is not the most likely scenario, especially given what we know about the
national

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USD Looks Oversold on Intraday Basis Ahead of a Possible Risk-Off North American Session

Overview:  The US dollar is trading lower against most
currencies, but the intraday momentum indicators are stretched, suggesting the
selling pressure may not be sustained through in North America today. December
US personal income and consumption data was contained in yesterday’s Q4 23 GDP
data, but the market want to see the monthly print, which is expected to see
the core measure ease with the headline rate flat. Tokyo’s January CPI was much
softer than expected, falling to 1.6% at the headline and core rates. Still,
the market loos for the BOJ to exit its negative interest rate policy in April.Chinese stocks, which rallied almost 4% in the past
three sessions, helped by formal and informal official action, eased today with
the CSI 300 slipping around 0.3%. Disappointing Intel earnings

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Attention turns to Lagarde’s Press Conference and US Q4 GDP

Overview: The US dollar is trading mostly quietly in narrow ranges
against the G10 currencies ahead of the ECB’s President Lagarde’s press
conference at the conclusion of the policy meeting and the first estimate of Q4
US GDP. With elevated price pressures, Norway’s central bank left rates steady
and reiterated its signal that rates will remain high for some time, and this
has lifted the krone by about 0.5% to leader the major currencies. Most of the
emerging market currencies are a little firmer, but not the Mexican peso or
Chinese yuan, which are a little softer today. The Turkish lira is also
slightly heavier ahead of its central bank’s decision, which is expected to be
a small rate hike. Chinese equities extended yesterday’s recovery as officials
use formal and informal mechanisms to

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PBOC Cuts Reserve Requirements, but USD Pullback may offer New Buying Opportunity in North America

Overview: After a strong showing yesterday, the
dollar was sold in Asia and Europe. China announced a cut in reserve
requirements and took more informal action to support the stock market, which
encouraged risk-taking. Yet, the dollar’s decline has stretched intraday
momentum indicators, which may provide early operators in North America a new
dollar buying opportunity. The ECB and Norway’s central banks meet tomorrow,
and the US reports its first estimate of Q4 23 GDP. Led by a more than 4% rally in index of
mainland shares that trade in Hong Kong, but of the Asia Pacific equity markets
advanced today, with Japan and South Korea the notable exceptions. Europe’s
Stoxx 600 is up more than 0.8%, which, if sustained, would be the
second-largest advance of the year. US index futures are also

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BOJ Stands Pat, Exit Draws Closer, while HK Liquidity is Squeezed Easing Pressure on the Yuan

Overview:  The dollar remains largely confined
to its recent ranges as the consolidative phase extends. The Bank of Japan
stood pat and revised its forecasts as it is seen drawing closer another
adjustment in policy, with the market still favoring an April timeframe. A
squeeze in the Hong Kong money market and talk of a large package to support
the equity market helped lift the Chinese yuan for the third consecutive
session and lifted Chinese stocks. Most emerging market currencies, led by the
Mexican peso again, softer today. A handful of Asian currencies and the South
African rand are resisting the firmer greenback. Although Japanese stocks saw some
profit-taking, the other large markets in the region rose helped by China and
the rally in the US yesterday that saw new S&P 500 and Nasdaq

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China Equity Slump Continues, while Dollar Extends Consolidation

Overview: The foreign exchange market is quiet to
start the new week. As the North American session is about to begin, the dollar
is mostly +/- 0.10% against most of the G10 currencies. The Swedish krona is
the notable exception, rising about 0.25% against the US dollar amid good
demand for its bonds today. Emerging market currencies are mostly lower. The
Taiwanese dollar is the strongest in the complex so far today, rising about
0.30% against the dollar, despite a dramatic 16% drop December export orders. The
two trend moves among Asia Pacific equities continued. Japanese indices made
new 30-year highs, while Chinese stocks on the mainland and Hong Kong continued
to be pummeled. Europe’s Stoxx 600 is up about 0.4%, while US index futures are
extending their gains that carried the S&P 500

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Week Ahead: Too Early for Central Banks to Move, and Q4 GDP to Showcase US Economic Resilience (with the help of 6.5% budget deficit)

The week ahead features the first estimate of US Q4 GDP, which will be
revised for the next couple of years, and policy meetings by the Bank of Japan,
the European Central Bank, the Bank of Canada, and Norges Bank, Norway’s
central bank. Although the market anticipates the beginning of an aggressive
easing cycle by several central banks, and an exit of the BOJ’s negative
interest rate policy, the start is not expected until later in the first half. Obviously,
this is an unusual business cycle, and while US growth is expected to have
slowed, it may have still grown above what the Fed regards as the long-run pace
consistent with price stability. The preliminary University of Michigan’s
January survey showed rising consumer confidence and easing of one-year
inflation expectations. The flash

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Quiet End to a Busy Week

Overview: The dollar’s surge in the first part of
the week has given way to consolidation. The US dollar is sporting a softer
profile against most of the G10 currencies. The Dollar Index is threatening to
snap a three advance. Sterling is a notable exception following the weakest
retail sales report since 2021. Most emerging market currencies, including
China, Taiwan, and Mexico are slightly firmer. US President Biden is expected
to sign a bill today that avoids a partial government shutdown but only
extended the spending authorization until March 1 and March 8. The equity rally in North
America yesterday, which saw the NASDAQ 100 set a new record-high seemed to
help bourses in Asia Pacific today, led by a 2.6% jump in Taiwan. China’s
stocks were the main exception and reports suggest one

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Dollar Rally Pauses, but Fuel from Interest Rate Adjustment may not be Complete

Overview: This week’s dollar surge is consolidating
today. Interest rates have steadied, but the adjustment, which involves pushing
the first rate from March toward June does not appear complete. This suggests
the dollar’s recovery from last November-December’s sell-off may not be
complete either. Today, though, it is a little firmer against all the G10
currencies but the Swiss franc. Most emerging market currencies are also
trading with a slightly higher bias, led by the South African rand, South
Korean won, and the Mexican peso. Gold has steadied too after approaching $2000
yesterday, a one-month low. It is hovering around $2010 in Europe. Chinese and Hong Kong stocks
traded higher, apparently helping to lift South Korea and Taiwan shares, but
most of the other large markets in the

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Stronger-than-Expected UK CPI Helps Steady Sterling after Dollar Rally Extended

Overview: The sharp dollar advance is stabilizing after
follow-through gains earlier today. A larger than expected rise in the UK’s
December CPI helped sterling recover from the push below $1.26, the lower end
of a one-month trading range. It is the only G10 currency that is firmer
against the dollar ahead of the North American session. ECB’s Lagarde pushed
back against the early rate cut speculation and this may have stemmed the
euro’s losses. The greenback approached JPY148 and remains near there now. Taiwan,
South Korea, and Mexico lead emerging market currencies lower. Equity market losses are accelerating. In the sea of
red in the Asia Pacific region, HK stood out was a 3.7% drop and the CSI 300
was off 2.2%. Europe’s Stoxx 600 is lower for the third consecutive session,
and its 1.2%

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Greenback Surges as Rates Back Up

Overview: The US dollar is bid across the board and posting its best session of the month. It is up between about 0.5% (Canadian dollar) to almost 1.0% (Australian dollar) among the G10 currencies. Among the emerging market currencies, only the Russian ruble is holding its own.

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Week Ahead: Real Economy

Given the world’s turmoil, including the escalation, and
broadening of the conflict in the Middle East and China’s continued aerial
harassment of Taiwan ahead of the election, the capital and commodity markets
have remained firm. February WTI fell about 1.7% last week and March Brent
slipped around 0.65%. Shipping costs are rising as the Rea Sea is avoided
and supply chain disruptions are threatened. Still the MSCI index of developed
equity market rose by nearly 1.8% last week after posting snapping a nine-week
advance the previous week. The MSCI emerging market equity index is off about
3% to start the year. China alone accounts for about half of the losses. Neither the
slightly firmer than expected US December CPI, that included a 0.4% rise in the
core measure excluding housing, which

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China Data Dump Keeps Market Looking for a Rate Cut Next Week

Overview:  The mostly consolidative week for the US dollar
continues. Most for the G10 currencies are +/- about 0.25% today and only a
slightly wider range for the week. The odds of a Fed rate cut in March is
virtually unchanged on the week at around 75%. The JP Morgan Emerging Market
Currency Index is practically flat on the day and week. The Russian ruble and
Mexican peso lead today’s advancers, while eastern and central European
currencies are laggards. The Chinese yuan is flat despite moderating deflation
and a larger trade surplus. Lending figures disappointed. The PBOC is likely to
cut its one-year benchmark rate at the start of next week. The US and UK strike on the Houthi in Yemen has helped lift oil and gold
prices, but otherwise the impact on the markets is minimal. Outside of

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Can the US CPI Break the Dollar out of its Consolidation?

Overview: Stocks and bonds are
trading higher, and the dollar is narrowly mixed ahead of the December US CPI
report. Most of the large bourses in Asia Pacific advanced, led by Japan to new
30-year-plus highs. Hong Kong’s Hang Seng snapped seven-day slide to post its
first gain of 2024. Europe’s Stoxx 600 is up about 0.33%, to recoup most of its
losses in the past two sessions. US index futures enjoy a modest upside bias.
Benchmark 10-year yields in Europe are off 3-6 bp, with the peripheral premiums
narrowing slightly. The 10-year US Treasury yield is off four basis points to
slightly below 3.99%. The yield has remained in the range set after last
Friday’s jobs report and soft ISM services (~3.95%-4.10%). The futures market
has about a 70% chance of that the first Fed cut is delivered in

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Don’t be Burned in the Churn

Overview: The broad consolidation in the dollar after the
gyrations at the end of last week continues, and within it the greenback is a
bit softer today. Among the G10 currencies, only the yen is failing to post
gains. Most emerging market currencies, led by central Europe, are also firmer
today. A notable exception is a handful of Asian currencies, include the South
Korean won, Taiwanese dollar, and the Philippine peso. The market’s focus is on
tomorrow’s US CPI. Meanwhile, the US 10-year yield is lower for the third
consecutive session and is below the 4% threshold ahead of today’s Treasury
auction. European benchmark 10-year yields are also 2-4 bp lower. Despite a
weak reception to its 10-year bond sales, the disappointing wage growth in
Japan helped restrain yields and the 10-year JGB

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The Dollar Goes Nowhere Quickly

Overview: The dollar continues to consolidate
broadly after the dramatic price swings at the end of last week. For the most
part, the greenback remains inside yesterday’s ranges, which were inside last
Friday’s. The G10 currencies are a little heavier today, except the Japanese
yen and Norwegian krone, which are posting small gains. Indeed, the greenback is near session highs against most of the major currencies as we go to print. Emerging market
currencies are more mixed. Central European currencies and the Philippine peso
are modestly lower, while the South African rand and Mexican peso join the Thai
baht and Malaysian ringgit to advance. Gold is recovering from yesterday’s
slide to about $2017, the lowest level since December 18. It is approaching
$2040. European benchmark 10-year

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Consolidation Featured

Overview: After dramatic intraday price swings after
the US jobs data and service ISM figures before the weekend, the dollar is
consolidating today in mostly narrow ranges. The prospect for a March cut by
the Federal Reserve finished last Friday virtually unchanged (73% vs 70%) and
is about 66% chance today. There was interest in Dallas Fed’s Logan’s
suggestion that the tapering of QT be discussed, though it seems to simply
confirm what many has suspected as the use of the reverse repo facility
diminishes. We suggested it
could wind down by the middle of the year. Also, over the weekend, a tentative
deal to re-authorize the federal government spending to avoid a partial
government shutdown beginning January 19 was struck but it is not clear that
the congressional votes are there.

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Week Ahead: Attention Turns Back to Inflation

The terribly mixed US jobs report spurred
dramatic intraday swings in exchange and US interest rates. But at the close,
the dollar was little changed against most major currencies, and expectations
for Fed policy was nearly unchanged. The futures market has about a 70% chance
of a cut at the March meeting. The Dollar Index was off by less than 0.1%. Job
growth held up better than expected in December, the unemployment rate held
steady, and average wages rose slightly more than expected. However, there were
again downward revisions to past job growth (-71k), the participation rate fell
to 62.5% (from 62.8%), and the work week slipped (34.3 hours from 34.4 hours).
There is little doubt that the labor market is slowing. Job growth in Q4 23
averaged 165k, the lowest since the post-Covid

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Greenback is Bid ahead of the Jobs Report

Overview: The dollar is bid going into the December
jobs report. After selling off into the end of last year, it has recovered this
week. The five-day moving average is crossing the 20-day moving average against
several of the currency pairs, capturing the shift in momentum. The greenback’s
gains have as interest rates have jumped. The 10-year Treasury yield finished
last year near 3.88% and is now near 4.04%. European benchmark rates have
mostly risen 15-20 bp this week, though the 10-year Gilt yield is up almost 28
bp. The market has downgraded the odds of a March cut by the Federal Reserve to
around 68% from 100% at the end of 2023. Stocks have been hit by profit-taking to
start this year. China’s CSI 300 and Hang Seng have fallen every day this week
for about a 3% drop. Europe’s Stoxx

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Consolidative Tone Emerges Ahead of Tomorrow’s US Jobs and EMU CPI

Overview: After gaining for the past couple of
sessions to open the New Year, the dollar is mostly softer today. The yen is
the main exception. The greenback was bid above the JPY144 area where
chunky options expire today. Most emerging market currencies are also firmer
though there are a few exceptions in Asia, like the South Korean won and Thai
baht. Still, the general tone is consolidative ahead of tomorrow US jobs data
and the eurozone’s CPI. Equities, which began the year on profit-taking, are
stabilizing today, though it was not so apparent in Asia Pacific, were most of
the large bourses fell, led by China’s CSI 300 (~-0.95%). Europe’s Stoxx 600 is
up about 0.35% after falling nearly 1% in the past two sessions. US index
futures are posting minor gains. The bond market stands out

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Holiday Moves Continue to be Unwound

Overview: The dollar is firm. Rates are mostly
higher and equities lower. The moves scored in the holiday-thin markets are at
end of last year are being unwound. This does not appear complete yet. Geopolitical tensions remain high but do
not seem to be having a direct market influence as both gold and oil are
trading lower. Among the G10 currencies, sterling has been the most resilient
today but nearly flat. Within the emerging market complex, the Hungarian forint
and Philippine peso are bucking the trend that has seen most of the emerging
market currencies ease. Gold is down for the fourth consecutive session, which
if sustained, would be the longest losing streak in more than two months. February
WTI’s dramatic downside reversal yesterday (from nearly $73.65 to $70.05) saw

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Firm Start for the Greenback

Overview: The US dollar begins the new year on a
firm note. It is recovering against nearly all the G10 and emerging market
currencies today after depreciating in the holiday-thin markets over the past
couple of weeks. Japanese markets are on holiday until Thursday. The yen and
Swiss franc are the poorest performers among the G10 currencies. Among emerging
market currencies, the Mexican peso, Hungarian forint, and South African rand
are bucking the trend to post minor gains against the greenback. The Chinese
yuan is off by about 0.5% for its biggest loss in at least six months. Equities are mixed while bonds
have sold off. In Asia Pacific, Hong Kong and mainland Chinese equities tumbled
by 1.3%-1.5% to lead the regional decline, but Korea and Australia, and a
handful of other smaller

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January 2024 Monthly

The
only thing that can be said with high confidence about the year ahead is that it
will be different from 2023. Three broad forces will shape the business and
investment climate in the year ahead.First, the post-Covid
tightening cycle in the high-income countries, leaving aside Japan, has ended.
The question is when and how fast rate cuts will be delivered. Moderating price
pressures and weaker growth impulses have seen the pendulum of market sentiment
swing dramatically from the "higher for longer" mantra of most of
last year to pricing in aggressive easing the Federal Reserve and European
Central Bank. Several central banks from emerging markets, especially in Latam
and central Europe, have already begun cutting rates.The Federal Reserve’s
balance sheet shrank to a little less than

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Fed to Express More Confidence that Policy is Sufficiently Restrictive Despite the Easing of Financial Conditions

Commentary will resume with a 2024 outlook on December 29. Overview: The dollar is trading with a firmer bias today ahead of the outcome of the FOMC meeting. Standing pat for two
meetings was framed as a pause, but given the decline in price pressures, being
unchanged for a third meeting is understood as the end of the historically
aggressive tightening cycle. Fed Chair Powell is expected to express greater confidence
that policy is sufficiently restrictive to bring inflation back to target. Trading
after the FOMC meetings has been treacherous, with the markets often reversing
initial moves. The rally in the S&P 500 to
its best level since April 2022 failed to boost Asia Pacific equities today. Among
the large markets, Japan, Australia, and Taiwan did manage to gain slightly.
Europe’s

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Soft US CPI Today Paves Way for Fed Pivot Tomorrow

Overview: The US dollar is trading softer against all the
G10 currencies ahead of what is expected to be a soft November CPI report,
which paves the way for a pivot by the FOMC tomorrow. It is expected to signal
that policy may be sufficiently restrictive and anticipate being able to cut
rates next year more than it thought in September, even if not as much as is
priced into the market. Among emerging market currencies, central European
currencies are leading the way higher on the back of the euro that has moved
above $1.08 in the European morning. The softer dollar and lower interest rates
are helping gold stabilize after falling to almost $1975 yesterday (peak last
week was a record ~$2135). European benchmark 10-year bond yields are
mostly 4-6 bp lower. A larger than expected

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BOJ Speculation Unwound, Taking the Yen Lower

Overview: The busy week of central bank meetings is
off to a mostly slow start. The dollar is narrowly mixed in quiet turnover,
except against the Japanese yen. Many participants seemed to exaggerate the
risks of a BOJ move next week and dollar continued its recovery that began
ahead of the weekend. Among emerging market currencies, central European
currencies appear to be aided by the firmer euro. They are resisting the
dollar’s advance seen against most other emerging market currencies, including
the Chinese yuan, which is near three-week lows. Gold, too, is unwinding last
week’s gains and near $1992 is near a two-week low. It reached a record high
slightly above $2135.50 last week. Nearly all the large equity markets in the
Asia Pacific area advanced earlier today. Hong Kong, and

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Week Ahead: What Central Banks Say may be More Important than What They Do

There were three outsized moves
last week. Gold had a $135 range on Monday, posted a key downside reversal, and
fell below $2000 at the end of the week after setting a record high slightly
above $2135. January WTI neared $80 on December 1 and traded below $69 on
December 7, its lowest level in five months. The seven-week slide matches the
longest since July/August 2015. Third, the dollar fell by a little more than 2.1% on December 7 against the Japanese yen as the market seemed to panic into concluding that the BOJ
would lift rates in a couple of weeks. The range that day was roughly JPY141.70
to JPY147.30. The greenback briefly traded below the 200-day moving average
for the first time in seven months. Given the softening inflation, the larger
contraction in Japan’s Q3 GDP, and weak

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The Yen Stabilizes in a Broad Range but the Focus is on Today’s US Employment Report

Overview: The US dollar is a little firmer ahead of
the November employment data. It is trading mostly inside yesterday’s range. It
is in a wide range against the Japanese yen (~JPY142.50-JPY144.50) even if not
as wide as yesterday (~JPY141.70-JPY147.30). The Canadian and Australian
dollars are the strongest among the G10 currencies, while the South Korean won,
and Taiwanese dollar are the best performers among the emerging market complex.
Gold, which also traded in an extremely wide range at the start of the week has
coiled back in a narrow range and is confined to about a $2026-$2034 range
today. It is off about 2% this week, which would snap a three-week advance. Oil has also steadied. After
falling below $68 a barrel, January WTI reached about $71.30 earlier today, but
is back near

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Markets Catch Collective Breath

Overview: The US dollar is mixed today. The dollar-bloc currencies are firmer, while the euro and yen are softer. We had anticipated a recovery of the dollar on ideas that the market has too aggressively pushed down US rates, and pricing in more Fed easing with higher confidence than seems to be warranted by the recent data.  However, US rates have not recovered, but the dollar has.  Partly, this reflects that rates have fallen as faster if not faster elsewhere, and especially in the eurozone after last week’s preliminary CPI.  Among emerging market currencies today, the Mexican peso’s 0.20% gain is leading a few currencies higher, but most have a softer tone. Equities are firmer across the board.  Nearly all the markets in the Asia Pacific region were higher, led by a 2% rally in the

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Softer Tokyo CPI Buys BOJ Time while Moody’s Cuts the Outlook for China’s Debt following Fiscal Stimulus and the Continued Property Slump

Overview: Outside of the Australian dollar, which
has fallen by around 0.6% following the RBA meeting and the softer final PMI,
which may have dragged the New Zealand dollar a lower by around 0.25%, the
other G10 currencies trading little changed ahead of the start of the North
American session. The eurozone and UK final PMIs were revised higher. Central
European currencies lead the emerging market currencies. China reported better
than expected Caixin PMI and Moody’s cut China’s sovereign outlook to negative
from stable. The yuan is little changed. Gold is quieter after
yesterday’s wild day that saw $115 range (~$2020-$2135). It is in around a $18
dollar range today centered near $2032. January WTI is largely steady. It has
fallen by about 6.2% in the past three sessions. Among the

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Rates and the Dollar Come Back Firmer

Overview: Weekend accounts seemed to try to
understand what Fed Chair Powell said by beginning with the large drop in US rates. Yet,
most accounts miss the fact that no matter what Powell has said, the market has more often than not reacted as if he were a dove. Rates have come back firmer today, perhaps as some
recognized the overshoot. The US two-year yield is up nearly seven basis points after
falling 14 before the weekend. The 10-year yield is almost six basis points
higher around 4.25%. The dollar’s losses were initially extended but it has
recovered. Ahead of the start of the North American session, the greenback is
firmer against all the G10 currencies, except the Japanese yen. Most of the
freely accessible emerging market currencies, are also softer. Gold has been on
a wild ride.

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December 2023 Monthly

As the
year winds down, the global economy appears to be entering a new phase. While
North American and European central bankers swear that they are prepared to
respond to new threats to price stability, the markets demur. Indicative pricing in the derivatives
markets reflects the general conclusion that the central banks have most likely
completed the post-Covid monetary tightening cycle. Central bankers are pushing
against a premature easing of financial conditions. Last year’s sporadically large jumps in
monthly CPI measures have dropped out of the 12-month comparisons. Still,
inflation remains above targets but has slowed considerably. Japan remains the
notable exception. The Bank of Japan continues to inch its
way toward the exit of its extraordinary monetary policy. Previously,

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What Will Powell Say?

Overview: The dollar traded better into month-end but is softer
today. The Scandis and dollar-bloc currencies are leading with around 0.2%-0.5%
gains. In addition to US manufacturing PMI and ISM surveys, and construction
spending, auto sales will trickle in, but key for market participants today
will likely be Fed Chair Powell’s comments and the extent that he pushes
against the dramatic rate cuts, with more than a 50% chance of the first cut by
the end of Q1 24 and two cuts nearly fully discounted by mid-2024. The JP
Morgan Emerging Market Currency Index is slightly firmer today to narrow this
week’s loss, its first in three weeks. Hong Kong and South Korea saw equity losses
of more than 1% today. Some reports suggested that state entities were buying
Chinese equities today. The CSI 300

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The Dollar is Having One of Its Best Days This Month

Overview: After being bludgeoned, the dollar
is having one of its best days of the month. It is rising against all the major
currencies. The Dollar Index is up about 0.5%, which is the most since the end
of October. The greenback is also firmer against all the emerging market currencies
but the Turkish lira and Russian ruble. Some of the demand for the dollar may
be a function of month end, but also the disappointing Chinese PMI, revisions
that show the French economy contracted in Q3, and softer than expected
eurozone CPI are also consideration. After slipping below 4.25%, the US 10-year
yield has recovered and is near 4.29%. It has fallen for the past three
sessions by slightly more than 20 bp. European benchmark yields are narrowly
mixed, though the 10-year Gilt yield is up almost

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Dollar Recovers After Losses Extended in Asia

Overview: On the back of lower interest rates, the greenback’s
slide was extended in early Asia Pacific turnover, but it has recovered. As
North American trading begins, the dollar is firmer against all the G10
currencies but the New Zealand dollar, which has been aided by the hawkish hold
of the central bank, and an immaterial gain in the Swiss franc. Emerging market
currencies are mixed. Central European currencies and the Mexican peso are
softer. The Chinese yuan reached its best level since June. The greenback’s
recover is seeing gold reverse after reaching a near high a little above $2050. Many of the large equity markets in the Asia Pacific region
fell, including Japan, Hong Kong, China, and South Korea. India’s 1% gain leads
the others. Europe’s Stoxx 600 is rising for the first

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Canadian Dollar Plays A Little Catch-Up, Rises to best Level in Nearly Seven Weeks

Overview: The US dollar is narrowly mixed against
the G10 currencies. The Canadian and Australian dollars lead the advancers,
while the Scandis are pacing the losers off 0.1%-0.2% in quiet turnover. Most
the freely accessible emerging market currencies are sporting softer profiles
today, the Chinese yuan is among them. However, most Asia Pacific currencies,
are firmer. Benchmark 10-year yields were softer in the Asia Pacific region in
mostly a catch-up to the eight-basis point decline in 10-year US Treasury yield
yesterday. The 10-year JGB yield of about 0.74% is 10 bp off its recent high. European
and US yields are firmer today and the peripheral premium in Europe is widening
today. The US Treasury raise $143 blin in bills yesterday and $109 bln in
coupons. Today it is back for $114 bln

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Dollar Starts Softer

Overview: The dollar is beginning the week on
a soft note, despite the modest backing up of yields over the last couple of
sessions and better than expected data, including Black Friday sales and the
preliminary November PMI. It is sporting minor losses against all the G10
currencies, but the Canadian dollar, which is the weakest of the major
currencies this quarter and month. The greenback is also lower against most
emerging market currencies, but the Turkish lira and Chinese yuan. Gold is extending
its two-week rally and reached $2018, its best level since mid-May. Ahead of
the delayed OPEC+ meeting, January WTI is heavy near $74 a barrel. Last week’s
low was near $73.80 and this month’s low was around $72.40. Global equities are weaker. Shadow
banking woes weighed on Chinese shares,

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Week Ahead: US PCE Deflator, EMU CPI, China PMI, OPEC+, and COP28

The dollar fell against all the
G10 currencies last week. The dollar-bloc currencies, sterling, and the Scandis  led the move, appreciating by about 0.55%-1.40% against the US dollar.  The dollar bloc and sterling recorded new highs for the month ahead of the weekend. Against
the others, the dollar spent most of last week consolidating after its recent
losses were extended at the start of the week. Still, our review of the
technical condition warns that the US dollar’s pullback appears to be entering
its final stages, with retracement targets being met and momentum indicators
stretched. In terms of high-frequency
economic data, there are a few highlights in the week ahead. The US CPI
suggests the November PCE deflator will slow after being stuck at 3.4% since
July. The eurozone’s

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Short Note for the Day after Thanksgiving

Price Action:
 Since the North American markets closed Wednesday, the foreign
exchange market has been subdued.  Most of the major currencies are
+/- 0.2%.  The Antipodeans and sterling have risen a bit more. 
The euro is in the middle of this week’s range (~$1.0850-$1.0965). 
The dollar is at the upper end of this week’s range against the Japanese
yen (~JPY147.15-JPY149.75).  Sterling is trading near the high for
the week set in Europe today near $1.2565.  Recall that the $1.2590
area is the (50%) retracement of the losses since the March high
(~$1.3140). The Australian dollar is firm but holding below the week’s
high (~$0.6590) and the 200-day moving average (~$0.6585).  The US
dollar settled on Wednesday slightly above CAD1.3685.

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Corrective Forces Help the Dollar Stabilize

Overview: Corrective
forces helped the dollar stabilize yesterday and it enjoys a firmer today. The
euro has slipped below $1.09, and the dollar has resurfaced above JPY149.00. The
FOMC minutes seem dated by the more than 30 bp decline in the US 10-year yield,
the 7% rally in the S&P 500 and roughly 3% drop in the Dollar Index. The
implied year-end 2024 Fed funds rate has fallen by 10 bp to 4.51% (5.33%
currently). The Japanese government downgraded its economic outlook for the
first time in ten months. While the recovery is judged to still be intact, some
parts have "paused", it said. The dollar’s gains against the are the
most in a week. The greenback is also firmer against most emerging market currencies
too. Benchmark 10-year yields are little
changed, though Gilts are underperforming

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Yen and Yuan Extend Surge

Overview: The dollar remains offered and our ideas
about it stalling as central banks push against the timing and extent of the
easing the market is anticipating are being challenged. The Governor of the
Reserve Bank of Australia and the Bank of England both warned higher rates may
still be needed. Still, the momentum may be slowing. Meanwhile, the short squeeze continues to lift the Japanese
yen, which is trading at its best level in two months. The PBOC has slashed its
dollar reference rate and the yuan is near four-month highs after the greenback
gapped lower. Interest rates are lower. The 10-year bond
yields are mostly 2-4 bp softer in Europe, and despite the anticipated EC
deficit warnings, France’s premium over Germany is slightly less today and
peripheral premiums have narrowed a

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Dollar Retreat Extended, but Turn Around Tuesday may have Already Begun

Overview:  Last week’s dollar losses have been
extended today. The yen is leading the move, encouraged by talk of a buying by
a large US real money fund. The Dollar Index is off about 0.35% after sliding
1.8% last week. It is below the 200-day moving average for the first time since
late August. As was the case last week, the Canadian dollar is the laggard. Emerging
market currencies are also mostly higher. The Chinese yuan’s 0.67% rise is the
most since late July. Notably, the greenback’s losses today come despite
slightly firmer US rates. The 10-year yield is up almost three basis points to
4.46% and the two-year yield is up about couple of basis points to 4.90%. The Nikkei reversed lower after setting a
marginal new 33-year high. Hong Kong and mainland shares that trade there led
the

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Week Ahead: How Hard Will Officials Push Against the Easing of Financial Conditions?

The combination of
soft US price data and mostly weaker economic data lends credence to a new
economic convergence. The economic news stream from Europe, Japan, and China is
not particular inspiring. Rather the convergence is driven by the materialism
of the long-anticipated slowdown of the world’s largest economy. This new
convergence is negative for the dollar. Our conservative working hypothesis
continues to be that the US dollar’s gains from the middle of July are being
retraced. While we suspect that more than just a technical correction is
unfolding, given the high degree of uncertainty and the uniqueness of the
post-Covid business cycle, prudence dictates taking it one step at a time. The near-term risk is that the market has gotten ahead
of itself. The US data are likely to

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Yen Leads Charge Against the Dollar Amid Falling Rates

Overview: The Japanese yen is leading the
charge against the dollar today. Short covering in the Japanese bond market,
the decline in US rates, and some reports of real money saw the dollar tumble
to around JPY149.25 to approach the low for the month near JPY149.20. All the G10
currencies are firmer today, as are all but a few emerging market currencies. The
Dollar Index finished October near 106.55 and it has been finding support near
104.00 in recent days. A break targets the 103.00-50. Benchmark 10-year yields
are lower. In Europe, yields are mostly 7-8 bp lower. Disappointing UK retail
sales has pushed 10-year Gilt yields 10 bp lower. Italian bonds are
participating fully in rally even though Moody’s rating update is due later
today. The US 10-year yield is pushing below 4.40%. The

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Dollar Consolidates Amid Rate Volatility

Overview: The dollar is consolidating its
recent moves as interest rate swings continue. The US two-year yield has traded
in a nearly 28 bp range in the first two sessions this week, and near 4.88%
now, it is 18 bp lower since last Friday’s close. The 10-year yield is slipping
below 4.50%. It reached almost 4.70% on Monday and had fallen to almost 4.40%
yesterday. Part of this reflects the shift in overnight rate expectations. The
implied yield of the December 2024 Fed funds futures has traded between almost
4.70% to 4.42% and is now about 4.49%. Separately, a continuing resolution into
early next year will prevent a partial US government shutdown tomorrow. The dollar bloc currencies are the poorest
performing G10 currencies today, while the dollar has steadied above JPY151.00.
European

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The Pendulum of Fed Expectations Swings Too Hard

Overview: The capital markets’ reaction to softer
than expected CPI was too much. The implied yield of the December 2024 Fed
funds futures fell by 25 bp as if the October’s CPI was worth a full
quarter-point rate cut next year. US two- and 1-year yields are around two
basis points higher today and the dollar is mixed, with the euro and sterling
under the most pressure. China’s data were uninspiring, and more stimulus is in
the pipeline. Japan’s Q3 GDP contraction was sharper than expected, while the
UK’s CPI slowed more than projected. Biden and Xi are to meet today with Biden
speaking to the press late in the North American afternoon. US retail sales are
expected to support ideas that the Q3 shopping spree is not sustainable. Global equities have rallied on
the US coattails. Most of the

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US CPI Front and Center, but Can Congress Avert a Government Shutdown?

Overview: The dollar is somewhat better offered
today ahead of the October CPI report. The US House of Representatives may hold
a vote today on a continuing resolution to avoid a partial government shutdown
at the end of the week. Narrow ranges have prevailed. Most emerging market currencies
are firmer, though paradoxically, the South Korean won is the weakest, despite
a strong equity market rally (~1.2%), encouraged by the first in increase in
memory-chip exports in 16 months in October. Most of the large bourses in
the Asia Pacific rose with the notable exception of Hong Kong and India. Europe’s
Stoxx 600 is extending yesterday’s recovery and the two-day advance is
recouping most of the 1% drop seen before last weekend. US index futures are
trading with a firmer bias. Benchmark 10-year

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US Treasury Yields Come Back Softer After Moody’s Cut Outlook, and the Dollar Rises to New Highs Against the Yen

Overview: The dollar is beginning the new week
narrowly mixed against the G10 currencies. Sterling seems largely unaffected by
the cabinet reshuffle that has seen former Prime Minister Camron return as the
foreign minister, replacing Cleverly who replaces Home Secretary Braverman. The
dollar rose to new highs for the year against the Japanese yen (~JPY151.85). The
market has shown little reaction to the pre-weekend news that Moody’s cut the
outlook for US credit to negative from stable. The 10-year US yield is off
almost three basis points to 4.62%. European benchmark yields are off mostly 2-3 basis points, but Italy’s yield is down five basis points. Most equity markets in the Asia
Pacific region traded heavier despite the outsized gains on Wall Street ahead
of the weekend. The Hang Seng

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Week Ahead: Will Softer US Price Pressures and Weakness in Retail Sales Weigh on the US Dollar and Rates?

The
recent dollar gyrations seem tightly linked to US rates. The FOMC meeting and
October jobs report saw the two-year Treasury yield drop 17 bp and the dollar
was taken broadly lower. Indeed, against several currency pairs, it approached
three standard deviations below its 20-day moving average. What seemed like a
mild adjustment to the over-extended technical development turned into a rout
after a weak reception to the US 30-year bond auction to finish the quarterly
refunding and comments for Fed Chair Powell that did not seem to go beyond his
remarks at the post-FOMC press conference, when many insisted he was dovish.
The two-year yield rose nearly 17 bp last week. Against several of the major
currencies, the dollar closed higher in the first four sessions last week
before slipping a

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Who Changed: Powell or the Market?

Overview:  A poor reception to the 30-year
Treasury sale and Federal Reserve Powell pledged to raise rates again, if
necessary, not exactly a new ground, but it spooked the doves–driving rates sharply higher and fueling a strong
dollar recovery. There was a large five basis point tail on the bond sale. The
eight-day rally in the S&P 500 and nine-day advance in the NASDAQ was
snapped like dry kindling. The S&P 500 comes into today down on the week.
The 10-year yield jumped 13 bp, almost back to the week’s high near 4.66%. The
two-year yield that was 4.80% after the jobs data pushed through 5.0%
yesterday. With a light economic agenda, yesterday’s North American
developments are setting the tone for today’s developments.The dollar is in narrow ranges,
holding on to most of yesterday’s

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Food Prices Drive China’s CPI Lower while the Greenback is Mostly Firmer in Narrow Ranges

Overview: The dollar is mostly firmer against the
G10 currencies and has been confined to tight ranges through the European
morning. Outside of the China’s deflation and Japan’s monthly portfolio flow
data that showed Japanese investors bought the most amount of US Treasuries
(~$22 bln) in six months in September, the news stream is light. Most emerging
market currencies are trading with a softer bias today. The Philippine peso is
the strongest among the emerging market currencies after Q3 GDP rose nearly
twice as much as expected (3.3% quarter-over-quarter vs. 1.8% median forecast
in Bloomberg’s survey. Benchmark 10-year yields up mostly a
couple of basis points in Europe, while the 10-year US Treasury yield has
popped up by five basis points to 4.53%. The two-year Treasury yield is

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Greenback Returns Better Bid

Overview: After the making marginal new highs in
early North America yesterday, the dollar pulled back, arguable dragged lower
by the softness of US rates, helped by the sharp drop in oil prices and healthy
reception to the US three-year note auction. However, the greenback has
returned better bid today as the market continues to search for direction
post-FOMC and US jobs report. The euro and sterling are the weakest of the G10 currencies
through the European morning, in a day of light macro data. They are off
0.30%-0.40%. Most of the others are 0.1%-0.2% lower. The Russian ruble and
Philippine peso are only emerging market currencies that are holding their own
against the firm US dollar. Equities are softer. Nearly all
the large markets but Taiwan, Australia, and India, moved lower in

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The Dollar’s Recovery has been Extended, but it may Give North American Operators a Better Selling Opportunity

Overview: The dollar’s sell-off last week was
extreme and it recovered yesterday and through the European session today. The
Australian dollar has been hit the hardest. It is off more than 1% today after
the RBA lifted the cash rate by 25 bp (to 4.35%). Still, the US dollar’s gains
have stretched intraday momentum indicators, suggesting the upside correction
may be nearly over. The greenback’s moves appear to have been driven by
interest rate expectations. Recall that at the end of last week, the market was
pricing in three Fed cuts next year and a strong chance of a fourth hike. Yesterday,
the implied yield of the December 2024 Fed funds futures rose by 13 bp, which
essentially unwound the chances of a fourth cut next year. The implied yield is
four basis points lower today to 4.51%. The

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The Dollar Remains Mostly Softer but Near-Term Consolidation is Likely

Overview: The US dollar, which was sold last week
after the FOMC and soft employment report, remains on the defensive today. The
Antipodean currencies and yen are struggling, but the other G10 currencies are
firm. The dollar is also lower against most emerging market currencies. Still,
given the magnitude of the dollar’s pullback, we suspect some consolidation is
likely.Asia Pacific equities rallied,
helped by the sharp gains in the US before the weekend. Note that South Korea
is banned short sales and the Kospi rallied nearly 5.7% today. The Philippine’s
allowed short selling for the first time, and its main index rallied 1.5%.
Europe’s Stoxx 600 is treading water after rallying every day last week. US
futures indices are trading with a slightly firmer bias. After falling last
week,

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Week Ahead: Have the Markets Turned?

An inflection point may have been reached last week. Despite,
Chair Powell’s insistence that the Fed did not adopt an easing bias and
confirmed that there is still no talk of a cut, the market knows better. The
implied yield of December 2024 Fed funds futures contract is about 4.45%, which
is to say, the market is discounting not only the two cuts in the Fed’s
September projections, but a third cut, and the risk again (~60%),
of a fourth cut. The first cut is now fully discounted by the end of Q2 24. The
disappointing employment report pushed on an open door, sending US rates and
the greenback lower. It
fits into the evolving narrative of a dramatic slowing of the US economy after
the heady 4.9% annualized pace in Q3. This is regarded as a forgone conclusion.
It is still early in the data

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Barring Upside Surprise on US Jobs, the Greenback Looks Vulnerable

Overview: The US dollar has been confined to narrow
ranges today as the market awaits the October employment report. Barring a
significant upside surprise, we suspect the dollar is more likely extend this
week’s losses. The Dollar Index is off about 0.5% this week. Within the narrow
ranges, it is sporting a slightly softer profile again nearly all the G10
currencies. It is also lower against most emerging market currencies, but tight
ranges dominate. Similarly, benchmark 10-year yields in Europe are narrowly
mixed. They are mostly 10-13 bp lower this week, thought the benchmark Gilt
yield is off 17 bp. The 10-year US Treasury yield that was flirting with 5.0%
recently, is near 4.65%, off 24 bp this week, ahead of the jobs report. Asia Pacific and European equities are
higher today. Hong

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Dollar Extends Losses Post-FOMC

Overview: We suspect that if Martians read the FOMC
statement, which was nearly identical to the September statement and listened
to Chair Powell, they would conclude there was nothing new. Yet, the market
habitually hears Powell as dovish and this has weighed on rates and the dollar,
while lifting risk appetites. Follow-through selling of the greenback has
dragged it lower against all the major currencies, with the Antipodean leading
the way, and nearly all the emerging market currencies (but the Chinese yuan,
Russian ruble, and Turkish lira). Further dollar losses may be limited by the
stretched intraday momentum and the proximity of tomorrow ‘s US employment
report. Asia Pacific equity markets
except China advanced today, with several bourses up over 1%. Europe’s Stoxx
600 is rising

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Japanese Fireworks Continue as the Market Turns to the FOMC

Overview: The FOMC meeting is today’s highlight but
the drama in Japan continues to rivet the market. The Ministry of Finance
warned of the risk of material intervention in the foreign exchange market, and
the BOJ bought bonds in an unscheduled operation a day after its downgraded the
1.0% cap to a reference rate, whatever that means. The yen is trading with a
slightly firmer bias. The Swiss franc is also trading a little firmer, but the
other G10 currencies are a bit softer. Most emerging market currencies are
lower too. Gold, which posted a bearish outside down day yesterday, extended
its losses to about $1975 before stabilizing. Japan’s equity indices jumped
2.4%-2.6% today. Most bourses in the region rose, though not Hong Kong. Note
that South Korea reported the first increase in

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BOJ and China PMI Disappoint, While EMU Q2 Growth and October Inflation were Softer than Expected

Overview: The Bank of Japan softened its 1.0% cap on
the 10-year, while lifting its core CPI forecast this fiscal year and next. This
disappointed many who anticipated a bolder move to exit the extraordinary
monetary policy. The yen was sold in disappointment and the dollar has returned
to the JPY150.75 area. The eurozone contracted by 0.1% in Q3, while October CPI came in below expectations at 2.9%. The greenback is softer against most of the other G10
currencies. The Chinese yuan is softer but in an exceptionally narrow range
following the softer than expected PMI. Most other emerging market currencies
are firmer. Japanese equities rose, but
most of the large bourses in the region traded heavier. European stocks are
extending yesterday’s gains. The Stoxx 600 has practically recouped

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Markets Calm but Trepidation Runs High

Overview: Fears that the Israel-Hamas war was going
to widen this past weekend sent gold and oil sharply higher at the end of last
week. A reportedly more restrained Israeli entrance into Gaza has seen gold
pullback back below $2000 (~-0.6%) and December WTI soften (~-1.7%). The US
dollar is mostly softer. Stronger-than-expected Australian retail sales fan the
risk of a hike next week and this appears to be helping the Australian dollar
lead the advancing G10 currencies. The greenback also remains below JPY150. Most
emerging market currencies are off to a firm start.

Outside of Japan and Australia,
Asia Pacific equity markets are mostly higher. The MSCI Asia Pacific Index fell
by about 0.5% last week after dropping 2.7% the previous week. Europe’s Stoxx
600 is beginning the week on a

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November 2023 Monthly

November may be an in-between month. It will be a month of
limited monetary policy actions and a period of heightened geopolitical
tensions. Fiscal policy may be more interesting, with a Japanese supplemental
budget, more measures expected from China, and a debate in Europe over the
re-implementation of the Stability and Growth Agreement. In the US, the drama that played out in the House of Representatives could still leave the federal
government with insufficient spending authority.  In light of recent geopolitical developments, Ray Dalio of
Bridgewater was quoted suggesting that the odds of a world war were near 50%.
Others simply recognize that the risks are the greatest in decades. And yet,
the capital markets have been amazingly orderly. To be sure, there was some
dramatic price

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Is the Market Putting on Risk Ahead of the Weekend?

Overview: The US dollar is trading with a softer
bias. Among the G10- currencies, only the euro and Swiss franc are the laggards
and are nearly flat. In shifting expectations, the market sees the Reserve Bank
of Australia as the most likely to hike rates again, while the swaps market
appears to be bringing forward cuts by the European Central Bank and the Bank
of Canada. The Australian dollar is the strongest G10 currency today and this
week. After slow initial response, the yen is recovering after a firmer than
expected Tokyo CPI. The dollar has pulled back from JPY150.40 back to dip slightly below JPY150.00.Given the US strikes on Syria, it may be
surprising the market is not shunning risk ahead of the weekend. Asia Pacific
equities rallied, with the largest bourses in the region, but

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Tensions Run High Ahead of ECB Meeting and US Q3 GDP as JPY150 Breached

Overview: The market is on edge. Anxiety is running higher. It is
partly geopolitics, and it is partly market stresses. The dollar is holding
above JPY150 but so far, no reports or signs of intervention. Bank shares are
under pressure. An index of Japanese banks has fallen for five of the past six
sessions and are off about 8% from the year’s high set last month. An index of
European bank shares has fallen in six of the past seven sessions and will
likely close at a loss for the fourth consecutive week tomorrow. The index has
fallen more than 8.5% since the July high. US bank indices are fallen for the
past six sessions and are of 20-23% from August highs. More broadly today,
equities are lower. Chinese markets are a notable exception, but many suspect
the hand of China’s sovereign wealth

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Divergence Continues to Underpin the Greenback

Overview: The divergence reflected in the flash PMI
readings seen yesterday underpinned the dollar, which is firmer in mostly quiet
turnover. The initial Australian dollar gains scored in response to the
slightly less decline in Q3 CPI have been unwound. The greenback also remains
within striking distance of JPY150 where there are still some large options and
some apprehension over possible BOJ intervention. Hungary’s larger than expected
rate cut yesterday keeps the forint under pressure today, but most emerging
market currencies are softer. The Canadian dollar is near the month’s low ahead
of the Bank of Canada meeting. It is widely expected to leave the policy rate
steady at 5.0%. China’s stimulative measures helped lift
mainland shares and those that trade in Hong Kong, but the early

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Poor Flash PMI from Japan and Eurozone

Overview: Bonds
and stocks are higher today, and the dollar is mixed. A weak PMI reading seemed
to weigh on the euro, but the market shrugged the weak Australian PMI off and
the Australian dollar is the G10 currencies while the euro is among the weakest.
Yesterday, the North American session showed an appetite for foreign currencies
and with some of their intraday momentum stretched to the downside, the stage
is set for a possible repeat today. The MSCI Asia Pacific Index
snapped a four-day drop today as the largest markets in the region, but Hong
Kong and India rose. Europe’s Stoxx 600 is trying to end its five-day slide,
but it is struggling to maintain the early upside momentum. After gapping lower
yesterday and US S&P 500 and NASDAQ closed the opening gaps. The NASDAQ
closed slightly

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JPY150 Pierced but Market is Not Done

Overview:  News that Israel’s ground assault
on Gaza is being delayed while hostage negotiations continue saw gold and oil ease,
but tensions continue to run high. Gold peaked near $1997 before the weekend
and pulled back to about $1964 today before steadying. December WTI peaked in
front of $90 a barrel at the end of last week, and fell to about $86.85 today,
but has also steadied. The dollar is firmer against the G10 currencies, with
the Scandis and Antipodeans the weakest (off ~0.25%-0.65%). Emerging market
currencies are also mostly softer. The Mexican peso is the heaviest, off about
0.7%. Global equities are weaker. The
MSCI Asia Pacific Index fell 2.7% last week, the most in two months, and is off
to a poor start this week. China’s CSI 300, Taiwan’s Taiex, and India’s main

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Week Ahead: Q3 US GDP to Underscore Divergence, while ECB and Bank of Canada Stand Pat

The US dollar was mixed last week.
One would have thought, based on the geopolitical tensions, the stronger than
expected US economic data that resulted in upward revisions to Q3 GDP
forecasts and a more than 30 bp surge in US 10-year yields, the greenback
would have performed better. The Dollar Index fell by almomst 0.5% last week, its biggest weekly loss in three months. It is down so far this month. On the other hand, gold rallied 2.5% to
extend its gain to about 8% since the Hamas attack.
December WTI’s 2% advance brings its surge to about 8.2% in the same period,
or about $6.75 a barrel. The heightened geopolitical
uncertainty provides a fragile backdrop for the global capital markets. The market is
on guard for possible Bank of Japan intervention directly in the foreign
exchange

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The Dollar Continues to Press Against JPY150; Risk Off Ahead of the Weekend

Overview: True to the market’s penchant, it heard a
dovish Fed Chair Powell yesterday. He seemed to suggest that the bar to another
hike was high. This helped cap the 10-year yield just in front of 5.00% and
allowed foreign currencies to recover against the dollar. The US two-year yield
reversed lower after rising above 5.25%. It is now around 5.15%. Still, Powell
appeared to cover similar ground as several other officials, including Fed
governors in recent days. The dollar is trading with a firmer bias in Europe,
and it drew ever nearer JPY150. Most of the non-restricted emerging market
currencies, including the South African rand, central European currencies, and
Mexican peso are softer. Gold is extending it surge for the fourth consecutive
session and is above $1980 having settled last

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Greenback Remains Bid and the Market has not Given Up on JPY150

Overview:  The greenback did not strengthen yesterday
in Asian and European turnover despite the deteriorating conditions in the
Middle East, but it did rally as North American participants entered the fray. Indeed,
the Dollar Index rose from a marginal new four-day low to a marginally new
four-day high. The safe haven bid seen in gold and oil, was reflected in the
foreign exchange market by the strength of the Swiss franc, the only G10
currency to appreciate against the US dollar, and the Japanese yen, which lost the
least among the others. The dollar is mostly firmer today, though it is in a
narrow range against the Japanese yen holding slightly below JPY150. The Australian and New Zealand dollars are leading the losses, following disappointing Australian jobs data and the broad

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Geopolitical Tensions Lift Oil and Gold, but little Sign of Haven Buying in FX

Overview: US economic data surprised to the upside yesterday,
and although interest rates rose as one would expect, the dollar’s initial
gains were pared, and the Dollar Index finished slightly lower on the day. This
seemed, in some respects, to echo how the greenback reacted to the recent jobs
report. However, then, interest rates softened, but the inability to rally on
seemingly good news is notable. The heightened tensions in the Middle East have
spurred a dramatic rally in oil prices. December WTI is nearly 3.5% higher near
$88.50 after gapping higher. Gold has also jumped after two relatively subdued
sessions and is near $1945, up more than 1%. The safe haven buying in foreign exchange
market is limited. The dollar is heavier against most of the G10 currencies but
the euro and

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Markets Remain on Edge

Overview:  The markets remain on edge. The press
reports US President Biden is planning an imminent trip to Israel while Iran
warns of "multiple fronts" against Israel if the attacks on Gaza
continued. The dollar, which was offered yesterday, is better bid today. Still,
the capital markets are relatively quiet. Even the Swiss franc, which was the
strongest G10 currency last week (~0.9%) is slightly heavier today. Among
emerging market currencies, the Polish zloty continues to be underpinned by the
weekend election results. The Mexican peso’s 0.45% decline is the most among
the emerging market currencies, giving back almost half of yesterday’s gains. Gold
is firm but within yesterday’s ranges and holding below $1933 that was
approached at the end of last week. Asia Pacific and European

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Capital Markets are Calm though Anxiety Continues to Run High

Overview: The risk that the war in Israel spreads
remains palatable, and several observers have warned of the greatest risks of a
world war in a generation. Still, the capital markets remain relatively calm. The
US dollar is softer after closing last week firmly. The only G10 currency
unable to post corrective upticks today is the Swiss franc. Among emerging
market currencies, the Polish zloty has been boosted by the pro-EU election
results, and the Mexican peso lead the complex. Gold, which rallied 3.4% at the
end of last week, is seeing its gains pared by nearly 0.9% today and the yellow
metal is straddling the $1916 area. December WTI rallied 5.5% before the
weekend to settle at $86.35. It saw a little follow-through buying today before
slipping back $85.65 today. It is near $86.20 in

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Week Ahead: Softness in US Real Sector, Key UK and Canadian Data, and China’s Q3 GDP

The markets absorbed two shocks last week. The
war in Israel that seems to know of no restraint underpinned oil prices and
appeared to help boost gold and the Swiss franc, the only G10 currency to
appreciate against the dollar. The other was the continued deluge of US
Treasury supply, the coupon auctions that tailed and higher than expected PPI
and CPI. Nevertheless, the US 10- and 30-year yields fell nearly 20 bp last
week, snapping a six-week uninterrupted increase. In fact, it was only the
second weekly decline since the week ending July 21–a dozen weeks ago. We
suggested early last week that provided the war in Israel remains contained, the markets can focus on macroeconomic drivers. This still seems like a
fair assessment and December WTI, which gapped higher on Monday drifted

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Dollar Steadies after Yesterday’s Surge, Oil Jumps Ahead of the Weekend while Yields Soften

Overview: The capital markets seemed to have an
exaggerated response to the US CPI, where the headline rate, flattered by the
rise in energy, rose by 0.1% in September than forecast. Rather than decline,
the headline year-over-year rate was unchanged at 3.7%. The core rate was as
expected slowing to 4.1% from 4.3%. Next week’s US data, including retail
sales, industrial production, existing home sales, and the index of leading
economic indicators are expected to decline or weaken sequentially. There has
been no follow-through dollar buying against the G10 currencies today with the
notable exception of the New Zealand dollar, perhaps ahead this weekend’s
election. Among emerging markets, Asia Pacific currencies are mostly weaker,
including the Chinese yuan, while central European

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Greenback Consolidates Ahead of September CPI

Overview: The dollar is mixed against the G10
currencies. It is confined to narrow ranges ahead of today’s CPI report. The
Russian ruble is the strongest of the emerging market currencies following the
imposition of new capital controls, forcing many exporters to repatriate their
foreign earnings. After posting a key upside reversal at the end of last week,
gold continues to recover. It nearly $1883 so far today, the best level in more
than two weeks. November WTI is steadied after yesterday’s 2.9% drop. It
settled near $82.80 at the end of last week and traded slightly below it today,
before recovering. Reports indicate that API estimated a 12.9 mln barrel build
in US stocks. Goosed by the China’s sovereign
wealth fund boosting its stake in large banks, mainland stocks participated in

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Bonds Extend Recovery

Overview: Broadly speaking, the dollar’s
recent pullback was extended today but the momentum appears to be slowing,
perhaps ahead of tomorrow’s US CPI report. The Dollar Index slipped to its
lowest level since September 25 before steadying. The greenback is mixed as the
North American market is set to open. The dollar bloc and Swedish krona are the
underperformers. The Swiss franc is the best, up about 0.2%, while the yen and euro are little changed. Most emerging market currencies but the Chinese yuan are firmer. Gold
is extending its recovery after consolidating yesterday. It is above $1870
after bottoming at the end of last week near $1810.50. The next upside target
is around $1880. 

The rally in bonds is
continuing. The 10-year US Treasury yield peaked near 4.88% last Friday and is

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Sharp Fall in US Yields ahead of Large Supply

Overview: The market continues to monitor
developments in Israel and the Middle East. The economic calendar is light
today and the market is showing a strong appetite for risk. Except for China
and South Korea, large bourses in the Asia Pacific rallied. Japan’s indices
jumped more than 2% and Australia by 1% to lead the region. Europe’s Stoxx 600
is up 1.5% near midday, which, if sustained would be the largest in nearly a
month. US index futures are firmer. After yesterday’s partial US holiday, US
Treasury yields have fallen sharply. The 10-year yield is off 13 bp (to about
4.67%) in the European morning and the two-year is off almost nine basis points
to straddle the 5% level. Note that the heavy supply of bills and coupons
begins today. Europe’s 10-year benchmark yields are mostly 1-2

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War in Israel Spurs Flight to Dollars, Yen and Gold, While Driving up the Price of Oil

Overview: There are three main developments. First,
the market is digesting the implication of the US employment data, where the
optics were strong (336k increase in nonfarm payrolls compared with 170k median
forecast in Bloomberg and Dow Jones surveys) but some details were
disappointing (like the third consecutive decline in full-time posts,
seasonally adjusted). Second, Chinese mainland market re-opened after a six-day
holiday). Chinese stocks slipped and currency strengthened. The third, and most
significantly is Hamas’s bold and brutal thrust into Israel and the Israeli
response. There three levels of analysis that seem particularly relevant. First,
it does not seem coincidental as US-Saudi Arabia-and Israel were working toward
a new agreement that some forces (including Iran) sought

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Week Ahead: King Dollar Stalls

The US reports September CPI on
October 12 and the first decline in three months in the year-over-year rate is
expected. However, the price action itself may overshadow not only the CPI but
other high-frequency data in the week ahead. US grew more than twice the number
of jobs in September as economists expected. US interest rates and the dollar
jumped initially, and stocks were dumped. And then they reversed. Many
narratives will be spun to explain the price action. While we could not have
anticipated 336k increase in nonfarm payrolls or the 119k upward revision in
the previous two months, we did recognize that dollar was tired. That the
dollar and US rates were unable to sustain the upside momentum is what one would expect if the market had already discounted a strong Q3 US economy. The

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US Employment Data to Determine Whether the Greenback’s Rally since mid-July is Over…Maybe

Overview: One key issue for market participants is
if the dollar’s pullback is the beginning of something important or is largely
position adjusting ahead of today’s US jobs report. We suspect that the
dollar’s rally that began in mid-July is over, though a strong employment
report that boosts the chances of a Fed hike before year-end could quickly
demonstrate the folly of making claims ahead of what is still one of the most
important reports in the monthly cycle of high-frequency data. The greenback is
sporting a mostly firmer profile in quiet turnover against the major currencies.
The yen is the weakest in the G10 space, slipping about a third of one percent.
On the other hand, most emerging market currencies are trading higher,
including the South African rand and Mexican peso, which

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Markets Continue to Struggle

Overview:  The markets remain unsettled. Follow-through
dollar selling has been limited today after yesterday’s pullback. Narrow ranges
are prevailing, but the Norwegian krone and Canadian dollar, the weakest G10
currencies in recent days, are heavier again today. Although it seems that the
BOJ did not intervene earlier this week, but the dollar bulls has been
chastened just the same and the greenback is holdings below yesterday’s high
(~JPY149.30). Higher than expected South Korean CPI (3.7% vs 3.5%)- is helping
the won recoup yesterday’s 1% decline to lead the emerging market complex. The
South African rand and Mexican peso are worst performing emerging market
currencies today, off 1.1% and 0.7%, respectively. Japanese stocks led the recovery in most Asia Pacific bourses today,
with a

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Strategic Ambiguity Leaves Intervention Question Unanswered, but US Dollar has Steadied

Overview: Dramatic yen price action around the JOLTS
report yesterday after the dollar pierced the JPY150 level spurred speculation
of BOJ intervention. Although there has been no confirmation, the strategic
ambiguity is helping steady the yen and the dollar more broadly today, even
though US yields remain firm. Final PMI readings were a better than the flash
estimates and this may also be facilitating the consolidative tone. Most
promising, from a technical point of view, is the recovery in sterling, which
after taking out yesterday’s low is now trading above yesterday’s high. Among
the G10, only the yen and New Zealand dollar (RBNZ held as widely expected) are
slightly softer. Most emerging market currencies are also firmer, including the
Polish zloty, where the central bank may cut

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Dollar Stabilizes After Extending Gains

Overview: The dollar’s gains were initially extended before a
consolidative tone emerged. The euro has been sold to $1.0460
and has returned to almost $1.05. Sterling fell to nearly $1.2060 and has
recovered though has stopped short of $1.2100. The dollar edged closed to
JPY150 but stalled near JPY149.95 and has held above JPY149.65. The Australian
dollar near $0.6300 and the greenback rose to CAD1.3725.

Benchmark 10-year yields are firm, though a
well-received 10-year JGB auction was well received and the 10-year JGB yield
slipped slightly. European yields are 1-5 bp firmer, with yields rising more in
the periphery than core. UK 10-year Gilt yield is bucking the trend nearly two
basis points lows at 4.55%. The 10-year US Treasury yield is up a couple of
basis points to push against

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US Yields and Dollar Rise After US Government Closure Averted

Overview: The US avoided a government shutdown,
barely, and this eased one of the headwinds that were anticipated. In turn,
this is spurring new gains in US interest rates and helping underpin the dollar
at the start of the new quarter. The 10-year Treasury is holding above 4.60%
and nearing last week’s high (4.68%). The two-year yield gapped higher and is
near 5.10%. The high from September 21 was almost 5.20%. The Swiss franc is the
only G10 currency holding its own against the dollar today. Among emerging
market currencies, three currencies are slightly firmer, the Hungarian forint,
Polish zloty, and the Taiwanese dollar.

European benchmark yields are
mostly 2-4 bp higher, but UK Gilts yields are six basis points higher to 4.50%.
Many bourses in the Asia Pacific area are closed for

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October 2023 Monthly

There are four large
macro forces shape the investment and business climate here at the start of the
last quarter of the year. First, the US economic outperformance has been stark.
This has helped underpin US rates and bolsters the dollar. The divergence is
likely to narrow in coming months as US growth slows rather than stronger
growth prospects in other high-income countries. Second, Beijing has taken
numerous measures, which although stopping well shy of the fiscal bazooka (like
in 2008) many critics advocate, the cumulative effect boosts the chances that
the 5% growth objective is achieved. Third, OPEC+, and especially Saudi Arabia, are committed to
keeping world oil supplies tight. This has driven the price of oil above $90 a
barrel. In the first instance, it will elevate headline

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Dollar Sets Back into Month- and Quarter-End Ahead of likely US Government Shutdown

Overview: The dollar’s surge stalled yesterday, and
follow-through selling has pressed it lower against all the G10 currencies
today. The dollar-bloc and Scandis are leading the move. Month-end, quarter-end
pressures, coupled with a likely partial shutdown of the government beginning
Monday, and after key chart levels were approached or violated earlier this week,
serving as a bit a cathartic event. The Swiss franc snapped a 12-day losing
streak yesterday, its longest since 1975, and is higher today. Still, unless
the euro rises above about $1.0655, it will extend its losing streak to 11
consecutive weeks. Emerging market currencies, save the Russian ruble and
Turkish lira are also firmer today. Although Japanese stocks traded with a
lower bias, most of the other large equity markets

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Looming US Government Shutdown Stems the Dollar’s Surge

Overview: The increasingly likely partial US federal
government shutdown has spurred a bout of liquidation of long dollar positions.
The psychologically important JPY150 level was approached, and the euro was
sold through $1.05 yesterday, and the greenback has come back better offered
today. It is lower against all the G10 currencies. It is mixed against the
emerging market currency complex, with central European currencies and South
African rand leading the advancers. The Chinese yuan has also stabilized ahead
of next week’s holidays. A US government shutdown is estimated to reduce GDP by
0.2% a week and will impact the data release schedule, including next week’s
jobs report. Moody’s, the last of the big three rating agencies that gives the
US a AAA rating, acknowledged that a

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Firmer Bonds and Stocks, but the Dollar Presses Ahead

Overview: The S&P 500 hit three-month lows
yesterday, while the Conference Board’s measure of consumer confidence fell to
a four-month low. New home sales fell to their lowest level in five years. The
US federal government appears headed for a partial shutdown on October 1. Still,
the greenback rides high. It is extending its gains against several G10
currencies, including the euro and sterling. The Swiss franc is moving lower
for the 12th consecutive session. The beleaguered yen and yuan are
consolidating near their recent lows. Most emerging market currencies are also
softer. Gold has been sold below $1900 for the first time this month. Despite yesterday’s sharp
losses in the US, equities are trading higher today. Aside from Australia and
New Zealand, the large bourses in Asia rose, and

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Neither the Threat of Intervention Nor a Possible US Government Shutdown is Derailing the Greenback

Overview: The US dollar is stabilizing a bit but
only after extending its gains initially It reached almost JPY149.20, while the
euro slipped to $1.0570 before recovering to straddle $1.06 in the European
morning. Sterling sank a little through $1.2170 but stabilized to return to
almost $1.2200. The Australian dollar tested last week’s low slightly below
$0.6390 before resurfacing above $0.6400. The US dollar toyed with CAD1.3500,
where there is a large option expiry today. Emerging market currencies are
mostly lower, but the Hungarian forint (overnight deposit to converge with base
rate today at 13%) and the Chinese yuan are notable exceptions. The equity rout continues. Several
large bourses in the Asia Pacific region, including the Nikkei, Hang Seng,
Taiex, and Kospi are off more than

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Dollar Edges to New High for the Year against the Japanese Yen, While Developer Woes Hit Chinese Stocks and Yuan

Overview: The US dollar begins the new week on a
firm note. It is trading at new highs for the year against the Japanese yen and
is bid against nearly all the G10 currencies, though the Swedish krona and
Canadian dollar are resisting the greenback’s push. Most emerging market
currencies are heavier, with the Polish zloty and a few East Asian currencies
holding their own. Gold is trading with a heavier bias near $1922, but within
the ranges seen at the end of last week. New pressure on China’s
property developers, amid concerns over the possible liquidation of Evergrande
weighed on Chinese shares, but other large bourses in the region, except South
Korea, rose today. The MSCI Asia Pacific Index fell 2.35% last week, the most
in five weeks. Europe’s Stoxx 600 is off almost 0.65% today,

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Week Ahead: Digesting Implications of the FOMC, EMU and Tokyo August CPI, and China’s PMI

The
most important outcome of the last week’s flurry of central bank meetings was
the median forecast of Fed officials for 50 bp less in cuts next year than it
had anticipated in June as it revised up its growth forecasts for this year and
next. The prospect for higher rates for pushed equities lower. Sterling
and the Swiss franc were the weakest currencies in the G10 last week, falling
by a little more than 1.1%. Both central banks did not hike rates to the surprise of many. Norway
more than Sweden held out the possibility of another hike in Q4, while the
Riksbank’s decision hedge a quarter of its reserves, which seems like
intervention, failed to give krona much of a boost, rising about 0.25% against
the euro. The Bank of Canada stood pat earlier this month, but stronger
economic data

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Yen Drops After BOJ Does Nothing and Says Little

Overview:  The BOJ’s failure to do anything or
further ideas that an exit of the negative target rate, despite the firm CPI
report helped the dollar recover the ground lost yesterday against the yen. The
focus has returned to "intervention watch" and the market continues
to press for the official pain threshold. Sterling is the weakest of the G10
currencies, off another 0.5% today following the BOE’s decision not to hike
yesterday. The dollar-bloc currencies enjoy a firmer tone. Emerging market
currencies are mostly firmer, including the Chinese yuan. Reports that Beijing is
considering reducing some capital controls helped lift Chinese and Hong Kong
equities today. Taiwan and Australian equities also advanced, while the other
large bourses headed south. Europe’s Stoxx 600 is extending

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Higher for Longer Lifts the Dollar, while SNB Surprises Many by Standing Pat–Over to the BOE

Overview: The Federal Reserve’s hawkish hold, which
included 50 bp less of cuts next year than it had signaled in June, has lifted
the dollar against most currencies today. The notable exception is the Japanese
yen. The greenback did extend its advance to new highs for the year before the
market turned cautious ahead of the outcome of the Bank of Japan meeting
tomorrow. The Swiss franc is the weakest of the G10 currencies after the Swiss
National Bank defied economists’ expectations and left rates unchanged. The Swedish
krona and Norwegian krone are little changed after their central banks
delivered a quarter-point hike. Attention turns to the Bank of England which
will announce its decision shortly. Ahead of it, sterling has traded below
$1.23 for the first time in five months. Rising

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Softer UK CPI Weighs on Sterling and Lifts Gilts, while Yen Slumps to New Low for the Year, Ahead of the FOMC

Overview: Softer than expected UK CPI has drawn
attention ahead of the key event of the day, the FOMC meeting. The UK’s CPI has
spurred a dramatic rally in Gilts and saw sterling initially extend its recent
losses, falling to new four-month lows before stabilizing. The swaps market
sees less than a 50% chance of a hike by the Bank of England tomorrow. Meanwhile,
even though US Treasury Secretary Yellen suggested conditions in which
intervention by Japan would be understandable, the market has little fear of
intervention today ahead of the FOMC meeting and took the dollar to new highs
for the year above JPY148.00. The greenback is mixed with the dollar-bloc
currencies firmer. Among the emerging market currencies, central European
currencies and the Mexican peso are among the best

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The Canadian Dollar Shines in a Mostly Consolidative FX Market Ahead of the Flurry of Central Bank Meetings

Overview: Ahead of the flurry of central bank
meetings, starting with the Federal Reserve and Brazil tomorrow, the dollar is
largely consolidating in narrow ranges. The euro, sterling, and yen are trading
slightly heavier, while the dollar bloc and Scandis enjoy a firmer bias. The
Canadian dollar stands out as is trades at its best level since mid-August
ahead of its CPI report and despite a diplomatic dispute with India and the
failure of negotiations to prevent an autoworkers strike starting today. Emerging
market currencies are mixed, but of note, the yuan is flat, and the Mexican
peso has come back better bid after yesterday’s fall. Japan’s Topix and Hong Kong’s
Hang Seng managed to post small gains, but the other large bourses in the
region traded heavily. Europe’s Stoxx 600 is

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Calm Before the Storm: Greenback Confined to Narrow Ranges

Overview:  With
many central bank meetings in the days ahead, the dollar has begun the new week
on a quietly and mostly in tight ranges, helped by a holiday in Tokyo. G10
currencies, outside of the Scandis are slightly firmer in European turnover.
Emerging market currencies are narrowly mixed, but of note the 0.25% decline
makes the Chinese yuan the weakest. The Mexican peso is extending its recovery
into the seventh consecutive session.

While mainland Chinese stocks
recovered from early weakness, the large bourses in the region fell. Europe’s
Stoxx 600 is off a little more than 0.5%, snapping a two-day advance, while US
index futures are trading with a firmer bias after the pre-weekend tumble. The
UAW strike at continues. Benchmark 10-year yields are mostly 1-2 bp higher in
Europe,

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Week Ahead: Thumbnail Sketch of Central Bank Meetings

The
week ahead is dominated by central bank meetings. Six of the G10 central banks
meets. The post-Covid monetary tightening cycle is ending. The start was not
synchronized, and neither will be end. It is tempting to think that those that
began the tightening cycle early will among the first to finish. Among emerging
markets that is true for Brazil and Chile, both of whom have begun cutting
rates. And Brazil is likely to deliver the second cut in the new easing cycle,
a few hours after the Federal Reserve meeting concludes this week. No G10
central bank appears to be close to reducing rates, but the tightening cycles
seen to be over or within a quarter point of the terminal rate. The UK may be
an exception, but even then, the market is not convinced, especially after
July’s GDP

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Business Travel

Business travel will prevent me from updating the blog for a few days.  And instead of the usual weekly, I will provide a sketch of the six G10 central banks that meet next week and a couple of interesting emerging market central banks.

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Heightened Speculation of an ECB Hike Tomorrow Fails to Lend the Euro Support

Overview: The US dollar is trading with a
firmer bias against all the G10 currencies ahead today’s August US CPI report. Even
increased speculation that the ECB will hike rates tomorrow has failed to lift
the euro, while a larger than expected contraction in the UK’s July GDP pushed
sterling briefly through last week’s lows. The dollar rose to a marginal new
high for the week against the Japanese yen, as the market seemed uninspired by
the cabinet reshuffle, but is wary of intervention. Most emerging market
currencies are a bit heavier, but not the Chinese yuan, which has stabilized
amid a continued liquidity squeeze in Hong Kong.Equities and bonds are heavier.
All the large markets in the Asia Pacific region fell today, with Taiwan and
India the notable exceptions. Europe’s Stoxx 600 is

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Greenback Bought on Pullback

Overview: The dollar was bought after yesterday’s
pullback spurred by Japanese and Chinese comments and the tighter capital
controls from Beijing requiring permission to buy more than $50 mln. The
economic and monetary policy divergence continues to underpin the greenback. It
is firmer against all the G10 currencies and is mostly inside yesterday’s
ranges. Most emerging market currencies are lower, led by central European
currencies. The Chinese yuan is steady. Equities are mostly heavier, but Japan, Taiwan, and Australian markets rose today. Europe’s Stoxx 600 is a little lower and US index futures are off around 0.25%. The Japanese benchmark 10-year
yield edged slightly higher and rose to 0.70%. European benchmark yields
softer by as much as two basis points. Despite the rise in average

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In Uncoordinated Steps, Japan and China Help Slow Greenback’s Rally

Overview: The Bank of Japan Governor Ueda hinted the
world’s third-largest economy may exit negative interest rates before the end
of the year. This sparked the strongest gain in the yen in a couple of months
and lifted the 10-year yield to nearly 0.70%. In an uncoordinated fashion,
Chinese officials stepped their rhetoric and indicated that corporate orders to
sell $50 mln or more will need authorization. This helped arrest the yuan’s
slide. The Australian dollar is up the among the G10 currencies and is often
particularly sensitive to Chinese developments. All the major currencies are
firmer against the dollar today. The same is true for emerging market
currencies, where only the Indian rupee, Philippine peso, and Turkish lira, are
nursing minor losses. Outside of Japan, Hong Kong,
and

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Week Ahead: US CPI to Make the Doves Cry even if Core Eases, and Euro Vulnerable to ECB Regardless of Decision

The
diverging economic performance between the US and Europe, Japan, and China on
the other hand is stark. Yet, a greater divergence may be between widespread
discussion of de-dollarization and its incredible strength in the foreign
exchange market. The eight-week rally in the Dollar Index is the longest in
nine years. According to SWIFT, which is not comprehensive but remains by far
the largest platform, the dollar’s role in international payments (46% in July)
is a record and compares with slightly more than a third 10-year ago. The
increased share accounted for the Chinese yuan (3.06%, a five-month high) was
not at the expense of the dollar, but the euro, whose share edged low and is
now less than 25%, a record-low. It peaked in 2012 around 46%. Two events stand out in the week ahead.

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Yuan Sulks in to the Weekend, While Finishing Touches are Put on the Dollar Index’s Eighth Consecutive Weekly Gain

Overview: The greenback is lower against most
currencies today as it consolidates ahead of the weekend. The Dollar Index’s
eight-week advance is the longest since a 12-week rally 2014. The Chinese yuan
is an exception. Its losses were extended today. Against the offshore yuan, the
dollar traded above the onshore band, which is most often respected. Equities
ae extending this week’s slump. All the large bourses in the Asia Pacific
region but India fell. Europe’s Stoxx 600 is off for the eighth consecutive
session, the longest losing streak of the year. US index futures are trading
lower and have not risen since last Friday. European benchmark 10-year
yields are mostly marginally lower. Italy is a small exception, where its yield
is up slightly, perhaps encouraged by reports of the

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Battle for $1.07 in the Euro

Overview: Despite disappointing German
industrial output, where the 0.8% decline was twice expectations, the euro is
holding above $1.07, where large options exist that are expiring over the next
few sessions. The greenback is consolidating against the Japanese yen, where
the fear of intervention has increased. Sterling remains on its back foot after
yesterday’s seemingly dovish comments by Bank of England Governor Bailey. Emerging
market currencies are mostly lower, though of note, the Mexican peso has
reversed earlier losses and is now the strongest, up 0.3% in Europe. The
slowing of the decline of both imports and exports failed to help the Chinese
yuan, which has extended its recent losses. The MSCI Asia Pacific Index
fell for the third consecutive session. All the large bourses are

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The Dollar and Oil Steady After Yesterday’s Advance

Overview: Bonds and stocks are mostly heavier today
and the dollar has turned mixed. Oil prices are consolidating after soaring to
new highs since late last year on the longer than expected extension of Saudi
Arabia’s extra cut of one million barrels a day. Since July, it has been
extending it by one month at a time. Yesterday, it extended it through Q4. Russia,
who had previously indicated intentions on reducing its exports by 500k
barrels, announced it was extended a 300k barrel a day cut also through the end
of the year. October WTI’s eight-day rally is under threat today. It is
consolidating largely in a $86-$87 range today. Note that the average price of
US retail gasoline is slightly lower than where it was a month ago but is still
relatively high for this time of year (~$3.80 a

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US Dollar Punches Higher

Overview:  Disappointing
data in Asia and Europe has sent the greenback broadly higher. The strong gains
posted before the weekend were mostly consolidated yesterday when the US and
Canadian markets were on holiday. The rally resumed today. The Antipodeans and
Scandis have been hit the hardest (-0.7% to -1.25%) but all the G10 currencies
are down. The Swiss franc and yen are off the least (-0.35%-0.45%), and the
euro and sterling have taken out their recent lows. Emerging market currencies
have also fallen. So far, none have been spared. Most
of the large Asia Pacific bourses were under pressure, though Japan, Taiwan,
and India posted small gains. The Hang Seng and mainland stocks that trade
there suffered the most, with more than a 2% drop. MSCI’s Asia Pacific Index
snapped a six-day

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September 2023 Monthly

There is a sense of new
divergence. Most economists, including the staff at the Federal Reserve, no
longer think the US is recession-bound. Unprecedented in modern times,
inflation has fallen sharply, and unemployment has not risen, and the economy
appears to be enjoying its third consecutive quarter, and the fourth in the
past five, above what the Federal Reserve regards as the non-inflationary pace
(1.8%). At the same time, and despite being among the fastest
growing large economies, China’s officials continue to make one announcement
after another to support this or that sector, while the property market, which
was a key engine of growth and savings, remains broken. The eurozone is
struggling with two shocks, energy, and China. But unlike Beijing, there seems
to be little political

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China’s Measures Begin to Find Traction, US Employment Report on Tap

Overview: Beijing’s seemingly steady stream of
measures to support the economy and steady the yuan are beginning to produce
the desired effect. The yuan is snapping a four-week decline and the CSI 300
halted a three-week drop. Some economists estimate that the bevy of measures
may be worth as much as 1% for GDP. The dollar is narrowly mixed ahead of the
US employment data, which is expected to see the pace of job growth slow to
around 170k. Of note, the Mexican peso extended yesterday’s losses following
news that the central bank was winding down its forward hedge program. After
the peso dropped 1.75% yesterday, it is off another 0.7% today. 

The MSCI Asia Pacific Index
rose for the fifth consecutive session today and the Stoxx 600 gain (~0.4%) is
recouping the losses of the past two

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Position Squaring Ahead of US Data Helps the Dollar Recoup Some Recent Losses

Overview: Position-squaring ahead of today’s US
personal consumption data and perhaps tomorrow’s jobs report is giving the
dollar a firmer profile against most G10 and emerging market currencies. The
Scandis have been the hit hardest and are off 0.75%-0.85%. The euro and
sterling about 0.35%-0.45% lower. The yen is the only G10 currency that is
slightly firmer. The dollar-bloc is nursing small losses (0.10%-0.15%). Despite
the firmer than expected preliminary August eurozone CPI, European 10-year
yields are off 3-6 bp. The US 10-year Treasury yield is slightly below 4.10%,
shaving about two basis points from yesterday’s settlement. Two-year yields are
down 4-9 bp in Europe, with the US two-year Treasury yield a little more than
two basis points lower near 4.86%. Recall that the US

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Market Awaits US Data and Leadership

Overview:  The dollar staged a major technical
reversal yesterday, in a dramatic reaction to a considerably weaker JOLTs
report than expected, spurring a large drop in US interest rates. And this is
despite press reports that the participation rate in the survey is half of what
was three years ago. We suspect the price action said as much about market
positioning as it did about the data. The path to the US jobs data on Friday
goes through tomorrow’s personal consumption figures, which will speak to
robust demand. Follow-through selling of the dollar has been limited in Asia
and the European morning. US leadership (and data) are awaited. The euro and
sterling are firm, but the other G10 currencies are mostly softer. German
states CPI may point to smaller than expected slippage in the

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Still No Follow-Through Dollar Buying After Last Week’s Surge

Overview: The dollar was threatening to break higher
at the end of last week, and the euro and sterling closed below key supports. However,
so far this week, the greenback is consolidating and has not seen
follow-through buying. The key data this week, US consumption and jobs, and the
eurozone’s CPI still lay ahead. The Antipodeans and Norwegian krone enjoy a
firmer today. A 0.8% contraction in Sweden’s Q2 GDP was not as deep as had been
feared, but enough to keep the Swedish krona on the defensive. The G10 currencies
are mostly trading in narrow ranges. Emerging market currencies are mixed. The
South African rand and Hungarian forint lead the advancers. There is some
speculation that Hungary may cut its base rate today. Stocks in the Asia Pacific extended yesterday’s
rally, led by Hong

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Dollar Consolidates as Market Considers Breakout and Rebuffs Beijing’s Latest Efforts

Overview: Many market participants sense an
inflection point is near. The dollar settled last week beyond key levels
against several major currencies, bolstered by higher short-term US rates. The
market is aware that the Bank of Japan could intervene in the foreign exchange
market with the trading near its best levels of the year, and the 10-year JGB
yield grinding higher. Beijing cut the tax on equity transactions, will
restrict IPOs, and urged some funds to buy more equities than they sold. Still,
the equity market gave back around 80% of its initial gains and the yuan
weakened after a stronger start. London markets are closed for the summer bank
holiday, which has thinned market activity in the European morning. The dollar
is a narrow range (~+/- 0.15%) against the G10 currencies. And

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Week Ahead: Slowing US Jobs and Softening EMU Inflation

The
Jackson Hole symposium marks the end of summer just as much as the autumn
equinox next month. It has been a tough few months for bond markets as yields
have soared. For the US economy, which has proven more resilient than many,
including Fed officials thought, and a sharp increase in anticipated supply of
Treasuries, the rise in yields may be understandable. The rise in Japanese
government bond yields may also make sense given the rise in inflation and the
adjustment of the cap on the 10-year JGB yield from 25 bp to 100 bp in two
steps (December 2022 and July 2023). The 20-30 bp increase in eurozone
benchmark yields is arguably less understandable. Edward Yardeni, who coined the
term "bond vigilantes" in the 1980s seems to think they have
returned. It was proposed to explain how

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Dollar Bid and Rates Firm Ahead of Powell

Overview: The euro and sterling took
out important chart levels near $1.08 and $1.26, respectively. They have
steadied in the European morning but remain fragile ahead of Fed Chair Powell’s
speech at Jackson Hole. A couple of ECB officials sounded a bit hawkish and a
less hawkish comment by ECB President Lagarde could renew the pressure on the
euro. The market appears to be going into Powell’s speech with a hawkish bias
and the odds of a hike next month have crept up to slightly more than 20% from
about 10% at the end of last week. The dollar is firmer against all the G10
currencies, but the Australian dollar, which has steadied after testing
$0.6400, and the Norwegian krone. Emerging market currencies are mostly lower,
and the Turkish lira, which rally 5% yesterday on the back of the 750

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BRICS to Expand a Little, USD Steadies after Yesterday’s Retreat, Attention Turns to Jackson Hole

Overview: Strong Nvidia’s earnings after the US
markets closed yesterday helped lift Asia Pacific markets today. All the large
bourses were higher but India. Hong Kong, South Korea, and Taiwan indices rose
more than 1%. Europe’s Stoxx 600 is higher for the fourth consecutive session
and US index futures are higher, led by the NASDAQ. European benchmark bond
yields have extended yesterday’s PMI-induced decline and are mostly 1-2 bp
lower. The 10-year Gilt yield is off nearly 6 bp after falling more than17 bp
yesterday. The yield is off a little more than 25 bp this week. The 10-year
Treasury yield is flat near 4.19%. In addition to $150 bln in bills (four- and
eight-week bills), the US Treasury will sell $8 bln 30-year TIPS, where demand
is suspect.The BRICS have invited Saudi Arabia,

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Euro and Sterling Slump on Poor PMI

Overview: Poor European flash PMI pushed on open
door, giving the market a new reason to do what it was doing and that buying the
dollar. The euro has approached important support around $1.08 and sterling is
approaching the lower end of its two-cent trading range (~$1.26-$1.28). The
greenback is consolidating against the yen and holding above JPY145. The
Chinese yuan is little changed while the Mexican peso is extending yesterday’s
gains. Despite the poor economic news,
equities and bonds are mostly higher. Chinese equities and South Korea were the
main exceptions in the Asia Pacific region, while Europe’s Stoxx 600 is
advancing for the third consecutive session. US index futures are also enjoying
a firmer bias, ahead of Nvidia earnings later today. The weak PMIs have sent
European bond

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Dollar Eases, Stocks and Bonds Advance

Overview: For the first time in more than a week,
North American dealers will take to their posts with the dollar softer against
all the G10 and most of the emerging market currencies. Despite stepped up
efforts by Chinese officials and a firmer yen, the yuan remains on the
defensive and is one of the handful of emerging market currencies softer on the
day. Stocks and bonds are mostly higher too. The yuan might not be benefitting
from a softer dollar, but Chinese shares, both on the mainland and in Hong Kong
rallied alongside nearly all the regional markets, though India is struggling.
Europe’s Stoxx 600 is up a little more than 1%. If it is sustained, it would be
the largest advance of the month. US index futures are also trading higher. Interest
will be on the US regional banks after

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China Surprises While the Dollar Begins Week Softer

Overview:  The new week, which features the BRICS
meeting and the Jackson Hold symposium is off to a quiet start. The failure of
Chinese banks to pass through last week’s 15 bp cut fully into the lending
prime rates was a major disappointment and it is not yet clear the logic. While
the yuan and yen are softer, as are more local Asian currencies, while most of
the G10 currencies are posting small gains against the greenback. Gold is
trading little changed after falling for extending its losing streak for the
fourth consecutive week. Asia Pacific equities were
mixed. Japan and South Korea, whose officials meeting with US President Biden
at the end of last week, saw gains in equities, while China and Hong Kong the
declines. Europe’s Stoxx 600 is snapping a four-day slide and is up about

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Week Ahead: Yen’s Recovery Ahead of the Weekend may Give the Yuan a Reprieve or Be Ready for BRICS to Disappoint High Hopes for a Dollar Alternative

There seem to be three large
forces shaping the investment climate. First is the resilience of the US
economy, with four consecutive quarters of above trend growth.  It appears that the US economy may be expanding faster than the 2.4% annualized pace seen in Q2.  Many of the
largest naysayers have capitulated. Second, the monetary tightening cycle is
widely seen as almost over, and many are beginning to fine tune forecasts for
the first cut by the major central bank. Rate cuts by the Federal Reserve and
European Central Bank are priced in for the first half of next year. Third, the
poor economic performance in Europe and China is in stark contrast to the US. Europe
does not appear to be considering fresh measures to support the economy. China
has published several long lists of actions

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Dollar Bulls Still in Control

Overview: What may have been hoped to be a quiet
August has turned into a feeding frenzy for dollar bulls as the contrasting
economic performance has spurred persistent buying of the greenback. Even
shallow dips have been bought. Today, it is mostly trading inside yesterday’s ranges
against the G10 currencies. The PBOC set the dollar’s reference rate at what
appears to be a record gap below the Bloomberg average survey, and the dollar
was scooped up and is above yesterday’s settlement against the yuan. If the dollar’s strength is a consistent
theme this week, so is the sell-off in equities. The MSCI Asia Pacific Index
fell for the sixth consecutive sessions and has only risen one in the past two
weeks. More negative news from Chinese developers, including Evergrande’s
filing for Chapter

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Aussie Recovers from Poor Jobs Data, but Nokkie is Weaker Despite Rate Hike

Overview: Encouraged by the continued stream of US data, which
suggests that the world’s largest economy is accelerating, the US 10-year yield
is approaching last year’s 4.33% high, and the dollar’s run has lifted it to
new highs for the year against the Japanese yen, Chinese yuan, and the
Australian and New Zealand dollars. Even a rate hike by Norway did not stop the
dollar from rising against the krone. The greenback is firmer against most of
the major currencies but has steadied in the European morning against the yen,
Swiss franc, and Canadian dollar. Disappointing employment data from Australia
has kept the pressure on the Aussie, which spiked lower $0.6365 before buying
emerged. The dollar gapped higher against the Chinese yuan, the sixth day of
gains, and is holding above CNY7.30.

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Dollar’s Rally Pauses Near Key Levels

Overview: The US dollar is trading with a slightly
heavier tone in the European morning. It has stalled in front of JPY145.90,
where the BOJ intervened last September and ahead of CNY7.30, which some
observers think Chinese officials are defending. We are less convinced that
either central bank has drawn a line at a particular level and suspect it is
too early to be confident that the greenback has peaked against either. On the
back of yesterday’s wage figures and today’s CPI, sterling has extended
yesterday’s gains marginally. The greenback is softer against most emerging
market currencies today. It is hard to call today a
risk-on day, though. Asia Pacific bourses were lower, with Japan, Hong Kong,
Australia, and South Korean markets shedding more than 1%. After falling nearly
1%

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Surprise-Packed Tuesday: China Cut Rates, Japan’s Q2 GDP Rises Twice as Fast as Expected, and UK Wages Accelerate

Overview: Today’s highlights include a surprise rate
cut from China after another series of disappointing data and much stronger
than expected Japanese Q2 GDP (6% annualized pace). The UK reported an
unexpected sharp jump in average weekly earnings, which were sufficient to get
renew speculation of a 50 bp hike by the Bank of England next month. The US
dollar is mixed. The Swedish krona and dollar-bloc currencies are struggling,
while the Swiss franc and sterling are leading the other European currencies
higher. The yen is slightly lower and is threatening to extend its losing
streak for the seventh consecutive session. Gold is holding above yesterday’s
low, which was slightly below $1903, but the upside has been capped near $1908.
Stocks and bonds are selling
off. China’s 10-year bond

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Greenback Remains Firm, with Yen and Aussie Falling to New 2023 Lows

Overview: The dollar and US rates remain firm. The
greenback rose to new highs for the year against the Japanese yen and
Australian dollar before steadying. Outside of the Swedish krona, which is off
nearly 0.5%, the G10 currencies are nursing small losses late in the European
morning, mostly less than 0.1%. Most emerging market currencies are also lower. The Chinese
yuan gapped lower for the second consecutive session and is also approaching
this year’s low amid property market and wealth management woes. Gold is pinned
near last week’s lows (~$1910). It has not closed once this month above its
five-day moving average (~$1916). September WTI reversed lows last Thursday
after reaching almost $84.90. It fell to a four-day low today a couple of cents
below $82.00 and has recovered back to

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Week Ahead: Anniversary of the End of Bretton Woods Sees Resilient Dollar and Firmer US Rates: Can it Persist?

Tuesday
marks the 52nd anniversary of the end of Bretton Woods currency arrangement,
which pegged the dollar to gold and other currencies to the dollar. Some
economists have tried framing their views in terms of Bretton Woods II and
there have even been proponents of Bretton Woods III, but these are informal
arrangements at best, no reciprocity, or mutual obligations. The point of the
matter is that the end of Bretton Woods ushered in the modern era of floating
currencies, which in practice has meant volatile exchange rates.One of the big picture ideas from
international relations is hegemonic stability theory. It sees capitalism
working best when there is one country that can set and enforce international
rules of engagement. The attempts to resurrect Bretton Woods miss the insight

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Dollar Proves Resilient and Even Strong UK GDP Figures Hardly Dents It

Overview: The dollar’s resilience after initially
selling off in response to the as-expected CPI was impressive. A quieter tone
is dominating today and most of the G10 currencies are +/- 0.15%. While the
dollar is consolidating, the underlying tone is still firm. For the week, it
has risen against all the major currencies and the Dollar Index is up nearly
0.6% this week, its fourth consecutive weekly gain. The greenback is rising
today against most of the emerging market currencies as well. The US quarterly refunding has
been successfully completed and both the US and China’s July CPI have been
published. The net result is that the US benchmark 10-year yield is off about
five basis points this week to a little below 4% and the two-year yield is up
less than two basis points. The US

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The Greenback is Softer Ahead of CPI but Key Chart Points Remain Intact

Overview: The deluge of Treasury supply is nearly
over for this week. On tap today are 4- and 8-week T-bills and $23 bln 30-year
bonds to finish the quarterly refunding. The sales will come after the July CPI
print that is expected to see the first year-over-year increase since last June.
The market is going into the report with about a 15% chance of a Fed hike next
month discounted. Meanwhile, September crude oil extended its recover from $80
seen on Tuesday to a new 12-month high near $85 before steadying. Amid strike
fears, Europe’s natural gas benchmark soared by more than 27% yesterday but is
about 5.3% lower today. For its part, gold has stabilized after falling to
four-week lows yesterday near $1914. It is pushing above $1920 in the European
mornings. The dollar is broadly softer

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After Strong Demand for US Three-Year Notes, Treasury will Sell $38 bln 10-year Notes

Overview: The first leg of the US refunding was well
received, with the three-year note being scooped up by investors, driving the
yield below it was trading in the when-issued market. Today, the Treasury sells
$38 bln 10-year notes, whose auctions have been less than stellar recently. The
US 10-year yield reached 4.20% last week and is now straddling 4%. Italian
bonds are also firm as the Italian government clarifies the
new tax on banks’ windfall profits. Other European bond yield are mostly little
changed, though UK Gilt yields are softer. Despite China’s CPI slipping below
zero (as expected), the 10-year Chinese government bond yield edged slightly
higher. Equities are stabilizing, though Japanese and Chinese markets trading
off. Most of the other large markets in the region rose,

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Risk Appetites Squashed by Weak Chinese Imports/Exports and Moody’s Downgrade of 10 US Banks

Overview: The combination
of falling Chinese imports and exports, Moody’s downgrade of ten US small and
medium-sized banks is serving to squash risk appetites. Equities are weak, but
bond markets are strong despite the surprise tax on Italian banks announced
yesterday and the kick-off of the US $103 bln refunding today. Outside of Japan
and Australia, Asia Pacific equity markets were lower led by a 1.8% drop in the
Hang Seng and a nearly 2.2% loss of the mainland shares that trade there. The
0.65% fall in Europe’s Stoxx 600 offset the gains of the past two sessions plus
some. US equity futures are around 0.5% lower. Bond are rallying strongly. European
benchmark yields are mostly 10-12 bp, including Italy and Spain. Greece is the
lagged today. The 10-year US Treasury yield is off nearly

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Dollar Comes Back Bid

Overview: The US dollar is recovering today
after it was sold following the jobs report before the weekend. It is enjoying
a firmer bias against nearly all the G10 currencies. The dollar-bloc is faring
best, while the Scandis are off close to 0.5%. Most emerging market currencies
are also softer, with only a few Asian currencies edging higher today,
including the South Korean won, Indian rupee, and Taiwanese dollar. With a
stronger dollar and firmer interest rates, gold is trading heavier and looks
poised to test last week’s low near $1926. Asia Pacific equities are mixed.
The softer yen may have encouraged the bid to Japanese stocks, while Hong Kong
and mainland, South Korean and Australian stocks eased. Europe’s Stoxx 600 is
giving back the pre-weekend gain of nearly 0.3% in fully amid

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Week Ahead: Is the Dollar’s Run since Mid-July Over?

The US
and China report July CPI figures in the coming days and they are likely moving
in opposite directions. Headline US CPI is likely to rise for the first time
since peaking in June 2022. China’s CPI has been slowing and is likely to go negative
on a year-over-year basis. It finished last year at 1.8% and in June was
unchanged year-over-year. The divergence of policy is what is driving force of
the exchange rate, and the    question is not really so much why
the yuan is weak, but why it is not even weaker, and the answer seems to be
because of Beijing’s use of soft power. It has moderated the pace through the
setting of the daily reference rate, and it has gotten banks to reduce the
interest rate on dollar deposits for example. Press reports also note that State
Administration of

Read More »

US Jobs Report and OPEC Statement Featured Ahead of the Weekend

Overview: The
capital markets are calmer today but the US (and Canadian) jobs data stand in
the way of the weekend. While equity markets are firmer, the rise in yields
continues with new highs for the week being recorded today. European benchmark
yields are 2-3 bp higher and the US 10-year Treasury yield is approaching 4.20%.
Most of the large market in the Asia Pacific region advanced, but South Korea
and Taiwan where the superconductor fascination eased. The Stoxx 600 in Europe
has steadied after a falling by almost 3% in the past three sessions. US index
futures are enjoying a firmer profile.The dollar is mixed against the
G10 currencies. The Scandis and Antipodeans are advancing. The Swiss franc is
leading the losers, with a 0.4% decline after yesterday’s softer than expected
July

Read More »

Markets Remain Unsettled, Bonds and Stocks Retreat, Dollar Gains Ahead of BOE

Overview: The global
capital markets remain unsettled. The combination of the BOJ adjustment of its
monetary policy, Fitch’s downgrade of the US to AA+, ahead of a flood of
supply, and new measures by China have injected volatility into the summer
markets. The US dollar has extended it gains today against the G10 currencies
and most emerging market currencies. The yen has recovered a bit after the BOJ
stepped in and bought JGBs for the second time this week at market prices, well
shy of the 1.0% upper band for the 10-year yield. However,
bonds and stocks continue to sell off. The 10-year JGB yield is near 0.65%,
while European benchmark yields are most 3-7 bp higher. The 10-year Gilt yield
is up about two basis points to almost 4.42% ahead of the Bank of England
meeting. Most now look for

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Fitch Roils Markets

Overview: Late yesterday, on the eve of the
quarterly refunding announcement, Fitch cut the US rating to AA+ from AAA,
citing project fiscal deterioration over the next few years and "the
erosion of governance". S&P also has the US as an AA+ credit. Ironically,
many observers who have been critical of the US monetary and fiscal policies,
like former Treasury Secretary Summers and El-Erian, were also critical of Fitch’s
decision. The US 30-year yield reached its highest level since last
November before Fitch’s announcement. It and the 10-year yield
are slightly firmer today, ahead of the Treasury’s refunding announcement an
hour before the US equity markets begin their day session. Note that Moody’s continues to rate the US as AAA, and asset managers have idiosyncratic rules of what to do

Read More »

RBA Holds Fire, Greenback Rebounds

Overview: The dollar has
come back bid. It is rising against all the major currencies today. The Reserve
Bank of Australia left rates steady and the poor Chinese Caixin PMI is weighing
on the Australian dollar, which is off about 1.25% today. Sterling is the best
G10 performer, off about 0.1%. Perhaps, the BOE’s meeting on Thursday is
helping to deflect some of the selling pressure. Emerging market currencies are
also nearly all lower, led by the South African rand and South Korean won. The
greenback’s gains are weighing the gold, which is consolidating in yesterday’s
range but looks heavy. After yesterday’s surge to $82, September WTI is a
little lower and is trading around $81.30 in the European morning. It
seems like a risk-off day, though Asia Pacific equities were mixed. Japan,

Read More »

BOJ Moves to Slow JGB Sell-Off, while Month-End is Making for Subdued Price Action in FX outside the Yen

Overview:  The Bank of Japan took the market by
surprise with its adjustment of the cap on the 10-year yield before the
weekend, and then stepped in to buy the government bond as yields rose in
reaction today. The move helped lift the dollar to JPY142.50. from where it had
settled on Friday (~JPY141.15). The dollar is mostly softer, however, with only
the yen and Swiss franc weaker. The Australian dollar is leading the other
currencies higher ahead of tomorrow RBA meeting. Emerging market currencies,
outside of a handful of central European currencies and the Malaysian ringgit
and South Korean won are lower. Asia Pacific equities rallied with Taiwan
being the only notable exception. Europe’s Stoxx 600 has edged higher after
falling 0.2% before the weekend. US index futures are narrowly

Read More »

August 2023 Monthly

Prices
pressures are abating, albeit gradually, while economic momentum is faltering.
The data in the coming weeks will help shape expectations for rate decisions
for September. As the market pushed back against the Federal Reserve’s forward
guidance that anticipated two hikes in the second half, the US dollar fell
against the G10 currencies, but found support beginning around the middle of
the July as the market was reluctant to return to pricing in a cut this year
and doubts rose about the extent that the European Central Bank and the Bank of
England would raise rates.The dollar’s recovery is
likely to extend into August, perhaps, encouraged by the risk of the first
increase in the US year-over-year headline CPI since June 2022, when it peaked
slightly over 9%. The US economy is looking

Read More »

Taking Some Time Off

Taking some time off for the next few days.  Will return with the August monthly outlook on July 29 and daily commentary on July 31.  Good luck to everyone.

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Bond Rally Continues, Greenback Consolidates with Softer Bias

Overview: The main development in the capital
markets is the decline in yields. In Europe, benchmark 10-year yields are off
7-11 bp today, extending the move that began last week. The 10-year Germany
Bund yield peaked last Thursday near 2.68% and is near 2.40% now. Similarly,
the 10-year Italian yield has fallen from 4.42% to below 4.05% today. The
10-year US Treasury yield fell in five of the last six sessions and is off
almost five basis points today. The yield peaked last week near 4.09% and is
testing 3.75% today. The dollar is consolidating with a heavier bias and the
euro made a high since February 2022, meeting a retracement objective at
$1.1275. The dollar-bloc currencies are underperforming, which seems consistent with the growth outlook concerns that are weighing on rates.

Read More »

Euro Edges Higher

Overview:  The US dollar has mostly steadied at
the start of the week after last week’s sharp losses. The yen, euro, and Swiss
franc are enjoying a firmer tone, but only the euro has thus far extended
last week’s gains, and then, only marginally. Uninspiring data from China
pressed the yuan lower, while the firm euro is helping the central European
currencies. A typhoon shut Hong Kong markets and Japan’s markets were closed
for a national holiday. The Ukraine grain-export deal was ended by Russia after
it agreed to a two-month extension in mid-May. This is help spur a rally in
grains, with wheat futures up 3.25% after rallying 4.5% in the last two
sessions. Corn is up almost 2% after rally 6% in past two sessions. Asia Pacific equities were mixed after the
MSCI benchmark rose 4.4% last

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Week Ahead: For the Millionth Time, Markets Exaggerate

After experiencing one of its worst weeks of the year, the US
dollar is stretched from a technical point of view while the short-term
interest rate adjustment has gone as far as it can without resurrecting ideas
of a Fed rate cut this year. Given the lighter economic calendar in the coming
days, we suspect that the greenback may consolidate ahead of the FOMC meeting
that concludes on July 26. The derivatives market shows that a quarter-point
hike is seen as a practical certainty. However, even as the US two-year yield
jumped back a dozen basis points ahead of the weekend, the dollar drew little
support against the euro and sterling. The shallowness of their pullbacks speak
to the underlying demand. Some suspect "stealth intervention" by
Japan and/or China, but by the very nature of it,

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After Dramatic Week, Capital Markets are Stabilizing

Overview: After tumbling headlong this week, the
dollar appears to be broadly consolidating ahead of the weekend Among the G10
currencies, the Canadian dollar’s 1.2% gain is the least and it made new
10-month highs earlier today The beleaguered Scandis soared The Norwegian
krone’s 6.6% advance followed by the Swedish krona’s 5.8% surge led the major
currencies The Dollar Index is off about 2.4% this week ahead of the North
American session It is the largest loss since last November. Among emerging
market currencies, the Hungarian forint (~5%) and South African rand (~4.5%)
led the way. Only the Chilean peso, Turkish lira, and Argentine peso fell. The
lower dollar and softer rates helped lift gold to $1963 today. It settled near
$1925 last week. As the greenback stabilized today, the

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Dollar Sell-Off is Getting Stretched

Overview: Softer-than-expected US CPI, following
weaker than expected job growth has sent the greenback tumbling. The dollar is
stabilizing against the yen today, but the downside momentum is intact against
the other major currencies. The euro approached $1.1175, sterling $1.3080, and
the greenback slumped to almost CHF0.8615. The Australian dollar reached $0.6850,
and the New Zealand dollar tested $0.6360. The Canadian dollar, often a laggard
in a weak US dollar environment is holding below the highs made at the end of
last month. The Dollar Index approached 100.60, its lowest level since April
2022. The technical indicators are getting stretched and the market may be
getting ahead of itself on the interest rate adjustment. Assuming one more hike
this year, fair value for the year-end

Read More »

US CPI and Bank of Canada Highlight North American Session

Overview: The US dollar’s losses have been extended
ahead of the June CPI. At the same time, speculation that the Bank of Japan
will adjust policy later this month saw the yen extend its gains for the fifth
consecutive session. Sterling made new highs since last April, while the Swiss
franc has risen to its best levels in about 2 1/2 years. The Dollar Index
gapped lower and through the trendline drawn off the April and May lows. The
greenback has steadied a little in the European morning. Given the move, there
is risk of "sell-the-rumor, buy-the-fact" type of activity. Emerging
market currencies are also mostly higher, including the Chinese yuan, which is
at its best level in three weeks. The yen’s strength is weighing
on the Nikkei, while indications of more economic support from Beijing

Read More »

Powerful Short Squeeze Continues to Lift the Yen

Overview: The greenback remains under pressure. The
yen’s short squeeze continues, and strong wage growth has helped lift sterling
to new highs since last April. Among the G10 currencies, only the Australian
and New Zealand dollars are unable to sustain gains through the European
morning. Emerging market currencies are also advancing, with a couple of
exceptions, including the Turkish lira despite reports on foreign equity
inflows. The weaker dollar and softer yields have sent gold to its best level
in around three weeks slightly below $1940. It has found support last week
ahead of $1900. Encouraged by talk of more
stimulus from China, Asia Pacific equities rallied, though the yen’s recovery
meant that Tokyo did not participate very much. South Korea and Taiwan led the
regional advance.

Read More »

The Greenback Stabilizes After Pre-Weekend Drop

Overview: The US dollar is mostly firmer after selling off hard
before the weekend in response to the jobs data. Ranges are mostly narrow, but
the Australian and New Zealand dollars are the heaviest following news of
China’s deflation. Emerging market currencies are mixed, but of note the
liquid, freely accessible currencies, South African rand, Hungarian forint, and
Mexican peso are atop the leader board. Despite repeatedly lower US dollar
fixes by the PBOC, the yuan continues to trade softly.Asia Pacific equities were mixed. Many of the large markets fell, including
Japan, South Korea, Taiwan, Australia, and New Zealand. On the other hand,
China, Hong Kong, India, and many smaller equity markets rose. Europe’s Stoxx
600 is hovering around little changed levels. US index futures are

Read More »

Week Ahead: Is the Dollar’s Downtrend Resuming?

The dollar appears at an inflection point. Its
failure to draw much traction even as US rates rose may be an important tell. The
US 2-year yield rose to a new multiyear high near 5.12%, while the 10-year
yield set a new high for the year around 4.09% after the
employment report. The dollar’s broad gains in the second half of last month
looks corrective. The underlying downtrend, which we argue began last September
and October, looks set to resume. Moreover, the base effect warns of another
large drop in the headline CPI on July 12. This coupled with the disappointing
jobs report (209k and a downward revision of 110k in April and May) will
reinforce market skepticism of not the hike later this month, but the one after
that, which the Fed signaled in June. Japan’s verbal intervention and

Read More »

Yen Extends Recovery on Wage Data, Yuan Ticks Up Too

Overview: A powerful short squeeze has lifted the
yen by the most in two months this week. The dollar’s push today below JPY143
was encouraged by the stronger than expected wage growth. The US jobs report
will test its strength. The PBOC fixed the yuan sharply higher today and it is
the only emerging market currency that is higher on the day, ahead of the Latam
open. The dollar has not drawn much support for the surge in US yields. The
10-year yield came within a whisker of the year’s high set in March near 4.09%
and the two-year yield set a new multiyear high near 5.12% yesterday, bolstered
by a series of stronger than expected data. Both are firm today but off
yesterday’s highs. The euro, Swiss, franc, and Canadian dollar are slightly
softer today, with the yen and Antipodeans the

Read More »

Yen and Yuan Lead Move Against the Dollar

Overview: Stocks and bonds ae selling off today. The
greenback is also trading heavily. Ironically, the yen is the strongest among
the G10 currencies and the Chinese yuan is the strongest among emerging market
currencies. The dollar is firmer against the Scandis and Canadian dollar. Most
emerging market currencies, including the Mexican peso, which traded at its
best level yesterday since 2015. While nearly all the bourses
but India fell in the Asia Pacific region, Hong Kong and mainland shares that
trade there were tagged for more than 3%. Europe’s Stoxx 600 is off more than
1% and if these losses hold, it would be the biggest down day since late May. US
index futures are extended yesterday’s losses. The bond market is not offering
a haven today. Benchmark 10-year yields are up 6-7 bp in

Read More »

Sobering PMI Readings Sap Risk Appetites

Overview: As US markets prepare to re-open from yesterday’s holiday, the dollar
is trading mostly higher, though the euro and yen are steady to slightly firmer.
Narrow ranges are prevailing. The Canadian and Australian dollars are
exceptions and are off about 0.3%. Emerging market currencies are mostly lower,
including Russia, China, South Africa, and Turkey. Final service and composite
PMIs were mostly revised lower in Japan, Australia, and the eurozone, while the
Caixin readings were lower than expected. 

Asia Pacific equities were weaker, led by
a nearly 1.6% drop in the Hang Seng and almost a 1.9% fall in mainland shares
that trade in HK. Europe’s Stoxx 600 is off 0.6% after rising less than 0.1%
yesterday. US index futures are trading heavily. European benchmark 10-year
bonds are

Read More »

What Happened Today

The US dollar was mostly softer. The
New Zealand dollar was the strongest (~0.85%) helped by cross rate gains
against the Australian dollar, following the RBA’s decision to stand pat. The
Australian dollar fell to one-month lows below NZD1.08. There is scope for
another 0.5%, or so to the next target near NZD1.0750. The RBA’s decision to
leave its cash target at 4.10% was not surprising, and despite the hawkish
rhetoric, the market downgraded the chances of a hike in Q3, though has it
priced into Q4 and about a 50% chance of another hike too. The Australian
dollar recovered from almost $0.6640 to $0.6700.

The PBOC is stepping up its effort to slow
or stem the yuan’s weakness. It set the dollar’s
reference rate at CNY7.2046 vs. expectations for CNY7.2361. There are reports
that Beijing is

Read More »

The Greenback Starts H2 on a Firm Note

Overview: The dollar is recovering from the
month-end losses seen at the end of last week. Only the New Zealand dollar
among the G10 currencies is holding its own. Japanese reports indicate that Tokyo
is in contact with the US Treasury about intervention, which is injecting a
note of caution as the greenback holds below JPY145.00. Chinese officials also
appear to be stepping up their efforts to stabilize the yuan. Among emerging
market currencies, central European currencies are among the worst performers
today. The South Korean won, and Thai baht lead the advancers. Similarly, gold
which traded higher at the end of last week to reach almost $1923 before the
weekend, is trading lower today, and found support near $1910. August WTI is
extending the recovery from the middle of last week’s

Read More »

July 2023 Monthly

Price pressures
remain elevated but economic momentum slowed as Q2 wound down. Many market
participants think this poses a dilemma for policymakers and are skeptical that
the hikes signaled will be delivered because of economic weakness or financial
strains. These developments are thought to limit the tightening cycle before
the inflation genie can be stuffed back into the bottle.Yet, this may underestimate the resolve of most of the
major central banks in tackling inflation. Many seem willing to risk a shallow
downturn if necessary to bring price pressures. Only if there are signs of a
significant downturn or heightened financial stress, beyond what was seen
earlier this year, would central banks not extend the tightening cycle into Q3,
and possibly Q4. The Federal Reserve and the

Read More »

Market Continues to Converge With Fed’s Forward Guidance

Overview:  A key development in recent days has been
the market’s convergence with the Federal Reserve’s forward guidance regarding
scope for two quarter-point hikes in the second half. The US two-yield is up
about six basis points today, extending yesterday’s 15 bp increase. It is
approaching 5%. The Fed funds futures strip implies one hike has been fully
priced in and about a third of the next one. The dollar has risen against all
the G10 currencies this week but the Norwegian krone. It is mixed today (+/-
~0.20%) ahead of US data, and especially the PCE deflator. The weakness in
China’s PMI and Japan’s industrial output contrasts with the string of stronger
than expected US economic data. 

Asia Pacific equities were
mixed, while Europe’s Stoxx 600 is advancing for the fourth

Read More »

PBOC Fixes Dollar Lower, but It Recovers Against the Yuan, Riksbank Hikes and Market Yawns

Overview: The US dollar is narrowly mixed against
the G10 currencies. Stronger than expected Australian retail sales helped
steady the currency after the soft inflation data took it down. Sterling has
also steadied after it suffered its largest loss yesterday (~0.9%) in over a
month. Sweden’s 25 bp rate hike has not given the krona much of a lift. Central
European currencies lead the emerging market currencies higher, while the PBOC
set the dollar’s reference rate lower than expected. Still the yuan is
softer. Equities in Asia were mixed,
but the Europe’s Stoxx 600 is posting gains for the third consecutive session. US
large banks passed the Fed’s stress test, and some good earnings news is
helping US index futures post modest gains. Benchmark 10-year bonds yields are
mostly 4-6 bp higher

Read More »

The Dollar Regains Composure

Overview: The dollar is better bid today. It is rising against
nearly all the G10 currencies, with the Antipodeans bearing the brunt, after a
softer than expected Australian inflation report. The yen has steadied after
extending its losses to new lows for the year. Emerging market currencies are
also mostly lower, though the Mexican peso is edging higher for the fourth
consecutive session. The large Asia
Pacific bourses rallied with the exception of China and South Korea. Europe’s
Stoxx 600 snapped a five-day drop yesterday and is extending the recovery today.
US equity futures are paring yesterday’s gains. European 10-year yields are
mostly 2-3 bp lower, though Italy’s yield is flat and the yield of the 10-year
Gilt is off four basis points. The US 10-year Treasury yield is slightly

Read More »

PBOC Sends Signal in Lower Dollar Fix, while the Canadian Dollar makes a 9-Month High

Overview: Hawkish comments by ECB President Lagarde
at the central bank symposium in Sintra and the PBOC’s weaker dollar fix have weighed on the greenback today. It is lower against most of the G10 currencies,
but the Japanese yen and Norwegian krone. It also slipped to a new nine-month
low against the Canadian dollar. Emerging market currencies are also mostly firmer,
with the notable exceptions of the Russian rouble and beleaguered Turkish lira.
There is still little clarification of the recent events in Russia. Asia Pacific equities were
mixed. Japan, Taiwan, and South Korean markets eased, but China, Hong Kong, and
most of the other large markets in the regions advanced. Europe’s Stoxx 600 and
Germany’s Dax are extending their retreat for the seventh consecutive session,
while US

Read More »

Calm Start to the Week, with Little Impact from Russia’s Drama

Overview:  The drama in Russia captured the
imaginations but failed to have much impact on the capital markets. Conventional
wisdom sees it as a sign of Putin’s weakness, but he has been underestimated,
including by many Ukrainians who did not think Russia was going to invade
despite America’s repeated warnings. It may take some time for the implications
for the two main protagonists, Wagner head Prigozhin and Defense Minister
Shoigu. The war in Ukraine is likely unaffected, and Kyiv’s counter-offense
thus far seems rather muted. The risk is that the war escalates if Kyiv resorts
to medium- and long-range missiles to hit Russian assets in Crimea, and possibly
in Russia proper. Meanwhile the record from the Bank of Japan recent meeting
showed at least a couple of members were moving toward

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After Disappointing PMIs, Attention will Turn Back to Inflation in the Week Ahead

As the month and quarter wind down, inflation readings are
featured. The US May PCE deflator, which is the targeted measure is reported.
Canada and Australia report May CPI. The eurozone reports the preliminary June
CPI, and Japan see Tokyo’s June CPI, which serves a similar function. Leaving
aside Japan, the others, including the UK have signaled that the monetary
tightening cycle will be extended into H2. That said, the poor preliminary PMI
readings fan ideas poor growth will curtail the monetary tightening cycle. While
possible, we are more persuaded that many central banks will risk a recession
to bring inflation down. In the week ahead, Sweden’s Riksbank may slow to a quarter point hike after lifting the repo rate twice this year by 50 bp and hiking by 175 bp in H2 22.  The market

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Greenback Jumps on Weak Flash PMIs

Overview: As the market reluctantly edges toward the
Fed’s guidance, the disappointing PMIs from Europe (but also Japan and
Australia) helped boost the greenback. The Dollar Index is trading at seven-day
highs above 103 after briefly dipping below 102 to set a new low since mid-May
yesterday. The unwinding of cross positions is helping the yen hold its own
today as it consolidates near its worst level of the year. The surging dollar
and risk-off mood has dragged the emerging market complex lower. The JP Morgan
Emerging Market Currency Index extended yesterday’s loss and its lowest level
of the year. China and Taiwan markets were
closed for holiday today, but the other Asia Pacific equity markets are a sea
of red. Europe’s Stoxx 600 is flat after four days of losses and US equity
futures

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Higher for Longer

Overview:  The central
banks of Norway and Switzerland have hiked rates by 50 bp and 25 bp,
respectively. Attention is on the Bank of England. A 25 bp hike is widely
expected but after strong inflation report, the risk is clearly for a 50 bp
hike. In fact, we suspect a quarter-point move could see sterling sold. With a
new orthodox economics team in Turkey, a large rate hike is expected today. Late
in the North American session, Mexico’s central bank meets but previously
announced a pause as inflation is moderating. The dollar is on the defensive. The
recovery we expected has been more shallow than we anticipated as the market
remains unimpressed with the Fed’s signal of further hikes, which Chair Powell
underscored in his testimony yesterday and will repeat it today. Since the Fed

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UK Inflation Surprises to the Upside and Weighs on Sterling

Overview: The UK surprised with higher-than-expected consumer
inflation and budget deficit, and the odds of a 50 bp hike tomorrow edged
higher. Sterling has been sold on the news and is the weakest of the G10
currencies, off about 0.5%. The dollar is mixed with the euro, Swedish krona,
Canadian dollar, and Swiss franc posting small gains. Emerging market
currencies are lower, including the Chinese yuan, which is at new lows since
last November. The Mexican peso, Hungarian forint, and Indonesian rupiah are
firmer. Brazil’s central bank meets late today, while most economists look for
it to standpat, the risk for a rate cut. US yields are edging higher ahead of Fed
Chairman Powell’s congressional testimony today, at which he is expected to
reiterate the need to do more to ensure inflation

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Scandis and Antipodeans Lead the Greenback’s Recovery

Overview: The market continues to resist the Fed’s
signal that another 50 bp of hikes may be necessary to ensure inflation is
headed toward its target. Previously, the market had rate cuts priced in, and
it took some time for the Fed’s push back to be accepted. The market converged
with the Fed, and this helped the dollar recover. We suspect a similar pattern
to play out again. The market does not have even one of the two Fed hikes
discounted. As it moves in this direction, we look for the dollar to get better
traction. Today’s it is mixed but mostly stronger. It is reversing lower
against the yen after reaching new highs for the year. Like yesterday, the
dollar-bloc currencies and Scandis are the heaviest. Emerging market currencies
are mostly lower. The Mexican peso, which reached new

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Week Ahead: Greenback Looks Set to Bounce after the Recent Drubbing

The week ahead is less eventful
than the week that just passed, which saw the anticipated hike by the ECB and the small cut by the PBOC. The
Fed delivered the widely tipped hawkish hold and the US CPI continued to decelerate. The dollar fell against the G10 currencies last week but the yen.  Sterling, and the Canadian dollar rose to new highs for the year,  Momentum indicators are stretched.  This coupled with risk-reward considerations suggest that the dollar could bounce in the coming days.   The week ahead features the
flash PMI readings and the Bank of England meeting (June 22) a day after its
May CPI report. Norway’s central bank also meets on June 22. Norway’s inflation
is running at a 7.2% annualized rate through May, though it was one of the
earliest G10 central banks to embark on

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BOJ Stands Pat while the Dollar is Consolidating Ahead of the Weekend

Overview: The market has not yet become convinced
that the Fed will in fact deliver the two hikes the median dot anticipates this
year, and the dollar was sold off sharply yesterday, the day after the FOMC
meeting. In fact, the swaps market is more convinced that the ECB hikes in July
than the Fed. Outside of the yen, which was sold after the BOJ stood pat, the
G10 currencies are mostly little changed, consolidating the recent moves. Emerging
market currencies are mixed. Central European currencies are a little heavier,
and are joined by the Mexican peso, which is looking increasing vulnerable to a
pullback. The Chinese yuan rose for the third consecutive session, the longest
advance in more than a month. Equity markets are mostly
firmer. Among the large bourses in the Asia Pacific

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ECB’s Turn

Overview: The Fed’s
hawkish hold and signal that it may raise rates two more time this year sent
ripples through the capital markets. Risk appetites have been dealt a blow. However,
China’s rate cut and likely additional supportive measures after disappointing
data, helped lift the CSI 300 by 1.6%, the most this year. The Hang Seng rose
by nearly 2.2%, the most in three months. Europe’s Stoxx 600 is snapping a
three-day advance and US index futures are trading lower. European bond yields
are mostly 4-7 bp higher ahead of the ECB meeting, which is expected to deliver
a rate hike and confirm its intentions to lift rates more. The US 10-year yield is up a couple of basis points to a little below 3.81%, while the two-year yield is up almost four basis point to nearly 4.73%.  Rising
US rates

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Euro: Thumbnail Sketch Ahead of the ECB Meeting

The euro has traded between roughly $1.0485 and $1.1100 so
far this year. The average is about $1.08, where it traded above yesterday for
the first time in 2 ½ weeks.

Recall that the euro rallied from around $1.05 in mid-March
(amid speculation that the banking stress was going to force the Fed to cut) to
around $1.1100, where it stalled in late April and early May.

We argued that the rate cut expectations had swung too far
and that as they converged back with the Fed the dollar would recover. The euro
hit a low at the end of May near $1.0635.

The interest rate adjustment we anticipated looked complete
or nearly so and that seemed to warn of the risk of a dollar setback/euro
bounce.

The five- and 20-day moving average simple cross-over proxy
has down very well this year. It cross

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Fed Day: Skip = Hawkish Pause, but Market Says Finito

Overview: The year-end effective Fed funds rate
implied in the futures market is about 5.11%. The rate has been averaging 5.08%
since the Fed hiked rates last month The Fed may go to pains to explain that
the steady that to be announced later today is just a pause to get a better
read on the economy, the market favors this to be the end of the tightening
cycle. The dollar is trading softer against nearly all the G10 currencies. Emerging
market currencies are more mixed, but JP Morgan Emerging Market Currency Index
has steadied after slipping lower in the past two sessions. Gold is recovering
after yesterday’s outside down day and settlement below $1950. Outside of China, Hong Kong, and South
Korea, most large Asia Pacific markets advanced, led by more than a 1% gain in
Tokyo. Europe’s

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PBOC Surprise Rate Cut and a Strong UK Labor Market Report Ahead of US CPI

Overview: A surprise cut in China’s seven-day repo
and a stronger than expected UK employment report are session’s highlights
ahead of the US CPI. The base effect alone suggests a sharp fall in the
year-over-year rate, while the median forecast in Bloomberg’s survey has been
shaved to a 0.1% month-over-month gain. The dollar is under pressure and is
weaker against nearly all the G10 currencies. It is mixed against the emerging
market currencies. The dollar gapped higher against the Chinese yuan for the
second consecutive session and is higher against the South African rand,
Mexican peso, and Turkish lira, among a few others. It is a risk-on day, with
equities advancing. Tokyo and Taiwan gained by more than 1%, while
nearly all the large bourses in the Asia Pacific region advanced.

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Ahead of the Week’s Central Bank Meetings, Risk Appetites Stoked

Overview: Today may be the calm ahead of a
tomorrow’s US CPI and rate decisions by the Fed, ECB, BOJ, and PBOC over the
next few days. Most large bourses in the Asia Pacific region rose and Europe’s
Stoxx 600 is snapping a three-day decline. US index futures are trading higher.
US 10-year yield is slightly firmer as are core European benchmark yields. The
dollar is under broad pressure and is weaker against the G10 currencies. Against
emerging market currencies, it is also mostly softer, but there are a few
notable exceptions. They include Turkey, China, and Mexico. Gold is a range of
a little more than $5 on either side of $1960. July WTI is soft and its
inability to recover after what appeared to be supportive developments adds to
the bearish tone. It
was denied by both sides that a

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US CPI, Fed, ECB, BOJ and the Week Ahead

Of the three G3 central banks
that meet in the days ahead, the market is the most confident of a rate hike by
the European Central Bank. The market sees a hawkish hold from the Federal
Reserve. However, the idea of a skip, a topic which even Fed officials have
broached, would seem to pre-commit to another hike, and this is not typically
the central bank’s modus operandi. Moreover, it may be difficult for the Fed to
resume hikes in July if inflation falls as we expect toward 3.2%-3.3% in this
month (due July 12) and the economic activity slows. Still, the Chair Powell
may go to pains to underscore that a pause is simply the decision not to raise
rates now rather than necessarily signaling an end to the cycle. In fact, a
dissent in favor a of hike seems possible given some recent statement.

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Dollar Stabilizes Ahead of the Weekend

Overview:  Long US dollar positions were pared yesterday as rates unwound the
gains scored in the wake of the Bank of Canada’s surprise hike on Wednesday. It
is consolidating today as the market looks toward next week’s central bank
meetings (FOMC, ECB, and BOJ) and a flurry of data. It is also possible that
China shaves the benchmark one-year medium-term lending facility rate. Broadly
speaking the greenback is still tracking rates, and the more than 4% initial
drop in the price of July WTI (to $69 before rebounding to ~$71) helped knock
US yields down from the upper end of their ranges. Rather than demand factors,
it was the potential of Iranian supply that may have been the driver, after
reports of progress in US-Iranian talks, which were later played down. July WTI
is consolidating in

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Japan’ Q1 GDP was Revised Up, While the Eurozone’s was Revised Down

Overview: The back-to-back surprise rate hikes by
the Australia and Canada spurred speculation that the Fed could hike next week,
and this lifted US rates and helped the dollar recover. The odds of a hike
increased, according to the indicative pricing in the Fed funds futures market
from about a 20% chance to a little above 35%. now. At yesterday’s high, the
two-year yield was up a little more than 25 bp since the low before the US
employment data last Friday. It is little changed today near 4.55%. Still, the
greenback is softer against all the G10 currencies, but is mostly consolidating
in narrow ranges. Emerging market currencies are more mixed. Of note the
Chinese yuan is snapping a four-day fall, and after plummeting 7% yesterday,
the Turkish lira steadied, but is off about 0.6%.

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RBA Surprises with a Quarter-Point Hike and German Factory Orders Disappoint

Overview: The Reserve Bank of Australia surprised
many with a quarter-point hike and German factory orders unexpectedly fell.
Reports suggest that China has asked banks to cut deposit rates. The next
result is the Australian dollar is the strongest currency in the G10 and helped
lift the Canadian dollar ahead of the Bank of Canada meeting tomorrow. Australian
stocks sold off (~1.2%) while large markets outside of China rose in the region.
Europe’s Stoxx 600 is straddling unchanged and US equity futures are a little
softer. Leaving aside Australia and New Zealand, bond yields are 2-5 bp lower. That
puts the 10-year US Treasury yield near 3.66%. The dollar is mixed among the
majors. The dollar-bloc currencies dollars are joined by the Japanese yen
and Swedish krona, posting mostly small

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Dollar Gains Extended, Oil Steadies at Higher Levels after Saudi’s Cut, US Bill Deluge Begins Today

Overview:  The US dollar has extended its post-employment
gains today, helped by firmer rates and several countries seeing downward
revisions from the preliminary May PMI. The greenback is trading with a firmer
bias against all the G10 currencies and most of the emerging market currencies,
including Turkey, India, and China. July WTI gapped higher after the Saudi
Arabia announced a voluntary and unilateral cut of one million barrels a day in
output starting next month. July WTI opened at $75 after settling near $71.75
before the weekend. However, that was more or less than the high, and it is
near $73 now.The US 10-year yield gapped higher today too and is near 3.73%, a four-day
high. European 10-year benchmark yields are 5-7 bp higher. After strong
pre-weekend equity gains in the US,

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Week Ahead: Australia and Canada–Hawkish Hold? US Bill Issuance Jumps

True
to the historic pattern, the US debt ceiling was used by the party not in
control of the executive branch to exact spending concessions. Despite the
extreme partisanship, the brinkmanship tactics, and fears that this time would
be different, there was no default. As Bismarck once quipped, "Laws are
like sausages and it is best not seen them being made." Still, as a
consequence, the rebuilding of the Treasury’s account and bill issuance is seen
tightening financial conditions, while the end of the moratorium on student
loan servicing and spending cuts point to a coming fiscal drag. The
Federal Reserve’s leadership seemed to have been on a purposeful campaign to
indicate that it wanted to standpat at the June 13-14 FOMC meeting and the
market accepted the push back. The odds of a hike

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US Debt Ceiling Drama Ends with a Whimper, Focus on US Jobs and Fed

Overview: Another bizarre US debt-ceiling episode is over. President
Biden will sign the bill that was approved by the Senate late yesterday. It is
a bit anticlimactic for the market, for which the US jobs data is the key focus
now. Outside of the fiscal drama, the Federal Reserve leadership has
effectively push against market expectations for a hike later this month. The
odds were around 70% earlier this week, and ahead of the jobs report, is near
30%. The dollar’s three-week rally has been snapped. It is sporting a softer
profile ahead of the data and is lower against all the G10 currencies. It is
also weaker against nearly all the emerging market currencies today, with the
notable exception of the Turkish lira and Hungarian forint. The Chinese yuan is
posting its first back-to-back

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Dollar Steadies After Fed’s Push Back

Overview: The market was gearing up for a June Fed
hike and officials and this helped lift the greenback. However, the Fed
Governor Jefferson, nominated to be the next vice-chair, pushed back against it.
His views are thought to reflect the Fed’s leadership. Philadelphia Fed’s
Harker, who is a voting member of the FOMC also backed a pause. This is not
quite what we expected when we suggested the US interest rate adjustment was
complete or nearly so. Still, it broke the dollar’s upside momentum, though
follow-through dollar selling today has been limited. It is narrowly mixed,
with the Swiss franc and euro leading G10 with 0.15-0.20% gains. The dollar
slipped through JPY139 briefly but as US rates have come back a bit firmer, the
greenback has recovered to almost JPY140. Emerging market

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Debt Ceiling Progress, Weak Chinese and Japanese Data, and Soft EMU CPI, Sends the Dollar Higher

Overview: The US budget agreement passed a House
committee vote by 7-6 and the bill is scheduled to be voted on by the entire
House today before the Senate take it up with the idea of passing it Monday.
The procedural step plus the weakness of China and Japanese data and soft CPI
figures from Europe has lifted the greenback against all the major currencies. The
euro and Australian dollar have been sold to new lows, while the dollar holds
ever so slightly below JPY140. Despite a stronger-than-expected Q1 GDP (4.0% vs.
3.5%), the Turkish lira leads emerging market currencies lower. The weakness of
the euro and escalating hostilities in Kosovo is weighing on the central
European currencies. The Philippine peso and Mexican peso have edged higher and
stand out among the emerging market

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The Dollar Reverses Early Gains

Overview:  The debt ceiling drama is not over.
The agreement between the negotiating teams of President Biden and House
Speaker McCarthy sets the stage for the next act in the drama: each side must
deliver the votes. A preliminary vote today in the House of Representatives is
likely today ahead of floor vote tomorrow. Still, the market is optimistic, and
risk is favored. Asia Pacific bourses were mixed today. We note that the chip
sector helped lift South Korea’s Kospi up over 1%. Europe’s Stoxx 600 is
recouping yesterday’s marginal loss, and US equity futures are trading higher.
The S&P 500 and NASDAQ are poised to gap higher. Bonds are rallying. European
yields are mostly 4-6 bp lower, though Gilts are lagging. The 10-year US
Treasury yield is off nearly eight basis points to 3.72%. The

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June 2023 Monthly

June is a pivotal month. The US debt-ceiling
political drama cast a pall over sentiment even if it did not prevent the
dollar from rallying or the S&P 500 and NASDAQ from setting new highs for
the year. It is as if the two political parties in the US are playing a game of chicken
and daring the other side to capitulate. Both sides are incentivized to take to
the brink to convince their constituents that they secured the best deal
possible. No side seems to really want to abolish the ceiling because it has
proven to be an effective lever for the opposition to win concessions over the
years. Still, a higher debt ceiling and some reduction in spending in the FY24
budget are the middle ground. Many think that this time is different. The partisanship, they say, is so
extreme that a default is

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The Greenback Stalls after Yesterday’s Surge as US Negotiators Move Closer to Last-Minute Deal

Overview: Yesterday’s dollar surge has stalled. It is
consolidating its gains and is softer against all the G10 currencies. After
popping above JPY140 yesterday, there were no follow-through greenback buying
in Tokyo. Most emerging market currencies are also firmer, including the South
African rand, which plummeted by 2.8% yesterday on the back of the central
bank’s warning of downside currency risks as it delivered a 50 bp hike. The
Chinese yuan is also firmer to snap a four-day fall. Reports suggest that the
partisan forces in the US are negotiating a two-year debt ceiling/spending
deal. This is part of the drama, and a last-minute agreement remains the most
likely scenario. Most of the large equity markets in the Asia Pacific advanced,
though Hong Kong was closed. Europe’s Stoxx 600

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Fitch Puts US on Negative Credit Watch and the Dollar Extends its Gains

Overview: Concerned about the political wrangling over servicing US
debt, Fitch put the US on negative credit watch. Besides chin
wagging and finger pointing, it has had little perceptible impact. The dollar
is mostly higher, reaching new highs for the year against the Japanese yen,
Chinese yuan, and the Antipodean currencies. The euro and sterling met
retracement objective we have targeted (~$1.0735 and $1.2435, respectively).
The greenback is also firmer against nearly all the emerging market currencies but
a small handful that includes Russia, Mexico, and Taiwan. Gold reversed lower
yesterday from $1985, the upper end of a five-day trading range and settled
slightly below $1957. Follow-through selling today has been limited ($1955) the
intraday momentum is stretched with it near $1965

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RBNZ Delivers a Dovish Hike and UK Inflation Surprises to the Upside

Overview: Equities in the Asia Pacific region and
Europe are being led lower by the sell-off in the US yesterday. All the large
Asia Pacific markets fell with Hong Kong and mainland shares setting the pace.
Europe’s Stoxx 600 is off nearly 1.5%, which would be the largest loss in two
months. Consumer discretionary, financials and real estate sectors are off
nearly 2%. US equity futures have a softer bias. European 10-year yields are
mostly 2-3 bp lower, but the UK inflation shock (1.2% month-over-month and a
new cyclical high in the core rate) has seen 10-year Gilt yields jump around
eight basis points to near 4.25%, the highest since last October. The greenback is mostly firmer
against the G10 currencies. The Reserve Bank of New Zealand’s dovish hike has
seen the Kiwi drop around 1.8%

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Yen Recovers from New 2023 Low, while Sterling Sets a New Low for the Month

Overview:  The dollar is bid. Only the Japanese yen
is holding its own against the greenback but only after it fell to new lows for
the year. The Scandis and Antipodeans are the heaviest among the G10
currencies, while sterling has fallen to a new low for the month. The prospect
of a rate hike tomorrow has not protected the New Zealand dollar much and it is
off nearly 0.5%. Emerging market currencies are more mixed. Outside of the
Russian rouble, the South Korean won, Philippine peso, and Mexican peso lead
the advancers. The Hungarian forint, the strongest currency this year is off 1%
amid expectations that the central bank will cut its overnight rate by as much
as 100 bp to 17% (base rate is at 13%). Most of the large Asia Pacific
equity markets fell. Taiwan, South Korea, and India were

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The Dollar Consolidates after Powell Sapped its Mojo

Overview:  Federal Reserve Chair Powell’s offered a
stronger case for a pause in the monetary tightening before the weekend and
this sapped the dollar’s mojo. The greenback is mostly consolidating through
the European morning in quiet turnover. The JP Morgan Emerging Market Currency
Index is trying to snap a four-day decline. The South African rand is
recovering from its recent slide and is up nearly 1%. The South Korea won is
benefitting from China’s decision to ban Micron chips. On the other hand, the
high-flying Mexican peso is extending last week’s 1.1% decline and is the
weakest among emerging market currencies today with a nearly 0.6% decline.Equity markets in the Asia
Pacific region mostly advance. Australia and New Zealand were notable
exceptions among the large bourses. Europe’s

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Week Ahead: US Debt Ceiling Drama Continues and the Dollar’s Two-Week Rally Stalls

Mostly
stronger than expected economic data, hawkish rhetoric by several Fed
officials, some signs of progress on the perverse drama over the debt ceiling,
and a solid week for bank shares helped the dollar extend its recent
recovery. The greenback rose to new highs for the year against the Japanese yen
and Chinese yuan. The euro took out April’s low (~$1.0790) and sterling traded
briefly below $1.24. The US two-year note yield takes a six-session rally into
the week ahead. In this run, the yield has risen from about 3.90% to almost
4.33%. The odds of a Fed hike next month had risen from practically nothing on
May 5 to about a 15% chance on May 12 to around 40% last week,
according to the CME’s calculations before Fed Chair Powell’s pre-weekend
comments seemed to offer a stronger case for

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Key Chart Points Hold and the Dollar’s Rally Stalls Ahead of the Weekend

Overview: Hawkish comments from Fed officials and the first
decline in continuing unemployment claims below 1.8 mln in two months boosted
US rates and the odds of a June rate hike rose to about 37%. This represents a
near tripling of the probability in the past week. It has been a trend with the
odds rising in 9 of the past 11 sessions. The two-year note yield has risen for
the past five sessions coming into today for a cumulative gain of about 35 bp. This
seems to offer the best explanation of the dollar’s rebound. However, despite
progress, the debt ceiling debate continues, and emergency borrowing from the
Federal Reserve is continuing to rise albeit slowly. The dollar approached or
tested key technical levels and is consolidating with a softer bias today. The large bourses in the Asia

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Yen and Yuan Fall to New Lows for the Year

Overview: Some creeping optimism about the US
debt ceiling, easing of pressure on bank shares, and a continued rise in US
rates helped the dollar extend its recent recovery. Over the past two weeks or so,
the US 2-year premium has risen 25-30 bp against Germany and nearly 25 bp
against the UK. The 10-year US Treasury has risen from the lower end of its
seven-month range (~3.30%) earlier this month to approach the upper end of the
range that has prevailed since the banking stress emerged in March (~3.60%)
helping lift the dollar to new highs for the year against the Japanese yen. We
note that there has also been a dramatic swing in interest rate expectations
for Canada and the central bank’s "conditional pause" is seen ending
in favor of another hike. The dollar’s strength against the G10

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The Yen is Sold Despite Better than Expected Q1 GDP and the Greenback Pushes Above CNY7.0

Overview: Better than expected US core retail sales
and manufacturing output sent US rates higher and helped lift the greenback
during the North American session after a heavier tone in Asia and Europe. The
US two-year note rose to almost 4.12% and the 10-year note yield increased to
3.57%. Both are the best levels in two weeks. The dollar traded firmer against
most of the major currencies and the Dollar Index approached the one-month high
set on Monday and punched through it to probe the 103.00 area today. It is the
best level since April 3. Still, as the debt ceiling negotiations continue, it
is becoming clear to many that one result will be tighter fiscal policy, a
greater drag on the economy. Besides extended its gain against the G10
currencies, the greenback has surpassed CNY7.0 for

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Biden to Go to G7 Summit with Debt Ceiling Unresolved

Overview:  The US debt ceiling talks resume at the
White House today but a deal is unlikely to be announced. President Biden will
attend the G7 summit in Hiroshima with the debt ceiling still looming. The
dollar is mostly softer as last week’s gains are pared. The Swiss franc and
Japanese are the strongest in the G10. The Thai baht and South African rand,
among the market’s favorites yesterday are seeing those gains retraced. The JP
Morgan Emerging Market Currency Index is giving back yesterday’s gains in
full. Disappointing Chinese data saw
the CSI 300 fall by around 0.5%, but Japan, Hong Kong, Taiwan, and South Korea
markets advanced. The Topix reached its best level in more than 30 years.
Europe’s Stoxx 600 is treading water, putting its two-day advance at risk. US
equity futures are

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Markets Catch Breath as Politics Trumps Economics

Overview: The dollar is mostly consolidating last
week’s gains. The big news has been on the political front. Thailand’s
opposition parties dealt the military-led government a powerful blow. But in
Turkey, Erdogan staved off a serious challenge and a run-off later this month
looks likely, while his party maintained its parliamentary majority. Tensions
over arms shipments to Russia have eased between the US and South Africa,
giving the rand a boost. The greenback’s gains have been pared against the G10
currencies except the yen. The rand and Thai baht are the strongest among
emerging market currencies today. Most of the large Asia Pacific
bourses advanced today with the notable exception of Taiwan. Of note Japan’s
major indices are at their best levels since late 2021. Despite the

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Week Ahead: Does the Dollar have Legs?

There are different ways to
measure it, but the dollar just put in its best week of the year. The greenback
rose against all the G10 currencies, and the Dollar Index rose by the most
since last September. It also appreciated against most emerging market
currencies, with the notable exceptions of a handful of Latam currencies. It
seems to be an overdue technical correction. Few genuinely believe that the US
will default given the ominous consequences, but the dysfunctional appearance
weighs on sentiment. The KBW regional and large bank indices tumbled again
(~-6.2% and -3.5%, respectively, last week). The market continues to price aggressive rate
cuts, with a year-end effective rate of about 4.38% (the effective rate now is
5.08%). That is up from 4% on May 4, but still seems to require

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Limited Follow-Through Dollar Buying After Yesterday’s Gains

Overview: The dollar sprang
higher yesterday but follow-through buying today has been limited. The
little more than 0.5% gain in the Dollar Index was among the largest since
mid-March. And yet, the debt ceiling anxiety and weak US bank shares persist. Today’s
talks at the White House have been postponed until early next week. Both sides
are incentivized to bring it to the brink to demonstrate to their
constituencies that they got the best deal possible. Both the large and
regional bank indices made new lows for the week yesterday. The KBW large bank
index fell 1.25% Wednesday and Thursday. Barring 2.7% rally today, it will
finish lower for the fourth consecutive week and the 8 of the last 10 weeks. Year-to-date,
it is off about 27.6%. The regional bank index is down a little more than

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Sterling is Not Immune to Greenback Gains ahead of the BOE

Overview: The US dollar has come back bid today. It
is rising by 0.25%-0.50% against all the G10 currencies. The Canadian dollar is
the most resilient today, which is often the case when the greenback is firm. The
Australian dollar is off the most after reaching its strongest level since late
February yesterday. Sterling is a middling performer today ahead of the
anticipated Bank of England rate hike. The dollar is also firmer against most
emerging market currencies, with central European currencies down the most,
dragged lower by the euro, which fell slightly through $1.1920 to reach its
lowest level since April 19. Equities struggled in the Asia
Pacific region but are firm in Europe, where the Stoxx 600 is up about 0.5% as
it tries to snap a two-day decline. US futures are also trading

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Narrow Ranges in FX: Calm before the Storm?

Overview: Equity markets are mostly weaker, and
benchmark 10-year yields are a little softer. The foreign exchange market is subdued
ahead of today’s US CPI. The large bourses in Asia Pacific region with the
exception of India worked lower and Europe’s Stoxx 600 is off for the second consecutive
session. US futures have a heavier bias. Yesterday the US bank share indices
filled the gap created at the end of last week but recovered. Today’s price
action will be important from a technical perspective. Benchmark 10-year yields
in the US and Europe are mostly around two basis points lower, which leaves the
10-year Treasury yield near 3.50%. The dollar has been confined to
narrow ranges against the G10 currencies. The derivatives markets have begun
pricing in a small chance of a hike (~15%).

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Consolidative Session Marked by Weak Chinese Imports and White House Debt Ceiling Talks

Overview: The market sentiment remains fragile.
Equities are mostly lower. Japan was a notable exception, and concerns about
China’s economy after a sharp decline in imports took mainland and Hong Kong
listed companies sharply lower. Europe’s Stoxx 600 is giving back yesterday’s
0.35% gain plus more. Bank shares are off 0.65% after rallying 4.20% over the
past two sessions. US equity futures are heavier. Benchmark 10-year yields are
mostly a couple basis points softer in Europe, but the 10-year Gilt yields are
a little higher. The 10-year US Treasury yield is about three basis points
lower to 3.47%, and the two-year yield is back below 4%. The dollar recovered in the
North American session yesterday and is mostly firmer today. Yet, given its
recent losses, today’s upticks look more

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The Greenback Continues to Struggle

Overview: There is a nervousness that hangs over the capital markets.
Although US banks shares recovered at the end of last week, many continue to
see the sector’s challenges as the harbinger of a dramatic reversal in the Fed’s
stance. America’s debt ceiling looms large and could be a few weeks away. China
led Asia Pacific bourses higher, and, ironically, its bank shares extended their
rally. Japan, returning from last week’s holiday was notable exception. Relative
strength of the yen seemed to offset the modest regional gains, weighing on Japanese
equities. Europe’s Stoxx 600 is extended the gains from the end of last week,
helped by 1% gain in bank shares after a 3.1% rally before the weekend. US equity
futures are narrowly mixed. Follow-through gains among bank shares would help
lift

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Week Ahead: Hawkish BOE, US and China CPI, but is the Fed Really Going to Cut Rates by 75-100 bp This Year?

The combination of the US bank stress, the approaching debt
ceiling, and the Fed’s opening the door to a pause in rates weighed on risk
sentiment and dragged the greenback lower. KBW’s indices for large and regional
bank shares bled 7.4%-8.0% lower last week to cut through March’s lows like a hot
knife through butter. Still the price action was constructive ahead of the
weekend. US Treasury Secretary Yellen warned that the X-date when the
government’s cash runs out and the extraordinary measures are exhausted can be
as early as June 1 cast a heavy pall over the US money markets. 

The drop in US
interest rates helped the yen recover impressively from the sell-off sparked by
the Bank of Japan meeting at the end of April. The greenback shot up to
nearly JPY137.80 from about JPY134.00 before

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The Greenback Remains Heavy Ahead of the Employment Report

Overview: The US dollar is weaker against all the
G10 currencies today but the Swiss franc. The backdrop seems fragile even
though a few regional bank shares have done better in after-hours trading and
Apple’s earnings were received well by the markets. Due to seasonal factors and
other considerations, many are warning about a US jobs report, even though
ADP’s estimate surprised to the upside earlier this week. Equities were mixed
in the Asia Pacific region, while Europe’s Stoxx 600 is edging higher to pare
this week’s losses. Its bank index is snapping a three-day drop and is up about
1.5%. US equity futures are firmer, will see the jobs report before the opening.
Despite a simply dreadful German factory orders report (-10.7%), European bonds
are selling off. Yields are 6-8 bp higher and

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The Euro Stalled Near Its Best Level since April 2022 Ahead of ECB’s Decision

Overview: Without making
a commitment, the Federal Reserve opened the door to a pause in its tightening
cycle and the market has concluded it is over. The dollar slumped to new lows
for the move against sterling (and the Mexican peso), while euro stalled as it
approached last week’s high, which was the best level since April 2022. The
dollar remains soft against most of the G10 currencies, today. The Norwegian
krone is leading after the 25 bp hike was delivered. The euro is little changed
ahead of the ECB meeting results. China’s
markets re-opened for the first time this week and the CSI 300 eked out a small
gain, after a disappointing Caixin manufacturing PMI. Other bourses in the
region were mixed. The Stoxx 600 is about 0.6% lower, while European bank
shares are off for the third

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Fed Day

Overview: A sharper than expected decline in US job
openings and weaker factory orders coupled with intensifying bank stress sent
ripples through the capital markets. The large US bank index fell 4.5%
yesterday, the most in six weeks, while the regional bank index fell nearly
5.5%, its biggest loss since March 13. Both indices took out the March lows. The
US 10-year yield unwound Monday’s increase and the two-year note yield fell
back below 4.0% for the first time since the middle of last week, and yields
remain under pressure today. The dollar gave back its earlier gains against
most of the G10 currencies. The greenback remains under pressure today. Only
the Australian and Canadian dollars are struggling to rise today. Most emerging
market currencies are also firm today. Japanese and

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RBA Surprises with a Quarter-Point Hike

Overview: A combination of a surprisingly strong
prices paid component to the US manufacturing PMI, corporate supply, and US
debt woes spurred an almost 15 bp spike in the US 10-year yield and 13 bp jump
in the two-year yield. The rise in US rates appeared to lend the dollar support.
The greenback’s gains have been extended today, but a surprise hike by the
Reserve Bank of Australia is seeing the Australian dollar (and New Zealand
dollar) traded higher. Emerging market currencies are also mostly lower today,
central European currencies, led by the Polish zloty are posting small gains,
as its the South African rand. Asia Pacific equities were
mostly firmer as most markets re-opened from yesterday’s holiday. Tokyo was
narrowly mixed and the almost 1% loss in Australia are notable

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Dollar Comes Back Bid, as First Republic Taken Over (Mostly) by JP Morgan

Overview: Most markets are closed for the May Day
holiday. News that JP Morgan will acquire most of First Republic assets will be
a relief for the markets. US equity futures are slightly firmer, and the
10-year Treasury yield is around three basis points higher, slightly above
3.45%. Recall that before the weekend, it has fallen from almost 3.55% to 3.42%.
The market has more than a 90% chance of a quarter-point hike discounted for
Wednesday. The year-end rate is still seen near 4.50%, but the market now
recognizes about a 15% chance of a hike at the next meeting (June 14). Japan, Australia,
and New Zealand markets were open. The first two equity market rose, while New
Zealand slipped. The weakness of the yen helped lift the Topix by 1%. Europe’s
Stoxx 600 is edging slightly high after

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May 2023 Monthly

May will feature likely rate hikes by the Federal Reserve, the
European Central Bank, and the Bank of England. The banking stress that erupted
in March appears contained, though one regional bank’s dramatic loss of deposits saw it rekindle at the end of April. What makes the May rate hikes
important is that the derivatives markets are confident (again) this is the last hike
for the Fed. The swaps market anticipates two more hikes from the BOE and the
ECB. Headline CPI in the UK has been above 10% for seven consecutive months
through March. The ECB, which was slower than the others to initiate the
tightening cycle, is understood not to be quite finished either.Before the
bank stress emerged, the market had priced in a peak Fed funds rate of nearly
5.75%. Now, the May hike to 5.25% is

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Yen Slumps on Cautious BOJ

Overview:  The market took a dovish message away from
the Bank of Japan and sent the dollar above JPY136, its best level since March
10 and spurred a sharp rally in JGBs. Japanese equities led the rally among the
Asia Pacific markets. Europe has not been able to follow suit. It disappointed
with Q1 GDP (0.1% rather than 0.2%). The Stoxx 600 is of about 0.3%, leaving it
off about 1.3% this week, its first weekly loss since the middle of March. US
equity futures are softer too. Bonds are ending the week on a soft note. European
benchmark yields are 6-9 bp lower. The 10-year US Treasury is off five basis
points to 3.47% and the 10-year JGB yield is off 7 bp to about 0.38%. The dollar is higher against
all the G10 currencies. The yen is the weakest, off around 1.5% followed by the
Norwegian

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Markets Becalmed Ahead of Key Data and BOJ Meeting Outcome

Overview: Some regional bank earnings were weighing
on investor sentiment but reports that the FDIC is running out of patience with
First Republic Bank to strike a private deal and could decide to downgrade its
assessment. This could lead to limits on its ability to use the Fed’s emergency
facilities. Other reports said that the bank’s advisers are securing
commitments to buy a new stock as part of a broader restructuring. Still, while
the KBW bank index of large banks fell for the fifth consecutive session, the
index of regional banks snapped a four-day slide with a 1.25% gain. That was yesterday, and
today risk appetites have been rekindled, it appears. Most of the large Asia
Pacific bourses (but Australia) advanced, including China’s CSI 300, which
snapped a six-day slide. Europe’s

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Bank Stress Hobbles the Dollar, while Dissents Make the 50 bp Hike by Sweden less than Hawkish

Overview: The re-emergence of bank stress
reverberated through the US markets yesterday, downgrading the perceived
chances of a Fed hike next week and sending the US 2-year yield sharply lower. The
yield settled 13 bp lower, the largest drop in three weeks. The risk-off sent
the US dollar higher against most of the major and emerging market currencies. Follow-through
US dollar gains today has been mostly limited to the Australian dollar, where
after today’s CPI figures has given up any residual chance of a hike next week,
and the Swedish krona, where two dissents give a dovish twist to the Riksbank’s
50 bp hike. The euro and sterling are leading the G10 currencies today. The
euro’s strength is helping to lift the eastern and central European currencies
higher to lead the emerging market

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Risk-Off Mood Dominates

Overview:  Perhaps it was the extent of First Republic
Bank’s loss of deposits that were reported with earnings yesterday, but risk
appetites dried up today. Asia Pacific equities were trounced outside Japan
today. Hong Kong and mainland shares that trade there set the tone today
falling 1.7%-1.9%. China’s CSI 300 fell for the fifth consecutive session. Taiwan
and South Korean markets fell more 1.4%-1.6%. Europe’s Stoxx 600 is off almost
0.5%, which if sustained would be the largest decline this month. Its bank
index is down 2% today, the most since March 24. US equity futures are trading
around 0.5% lower ahead of a slate of earnings. Benchmark bond yield are 6-8 bp
lower in Europe and the 10-year US Treasury yield is down more than five basis
points to about 3.43%. The dollar is mostly

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Yen: Short Overview

The yen is off about 1% this month to bring the year-to-date
decline to about 2.4%. It fell by 12.2% in 2022 and 10.3% in 2021. The yen
rallied against the dollar for the five preceding years. Over that five-year
period the dollar fell from around JPY124 to JPY99, but it was all done in H1
16, and after a rally at the end of 2016 and very early 2017 (to about
JPY118.65), the dollar ground down around JPY101.

This year’s dollar low was set in mid-Jan near JPY127.25 and
the high was set in early March near JPY138, amid talk of higher for longer by
the Fed and before the bank stress. The drop in US rates as the market
responded to the stress, drove the greenback to about JPY129.65 in late March. It
reached a high last week near JPY135.15.

Within ranges the exchange rate does trend. A

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The Dollar Begins New Week mostly Softer

Overview:  The dollar is mostly lower, led by the Swiss
franc and euro. However, despite softer US rates and a victory for the LDP in
local Japanese elections, the yen is trading with a softer bias. Japanese
stocks recovered from the pre-weekend profit-taking seen after the Nikkei make
new highs for the year. Most other large bourses in the region except Taiwan
and India also moved lower. Note that China’s CSI 300 fell for the fourth
consecutive session and the first back-to-back loss of more than 1% of the year.
Europe’s Stoxx 600 is flat. It rose last week for fifth consecutive weekly
advance. US futures are trading with a lower bias. European benchmark yields are slightly softer, while the US 10-year Treasury
yield is off a little more than 3 bp to slip below 3.54%. European two-year

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Ueda Chairs First BOJ Meeting, and US and EMU Provide First Estimate of Q1 GDP: The Week Ahead

As
April draws to a close, the systemic stress in the banking sector continues to
subside, and the market is turning its attention to likely rate hikes by
Federal Reserve and European Central Bank in early May. Although, as in March,
the market sees the May hike to 5.25% to be the last Fed hike. Before the bank
stress, the swap market had been leaning to a 5.75% terminal rate. It is still
early to fully appreciate the magnitude and duration of the tightening in
lending standards. Yet, to assume that it is worth 50 bp of Fed tightening
seems premature. Given the still robust labor market, elevated service prices,
and more than an 8% depreciation of the dollar on a trade-weighted basis over
the past six months, would suggest that the risk of another hike after the May
meeting. That seems

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Equities Retreat while the Dollar is Confined to Narrow Ranges

Overview: Equities are mostly lower, while bonds have risen. The
dollar is trading in narrow ranges and mixed against the G10 currencies and
emerging markets. Most Asian bourses were lower. The Nikkei (though not the
Topix) and Hong Kong were the chief exceptions. Europe’s Stoxx 600 is off for
the second consecutive day, in what looks like the first back-to-back loss
since early this month. US equity futures are lower, with the NASDAQ, which
eked out a small gain yesterday, is off more than 1% to lead the indices lower.
European benchmark 10-year yields are mostly off 1-3 basis points. The 10-year
US Treasury yield is down a couple of basis points to almost 3.56%. The US
2-year yield is off almost 4 bp to 4.20%. The dollar is trading quietly, mostly within
yesterday’s ranges. Softer than

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The Dollar Comes Back Bid

Overview: It has taken some time, but the dollar has
found better traction. It traded above JPY135 for the first time since
mid-March and yesterday’s setback has been mostly recouped against the other
G10 currencies. Sterling is the most resilient after higher-than-expected
inflation. Equities are lower. Japan’s Nikkei snapped an eight-day advance and
most of the other large bourses in the region (except Australia and South
Korea) fell. Europe’s Stoxx 600 is off by almost 0.5%, which is sustained would
be the largest loss since March 24. US equity futures are also under pressures.
If this is risk-off, the bond market does not know it. Yields are up mostly 3-5
bp, while that higher inflation has lifted the 10-year Gilt yield nine basis
points. The US 10-year Treasury yield is up nearly

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Dollar Pares Gains but is Poised to Recover in North America

Overview:  A rise in US yields, with the
two-year Treasury closing yesterday at its best level in more than three weeks
help fuel follow-through dollar buying yesterday after an upside reversal at
the end of last week. Key levels were approached, like $1.09 in the euro,
$1.2345 in sterling, and JPY135 held, and the dollar has consolidated in Asia
and Europe. The euro and sterling recouped around half of the losses seen from
the Friday’s high to yesterday’s lows. Concern that weak tax revenues in the US
given the asset sell-off last year could lead to the Treasury running out of
room to maneuver around the debt ceiling saw three-month bill yield jump at the
$57 bln sale yesterday to 5.08%, 21 bp on top of the six-month that was sold at
the same time. Asia Pacific equity markets,
except,

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Firm US Dollar as Market is Feeling More Comfortable with May Hike

Overview: The dollar fell most of last week
but reversed higher before the weekend. It has seen some follow-through gains,
albeit limited against most of the G10 currencies today. Despite some seemingly
dovish comments by a few Fed officials last week, the Fed funds futures is
pricing in the greatest chance for a hike at the early May meeting since the
banking stress erupted last month. The greenback is also trading with a firmer
bias against most emerging market currencies. The Philippine peso leads the EM
complex lower with more than a 1% pullback. The central bank said that is
inflation continues to slow (April CPI due May 5) it will pause its tightening
(next meeting May 18). Anticipation of a robust GDP
figure tomorrow helped lift Chinese equities by more than 1% today to lead the

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The Dollar Bounces but is it Sustainable? The Week Ahead

Investors and businesses are
wrestling with conflicting impulses. On the one hand, economic growth seems
sufficiently strong to allow the Federal Reserve, European Central Bank, and
the Bank of England to continue to counter elevated price pressures. They are
set to hike rates next month. On the other hand, last month’s banking stress is
seen translating to a lower and sooner peak in policy rates.

Before the bank stress emerged, the
market had priced in a peak Fed funds rate of nearly 5.75%. Now, the May hike to 5.25% is expected to be the top. We suspect the market is under-appreciating the risk of a hike after May. Moreover, Fed funds futures strip is pricing in
a cut by the end of Q3 and sees the year-end rate near 4.50%. Similarly,
the swaps market had the ECB’s target rate rising

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Hawkish ECB Comments Boost Risk of a 50 bp Hike Next Month

Overview: The 0.5% decline in US March producer
prices pushed on the door opened by the softer-than-expected CPI on Wednesday.
The Fed funds futures market sees the year end rate to a 4.33%, while still
pricing in a nearly 70% chance of a hike on May 3 to 5.25%. The dollar tumbled
to new lows for the year against the euro, sterling, and Swiss franc. The
Dollar Index made a new low for the year today, a few hundredths of an index
point below the low set in early February. US equities rallied strongly, with
the major indices up more than 1%, and this has carried over to Asia Pacific
and European trading today. The MSCI Asia Pacific Index is at its best level in
two months. Europe’s Stoxx 600 is up for the fifth consecutive session and is
approaching the year’s high set in February. US

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US Dollar Slumps and China Surprises with Twice the Expected Trade Surplus

Overview:  The market took US short-term rates and
the dollar lower after the CPI data, which was largely in line with
expectations. On the one hand, the odds of a quarter-point hike next month
increased slightly (73.6% vs. 71.6%) to 5.25%, but it reinforced that sense
that it is last hike and that the Fed will unwind this hike and more before the
end of the year. The year-end implied policy rate fell by about six basis points to
4.33%. The dollar was sold against all the G10 currencies, and it fell by
almost 0.5% on a trade-weighted basis. The dollar remains offered today. The
euro and sterling are testing the year’s highs. Most emerging market currencies
are also higher against the US dollar, and the JP Morgan Emerging Market
Currency Index is rising for the third consecutive session.

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US CPI is Unlikely to Tell Us Anything We Don’t Already Know

Overview:  Today’s highlight is the March US
CPI, and while everyone is talking about it, it is unlikely to tell us anything
we do not already know. Headline price pressures are easing but the core rate
is sticky, and despite comments from the Chicago Fed president about the need
for patience, the odds of a hike next month have crept up. Understanding the
Fed’s reaction function, it seems clear that for most officials, inflation is
remains too high and the labor market resilience suggests a further increase in
rates can be absorbed. The FOMC minutes from the March meeting will be released
late in today’s session and insight into how the Fed was thinking about bank
stress, which appears to have lessened. Equities were mostly higher in
the Asia Pacific region and Europe’s Stoxx 600 is

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Greenback Pares Yesterday’s Gains

Overview: As the long-holiday ends, risk appetites
have returned. Equities and yields are mostly higher. The dollar is seeing
yesterday’s gains pared. Yesterday’s setback in the yen helped lift Japanese
stocks, with the Nikkei advancing 1%. Several other markets in the region also
gained more than 1%, including Australia and South Korea. China’s CSI was an
exception. It slipped fractionally. Europe’s Stoxx 600 is up nearly 0.6%
through the European morning, and bank shares are posting small gains. US
equity futures enjoy a firmer bias. European bond yields are playing a little
catch-up today, rising 5-7 bp, while the US 10-year Treasury yield is a few
basis points softer near 3.39%. The dollar rose yesterday, but
is trading with heavier bias today, though mostly confined to yesterday’s

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The Extended Holiday Makes for Subdued Price Action

Overview: The holiday continues. In the Asia Pacific
region, Hong Kong, Australia, and New Zealand, and the Philippines markets were
closed. The regional bourses advanced but China.  European markets remain
closed. US equity futures are narrowly mixed. The 10-year US Treasury yield is
off nearly three basis points to about 3.36%. The dollar is trading quietly
mostly within ranges seen before the weekend. It is slightly softer against
most of the G10 currencies, but the Japanese yen and Swiss franc. Among emerging market
currencies, the greenback is firmer. The Mexican peso is the chief exception,
with about a 0.25% advance. Of note, the Russian rouble continues to fall. It
fell by about 4.3% last week and has fallen in 10 of the past 12 weeks. Separately,
the South African range is also

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US and Chinese Inflation Highlight the Week Ahead, While the Bank of Canada Stands Pat

Bank
shares rose in Japan and Europe for the second consecutive week, but the KBW US
bank index fell nearly 2% after increasing 4.6% in the last week of March. Emergency borrowing from the Fed remains elevated ($149 bln vs. $153 bln). Bank lending has fallen sharply (~$105 bln) in the two weeks through March 29. This appears to be a record two-week decline. Commercial and industrial loans had fallen a little in the first two months of the year (before the bank stress become apparent).  At
the same time, the Fed’s balance sheet continues to shrink. Over the past two weeks, it has fallen by a
little more than $100 bln. The US two-year
yield was above 5% before the flare-up of banking stress and dropped to 3.55%. It
bounced to peak near 4.17% at the end of March but tumbled back to around

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Good Friday

Overview:  Activity throughout the capital markets remains
light as most financial centers in Europe are closed for the Easter celebration.
Hong Kong, Australia, New Zealand, and Indian markets were closed as well. Still,
most of the equity markets in Asia Pacific advanced, led by South Korea’s
Kospi’s nearly 1.3% advance. The market responded favorably to news that
Samsung would cut its production of memory chips and shrugged off its smaller
than expected profits. US equity futures are little changed as US employment
report is awaited. The dollar is trading in exceptionally narrow ranges, as one might have expected,
given the lack of participation. The median forecast (Bloomberg survey) is for
a 230k increase in nonfarm payrolls. However, given the recent string of data,
we suspect the

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Fragile Calm Casts a Pall over the Capital Markets

Overview: There is a fragile calm in the capital
markets today ahead of the long holiday weekend for many. The poor US economic
data yesterday and third consecutive decline in the KBW bank index weighed on
risk sentiment. Most of the large bourses in the Asia Pacific region fell, with
Hong Kong and India notable exceptions. In Japan, the Topix bank index fell
1.1% after a 1.9% decline yesterday and is now lower on the week. Europe’s
Stoxx 600 is trying to snap a three-day fall and is up around 0.25% in late
morning turnover. The Stoxx 600 bank index is up 1%, recouping yesterday’s loss
(~0.6%) in full. If sustained, it would be the seventh advance in the past nine
sessions. US futures are trading with a slightly softer bias. Benchmark 10-year
yields are softer, 1-3 bp in Europe and around

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Pressure Returns to Bank Shares and seems to Help Propel Gold Higher

Overview: There are three themes today. First, the
sharp decline in US rates seen yesterday (-14 bp on the two-year yield) on the
back disappointing economic data seemed a bit exaggerated and the two-year
yield has bounced back to almost 3.90% from around 3.81%. This appears to be
helping the dollar consolidate today. Second, bank shares are coming under
renewed pressure. The US KBW bank index fell almost 2% yesterday after a 0.5%
decline on Monday. Today, the Topix bank share index fell 1.9%, snapping a
three-day advance. The Stoxx 600 bank shares are off 0.9%, offsetting the gains
of the past two sessions in full. Third, market participation is set to thin
over the coming days. China and Hong Kong markets were closed today. The Easter
holiday begins tomorrow and extends through Monday

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RBA Holds Fire, Sterling Reaches Best Level since last June, and the Dollar Struggles to Find Much Traction

Overview: The jump in oil prices is the newest shock and the May
WTI contract is holding above $80 a barrel as it consolidates yesterday’s
surge. A week ago, it settled near $73.20. Australian and New Zealand bond
yields moved lower, partly in catch-up and partly after the RBA stood pat. South
Korean bonds also rallied on the back of softer inflation (4.2% vs. 4.8%). But
European and US benchmark yields is 2-4 bp higher. The large equity markets in
Asia Pacific advanced with the exception of Hong Kong. Europe’s Stoxx 600
slipped fractionally yesterday to snap a three-day advance but has recouped it
and more today. Its bank share index is up 1.3% today, its sixth gain in seven
sessions. US equity futures are also trading with a firmer bias. The US dollar is mostly heavier today. Among the

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OPEC+ Surprises while Manufacturing Remains Challenged

Overview: News of OPEC+ unexpected output cuts saw May WTI gap
sharply higher and helped lift bond yields. May WTI settled near three-week
highs before the weekend near $75.65 and opened today near $80. It reached
almost $81.70 before stabilizing and is straddling the $80 area before the
North American session. The high for the year was set in the second half of
January around $83. Benchmark 10-year yields are up 2-5 bp points. The 10-year
US Treasury yield is near 3.52%, which is near the middle of the pre-weekend
range. Equity markets are higher. Most Asia Pacific markets advance with South
Korea’s Kospi a notable exception after poor March trade figures. Europe’s
Stoxx 600 is edging higher to extend its rally to the fourth consecutive
session. European bank shares are 1.6% higher after

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April 2023 Monthly

There were three
ways the monetary cycle was going to turn. First, unemployment could have
reached unacceptable levels. This did not happen. Labor markets have proven thus far to be resilient among most G10 countries. Second, a significant and
sustained drop in price pressures could end the tightening cycle. This has yet
to materialize in a meaningful way. In some countries, governments have
energy subsidies, and these measures only offer temporary relief.Instead of macroeconomic developments turning the
cycle, it is the perceived threat to financial stability. Repricing assets to a higher interest rate environment would be disruptive no
matter how it was achieved. At the end of 2020, there were $17.76 trillion of
negative-yielding bonds in the world. It fell to about $24.5 bln by the end

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March: Going Out like A Lamb after Wrestling with a Lion

Overview: The banking stress that roiled the markets
this month has eased. However, the emergency lending by the Federal Reserve,
vias the discount window and new Bank Term Funding Program hardly slowed in the
past week ($152.6 bln vs. $163.9 bln). Money markets took in more funds. Almost
$305 bln has flowed to them over the past three weeks. The US KBW bank index is
up 3.75% this week coming into day (after pulling back 1.2% yesterday). Europe’s
Stoxx 600 bank index is snapping a four-day advance today but is up nearly 6.2%
this week. The Topix bank index in Japan rose 2% this week. Asia Pacific and European
equities are finishing the month on a firm note, and US futures are slightly
positive. Bond market are mostly little changed today. The 10-year US Treasury
yield is near 3.56%, up a

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Thumbnail Sketch of the Peso Ahead of Banxico’s Decision

The central bank of Mexico is
expected to deliver a 25 bp rate hike later today that would lift the overnight
cash target to 11.25%. The swaps market says this will be the last hike in the
cycle. However, with a further hike by the Fed possible, it seems unlikely that
Banxico will declare mission accomplished. Still, Mexico’s overnight rate is
above current inflation.  CPI in February
was about 7.6% and the core rate (excluding food and energy) stood near 8.3%.

The dollar recorded six-year
lows on March 9 (~MXN17.8980) on the eve of the banking crisis. The investors
had seemed overweight peso exposure (surveys of asset managers) and the peso
was the strongest emerging market currency. As the banking crisis rippled
through the capital markets, risk-off sent the greenback to around

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Dollar Soft but Stretched

Overview: While bank stress seems to continue
to ease, the dollar languishes against most of the major currencies. The
Japanese yen is the notable exception. It is off about 1.5% this week. The
Dollar Index has given back the gains scored at the end of last week but
remains inside the range set last Thursday and Friday (~101.90-102.35). Perhaps
the participants are waiting for Friday. In addition to month-, quarter, and
fiscal-year ends, it is jammed with important data points: China’s PMI, Tokyo’s
CPI, eurozone’s CPI, and US PCE deflator.Outside of Tokyo, the large
equity markets in the Asia Pacific traded with a firmer bias earlier today, led
by Australia’s 1% gain. Europe’s Stoxx 600 is up nearly 1% as well and bank
index is up 2.3% to bring this week’s recovery to about 7%. US futures

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Financial Stress Continues to Recede

Overview: Financial stress continues to recede. The
Topix bank index is up for the second consecutive session and the Stoxx 600
bank index is recovering for the third session. The AT1 ETF is trying to snap a
four-day decline. The KBW US bank index rose for the third consecutive session
yesterday. More broadly equity markets are rallying. The advance in the Asia
Pacific was led by tech companies following Alibaba’s re-organization
announcement. The Hang Seng rose by over 2% and the index of mainland shares
rose by 2.2%. Europe’s Stoxx 600 is up nearly 1% and US index futures are up
almost the same. Benchmark 10-year yields are mostly 1-3 bp softer in Europe
and the US. The dollar is mixed. The Swiss
franc is leading the advancers (~+0.3%) while euro, sterling and the Canadian
dollar are

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Firmer Rates and Higher Bank Stocks Give the Greenback Little Help

Overview: Financial strains eased yesterday, and
short-term yields jumped. The two-year US yield jumped 25 bp to pierce 4%. Yet,
the dollar fell against most of the major currencies yesterday and is mostly
softer today. Banking stress is ebbing. The Topix bank index snapped a
three-day decline and jumped nearly 2% today to recoup the lion’s share of its
three-day decline. The Stoxx 600 index of EMU banks is extending yesterday’s
1,7% advance. The AT1 ETF up about 0.25% after falling by more than 3.6% in the
past three sessions. Most large bourses in the Asia
Pacific region rose today, led by 1%+ gains in Hong Kong, the mainland shares
that trade there, and South Korea’s Kospi. China and Taiwanese markets were
sold. Europe’s Stoxx 600 has edged a little higher, while US futures are a bit

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Calmer Markets to Start the New Week

Overview: There did not appear to be any negative
surprises over the weekend, and this is helping calm investors’ nerves at the
start of the new week. Deutsche Bank shares have recovered most of the
pre-weekend loss in the German market, and Stoxx bank index is posting a gain
for the first time in four sessions. The AT1 ETF is slightly softer. In Japan,
the Topix bank index slipped around 0.5%, its fourth decline in the past five
sessions. Asia Pacific equities were mixed. China, Hong Kong, Taiwan, and South
Korean markets fell, while Japan, Australia, and India rose. Europe’s Stoxx 600
is up nearly 1% after losing about 1.5% in the previous two sessions. US equity
futures are trading with a firmer bias. Benchmark 10-year yields are jumping
back. The 10-year US Treasury is seven basis

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Banking Crisis Roils Capital Markets, Overshadowing High-Frequency Data

The
banking crisis is the newest shock to roil the capital markets. Pragmatic
action by central banks, governments, and the private sector has thus far been
insufficient to allow investors to be confident that the problem is ring-fenced.
Credit Suisse was a pre-existing problem that flared up to the breaking point.
The government’s offer to take the first CHF9 bln in losses and the
controversial triggering of clauses allowing AT1 bondholders to be
liquidated before shareholders continue to ripple through banks’ shares and derivatives as
other banks have similar covenants as Credit Suisse. The European Central Bank
and the Bank of England reassured investors that equity investors would be wiped out before the AT1 bondholders in the eurozone and UK. Invesco’s AT1 ETF fell 8.3% last week,

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The Dollar Jumps Back

Overview: The pendulum of market expectations has
swung dramatically and now looks for 100 bp cut in the Fed funds target this
year. That seems extreme. At the same time, the dollar’s downside momentum has
stalled, suggesting that the dollar may recover some of the ground lost
recently as the interest rate leg was knocked out from beneath it. The euro
twice in the past two days pushed through $1.09 only to be turned away.
Similarly, sterling pushed above $1.23 but has failed to close above it. The
Dollar Index snapped back after dipping below 102.00 yesterday for the first
time since February 2. It ended a five-day drop. Follow-through dollar buying
has left the intraday momentum indicators stretched ahead of North American
open. Bank shares remain under
pressure today. There is concern

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Market Hears Dovish Fed Hike and Sells Dollars

Overview:  The dollar remains under pressure
following the Federal Reserve’s rate hike. The market thinks it heard that the
Fed was done hiking, even though Fed Chair Powell held out the possibility that
"some additional firming may be necessary."  The Norwegian krone
is the strongest of the G10 currencies today, up more than 1%, spurred by a 25
bp hike and a commitment to do more. The Dollar Index briefly traded below
102.00 for the first time since February 3. A close below 102.35 today would be
the sixth decline in a row. The JP Morgan Emerging Market Currency Index is
edging higher and trying to extend its advance for the fourth consecutive
session.  Equities are mixed today.
Hong Kong rallied 2.3% and its index of mainland shares jumped nearly 3% but
most other large bourses outside

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Tough Fed Decisions

Overview: The market has concluded that the Fed will
hike rates today. The US two-year yield has risen from about 3.63% at Monday’s
lows almost 4.20% yesterday. It needs to rise to 4.35% to recover half of its
decline since March 8 but has come back softer today. Meanwhile, the banking
crisis continues to ease, and Europe’s Stoxx 600 bank index is up 1.5%, its
third consecutive advance. The US KBW bank index rallied almost 5% yesterday. Still, while the dollar drew
support from the adjustment of Fed views yesterday, it is mostly softer today,
ostensibly on ideas that today’s hike could be the last in the Fed’s cycle. That
said, we suggest below that the median forecast by Fed officials will likely
see a terminal rate a little higher than it had in December. Today’s sterling
is leading the

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Banking Stress Eases

Overview: The banking crisis is ebbing. The Bank of
England and European Central Bank assured investors that the AT1 bonds are
senior to equity claims, and Switzerland is a unique case. Bank share indices
in the Europe and the US rose yesterday, even though the shares of First
Republic Bank fell by 47% yesterday. The $123-stock at the end of last month
reached almost $11 yesterday. It is trading around $14.75 pre-market. Global equities are building on
yesterday’s recovery. The large markets in the Asia Pacific traded higher, led
by more than a 1% gain in Hong Kong and China’s CSI 300. Japan’s markets were
closed and may play catch-up tomorrow. Europe’s Stoxx 600 is up 1.35%. If
sustained, it would be the first back-to-back gain in two-and-a-half weeks. US
S&P and Dow futures are up

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Terms of UBS Acquisition Wipes out Additional Tier 1 Capital and Spurs Fresh Concerns

Overview:  UBS takeover of Credit Suisse, the sale of
Signature bank assets, and the daily dollar swaps could have helped stabilize
the budding banking crisis. However, the wipeout of the additional tier 1
capital cushion (16 bln Swiss francs) at Credit Suisse has raised concern about
the vulnerability of other such assets, which post-GFC is a $275 bln market in
Europe. Asia Pacific equities was a sea of red, led by a 2.65% drop in the Hang
Seng and 2.2% fall in its index of mainland shares. Japan and Australia’s
indices shed more than 1%. Europe’s Stoxx 600 is off fractionally, but the bank
index is off 2.5% (after a 2.7% sell-off before the weekend). Benchmark 10-year bond yields
are most 7-9 bp in Europe and the US. Ten-year yields were off 15-16 bp in
Australia and New Zealand. The

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FOMC and BOE Meet As Investors are Not Persuaded that Efforts to Contain the Financial Crisis are Sufficient

It was widely understood that the
Federal Reserve would raise rates until one of three things took place:
inflation was clearly on course to return to the target, the labor market would
weaken precipitously, or systemic stress threatened. At the same time, the
shocks we have had to cope with, Covid, supply chains, and Russia’s invasion of
Ukraine were commonly cited, and the. The re-pricing of assets as interest rates began
normalizing may have been under-appreciated. In addition, stress was seen in household debt
delinquency figures like auto loans. It was also recognized that banks had not
passed the higher interest rates to depositors and that money markets and T-bills
were attracting funds.

The weak link was discovered,
and it was again, like the Great Financial Crisis, rooted in the

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Fragile Calm to End the Volatile Week even with the Quadruple Expirations

Overview: The support for First Republic Bank shown
by a consortium of US banks by shifting $30 bln of deposits is helping break
the financial anxiety that has gripped the market for more than a week. The
liquidity provisions for Credit Suisse by the Swiss National Bank also are
contributing to improved sentiment. The Fed’s balance sheet expanded sharply
last week as the bridge banks were extended credit to help the unwind of SVB
and Signature Bank. Discount window borrowings surged by a record as banks drew
on the more relaxed conditions, seemingly preferring the known facility and its
flexibility to the newly opened facility, the Bank Term Funding Program (BTFP).
Separately, after the close of China’s mainland markets, the PBOC announced a
0.25% cut in required reserves, which is a mild

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Swiss National Bank Support Steadies Market as ECB Faces Difficult Choice

Overview: The pendulum of market psychology is
swinging dramatically. Amid the US banking crisis, Credit Suisse’s long-running
pressures percolated back to top-of-mind, sending ripples through the capital
markets, trigging a sharp slide in the euro. The SNB support is helping the
markets calm today. The odds of a 50 bp hike by the ECB today have been cut to
about 50% compared with a nearly 100% a week ago. The market has about a 66%
chance of a 25 bp hike by the Fed next week discounted and about a 50% chance
of a quarter-point move by the Bank of England priced into the overnight index
swaps.Asia Pacific equities continued
the rout, while European stocks have stabilized, including the bank index. US
equity futures are narrowly mixed. Benchmark 10-year bond yields are jumping
back.

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Investor Anxiety Continues to Run High even If More Comfortable ECB 50 BP Tomorrow and 25 bp Next Week by the Fed

Overview: The capital markets remain unsettled. Asia-Pacific
bourses rose, but European markets are sharply lower, with the Stoxx 600 off
1.3%, giving back the lion’s share of yesterday’s gains and US equity futures
are lower. Benchmark 10-year yields are off 3-9 bp in Europe, with widening
core-periphery yields. The yield on the 10-year US Treasury is off a dozen
basis points to about 3.56%. Two-year yields are also sharply lower, led by the
15-16 bp decline in Germany and France (Italy’s two-year yield off a couple
basis points). The two-year US yield is down seven basis points to 4.18%. The US dollar is firmer against
all the G10 currencies but the Japanese yen. The Norwegian krone and euro are
under the most pressure, off about 0.5%. After the yen, the Canadian dollar is
off the least

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Does the US Inflation Report Matter or Has it Been Superseded by Deflationary Forces of a Financial Crisis?

Overview: The dramatic shift in expectations for Fed
policy is a potent shock, with reverberations throughout the capital markets. 
The business press was full of accounts putting the nearly 50 bp decline in the
US two-year note in an historical perspective. Yesterday, it fell by 61 bp as
the market continued to unwind Fed hikes and reprice the chances of a cut as
early as Q2. While the poorly received bill auctions suggests not significant
deposit flight, the KBW ETF (cap-weighted US bank index) fell 11.3% yesterday
about what it has lost last Thursday and Friday. Adding insult to injury, it
settled below where it had opened. The shift in US rate expectations after the
jobs report in early February helped the dollar recoup some of what it had lost
in the October-January period. The leg

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US Banking Crisis Swamps Other Considerations

Overview:  The US banking crisis has overwhelmed other
market drivers. The strong measures announced as Asia Pacific trading got under
way was embraced by the market even though moral hazard issues and gaps in the
Dodd-Frank regulatory framework were exposed. The dollar is trading heavily. The
prospect of a 50 bp Fed hike next week has evaporated and some are doubting
that a 25 bp increase will be delivered. Rate hike expectations for the ECB
this week and the BOE next week have been shaved, and the market now favors the
RBA to join Canada in pausing as early its meeting next month. Outside of China, Hong Kong, Taiwan and South Korea, equities have traded
heavily. The Nikkei was off 1.1% and Europe’s Stoxx 600 is more than 2% lower,
its biggest loss so far this year. US equity futures

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Market Prices in a Fed Cut in Q4 Ahead of CPI, While ECB to may Deliver a 50 bp Hawkish Hike

Three macro events
highlight the week ahead. The US February CPI will be reported on March 14. The
UK’s Chancellor of the Exchequer Hunt will deliver the spring budget on March
15. The ECB meets the following day. A 50 bp hike is discounted not only for this
meeting, but that is the bias for the May meeting as well. It seems that
US interest rate adjustment that began early February (jobs data and strong
gains in the service ISM) and helped fuel the dollar’s recovery seems complete.
Concerns about the implications and ramifications of
the $620 bln (estimated by FDIC) of unrealized losses from banks’ bond
portfolios coupled with more evidence that January’s "hot" data will
not be repeated helped ease market anxiety about a more aggressive Federal
Reserve. A 50 bp hike later this month

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Concerns Over US Banks Rival Today’s Jobs Report

Overview: The unexpectedly large rise in US weekly
jobless claims, the largest since the end of last September and concerns about
the impact of the sharp rise in interest rates on the liquidity and value of
assets (bonds) owned by small and medium-sized banks saw the market unwind the
effect of Fed Chair Powell’s comments. The yield on the US two-year note
slumped almost 20 bp to 4.87% yesterday and fell to 4.75% today before
stabilizing (~4.82%). It settled near 4.89% Monday, the day before Powell’s testimony
began. The sell-off of US bank stocks
and the broad decline in US equities drove down global markets today. In the
Asia Pacific region, Hong Kong led the decline with a 3% sell-off and the index
of mainland shares that trade in HK was also off by 3%. Europe’s Stoxx 600 is
down by

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Yen Jumps Despite Poor GDP Ahead of Tomorrow’s BOJ Outcome

Overview: Seeing the drama he inspired on Tuesday,
the Fed chair tried soft-pedaling the idea that he was signaling a 50 bp hike
in March. The market did not buy it. And the odds, discounted by the Fed funds
futures rose a little above 70% from about 62% at Tuesday’s close. The two-year
note yield solidified its foothold above the 5% mark. With the Bank of Canada
confirming its pause, the Reserve Bank of Australia does not seem that far
behind, and even the Bank of England Governor Baily has recently pushed against
the aggressive market pricing, saying that the central bank has moved away from
the "presumption" that more rate hikes are needed. The dollar remains
firm but mostly consolidating today, ahead of tomorrow’s employment report. Some
position adjusting ahead of the conclusion of

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Powell Sends the Two-Year Yield above 5% and Ignites Powerful Dollar Rally

Overview:  Federal Reserve Chair Powell’s comments to
the Senate Banking Committee were seen as hawkish by the market, even though it
has been clear to most observers that the 5.10% median terminal rate that the
Fed projected in December would be increased. Also, it seemed well appreciated
a few Fed officials support a 50 bp hike at the February 1 FOMC meeting, two
days before a "hot" jobs report that showed over 500k jobs were
filled. It would just seem to go without saying that given the strong data,
there is little reason for them to raise the issue again.  US short-term
rates rose, and the two-year yield rose 12 bp poke move above 5%. Asian and
European stocks were mostly lower with the weaker yen arguably helping the
Japanese stocks resist the pull. US futures are flat to slightly

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US Dollar is Better Bid Ahead of Powell, while Aussie Sells Off on Dovish Hike by the RBA

Overview: The US dollar is trading with a firmer bias against
nearly all the G10 currencies ahead of Federal Reserve Chairman Powell’s
semi-annual testimony before Congress. Speaking for the Federal Reserve, the
Chair is likely to stay on message which is higher rates are necessary to cool
the overheating economy. This comes on the heels of the Reserve Bank of
Australia’s 25 bp hike and indication that it is not pre-committing to an April
hike. The Australian dollar is the heaviest of the major currencies, falling
around 0.8% to a new low for the year. Most emerging market currencies are also
trading lower, though the Mexican peso, the strongest currency this year, is
firm near its recent highs. Chinese stocks in the mainland and in Hong Kong traded lower as the National
People’s Congress

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Yields Pull Back to Start the New Week

Overview: The modest economic goals announced as
China’s National People’s Congress starts was seen as a cautionary sign after
growth disappointed last year. It seemed to weigh on Chinese stocks, though
others large bourses in the region advanced, led by Japan’s Nikkei and South
Korea with gains of more than 1%. Europe’s Stoxx 600 is little changed after
rising for the past two sessions. US index futures are slightly softer. Strong
gains were seen before the weekend. Benchmark 10-year yields are softer across
the board. European yields are off mostly 6-8 bp with the peripheral premiums
narrowing a little. The 10-year US Treasury yield that had punched through 4%
last week is near 3.92% today. The US dollar is mostly firmer,
but against several pairs, remains within recent ranges. After a

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US Jobs, Kuroda’s Last BOJ Meeting, and Powell’s Congressional Testimony Highlight the Week Ahead

The
dollar peaked last September/October and trended lower until the January jobs
report and strong service ISM on February 3. These reports and firm inflation
readings, owing, at least in part, to benchmark and methodological changes,
helped spur the greenback’s recovery. However, we learned last week that auto sales
and the service ISM prices paid decelerated in February, and this week, we will
learn that job growth has slowed considerably. If accurate, the median forecast in
Bloomberg’s survey of 200k would be the least since the end of 2020. We look
for the February employment report to mark a string of softer economic data,
including CPI (March 14), which may slip below 6% for the first time since
September 2021. This may help stabilize US interest rates and expectations of
the

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Tumbling Tokyo Prices Gives Ueda Breathing Space

Overview: Talk from two Fed officials yesterday,
which seemed to validate market expectations eased the upward pressure on the
dollar and helped equities launch a dramatic recovery. The market is pricing in a terminal rate near 5.50%, a little higher than the median dot in December. The S&P 500 posted a
dramatic recover and posted a potential bullish key reversal. Its 0.75% closing
gain was the largest advance in nearly three weeks. A large drop in Tokyo’s
February CPI helped take pressure of Japanese government bonds where the
10-year JGB was pushing through its 0.50% cap. Japanese and Indian equities led
the regional equity markets higher. Europe’s Stoxx 600 is up 0.7% to bring the
weekly gain to around 1.2%. US equity futures also enjoy a firmer bias. This
week’s rise in benchmark

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Higher for Longer Helps the Dollar while Weighs on Equities

Overview: The jump in prices paid in yesterday’s US
ISM manufacturing coupled with the stronger eurozone inflation, with a new
cyclical high reported in the core rate, underscores the market theme of
higher-for-longer. This is seen as dollar supportive but also negative for
risk-assets, including and especially equities. European benchmark 10-year
yields are up another couple of basis points today and the 10-year US Treasury
yield is pushing above 4% for the first time since last November. European
two-year yields narrowly mixed, while the two-year US rate is reached almost
4.94%, a new high since 2007.

Asia Pacific equities were
mostly lower, with South Korea, returning from holiday, and Australia, notable
exceptions. Europe’s Stoxx 600 is lower for the third consecutive session. US

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March 2023

Price pressures remain elevated, and labor
markets are strong, giving most policymakers in the G10 the incentive to continue
raising interest interests. There are two exceptions: Japan, the only
country still with a negative policy rate (-0.10%), and Canada, where the
central bank has indicated it would pause. While half-point hikes or larger
were common in the second half of last year, the major central banks have
slowed or will slow the pace to quarter-point moves as the endgame is in sight
in either late Q2 or early Q3. The European Central Bank stands out as the exception, which has
pre-committed to a 50 bp at its March meeting, even before the staff provides
new forecasts. It may also be early to rule out a 50 bp
hike at the early May meeting. Four developments in February helped

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Doubt Chinese Data, but Its Stronger-than-Expected PMI Lifts Risk Assets

Overview: Many investors may be skeptical of the
accuracy of Chinese data, but its stronger than expected February PMI animated
the animal spirits and bolstered risk-taking appetites. Asia Pacific equities
jumped, led by the 4.2% rally in Hong Kong and a 5% surge in the index that
tracks mainland shares. Among the long bourses Australia and Singapore slipped,
and South Korean markets were closed for a national holiday. Europe’s Stoxx 600
is posting a small gain and US index futures are trading higher. European
10-year yields are mostly 5-6 bp higher, though UK Gilts are bucking the move
and the 10-year yield is a little softer. The US 10-year Treasury yield is firm
near 3.94%.The dollar is broadly lower. The
New Zealand dollar is leading the charge with a 1% gain, followed by the euro,

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Potential Brexit Breakthrough Helps Sterling, while France and Spain Report Stronger Price Pressures

Overview: There are two important developments. First,
the stronger than expected February inflation reports from France and Spain
have sparked a jump in European interest rates and the swaps market is
beginning to price in a 4% terminal rate by the European Central Bank. The
deposit rate is now at 2.50% and is widely expected to rise to 3.0% in the
middle of next month. Second, a tentative agreement to resolve the dispute over
the Northern Ireland protocol has helped lift sterling. The US dollar is mixed
and poor GDP figures are weighing on the Swedish krona, the weakest among the
G10 currencies today, while rising rates weigh on the yen following the large
contraction in Japan’s industrial output (-4.6%) that was not completely offset
by the stronger retail sales (1.9%), which appear to

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Markets Catch Collective Breath

Overview: After last week’s flurry of activity that saw the US
dollar extend its recovery, it has begun off the new week largely consolidating
in relatively narrow ranges. The Australian and New Zealand dollar’s remains
softer, and the Swiss franc is virtually flat, but the other G10 currencies,
led by sterling are posting small gains. A break-through on the Northern
Ireland protocol, which has been rumored for a more than a week may be
announced shortly. The news stream is light and conducive to the consolidative
tone, but the dollar’s recovery does not seem complete. Despite weekend
protests against AMLO’s downsizing of the electoral watchdog and rising
tensions with the US over its steel exports, the Mexican peso is the strongest
of the emerging market currencies, outside of the

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Week Ahead: February ISM Services and Auto Sales to Show January US Data were Exaggerated

A key issue facing
businesses and investors is whether the US January data reflects a
reacceleration of the world’s largest economy or whether it was mostly a
payback for extremely poor November and December 2022 data and seasonal
adjustments and methodological distortions. Given the centrality of the US
economy and rates, it is not simply a question for America, the Federal
Reserve, and investors, but the implications are much broader. The issue is unlikely to be resolved in the week ahead, but it may begin
pointing to the direction ahead. To believe in the now much-touted
"no-landing" or "soft landing scenario" requires the bold
and dangerous claim that this time is different. That the
inversions of the yield curve, including the 3-month bill and its 18-month
forward, which Federal

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Ueda Day

Overview:  Rising rates and falling stocks provided the
backdrop for the foreign exchange market this week. The dollar appreciated
against all the G10 currencies but the Swedish krona, which is still correcting
higher after the hawkish pivot by the central bank. The market looks for a
later and higher peak in the Fed funds rate. This coupled with the risk-off
sentiment helped the dollar extend its recovery after falling since last
September-October. The yen’s weakness on a less than hawkish comments from what
is most likely to be the BOJ’s new leadership helped lift Japanese stocks today
and pared with week’s losses. Most of the other large bourses in the Asia
Pacific area fell today and this week. Europe’s Stoxx 600 is slightly firmer
but is also paring this week’s losses. US index

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Fed Tightening Seen Extending into Q3

Overview:  The prospect that the Federal Reserve tightening
cycle continues into early Q3 is underpinning the greenback today against
most of the G10 currencies. The dollar bloc is the notable exception, and they
are posting minor gains, perhaps encouraged by the firmer equity markets. The
minutes of this month’s FOMC meeting appear to show wide support for quarter
point hikes going forward and there did not seem to be much discussion of the
conditions that would allow for the central bank to pause, which the market had
expected around by the end of Q2. The euro has been sold below $1.06, while the
greenback is holding just below JPY135 ahead of a big day tomorrow in Tokyo,
which seen national inflation figures and BOJ Governor nominee Ueda questioned in
the Japanese parliament. A hawkish

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Investors Shaken by Rising Rates

Overview: The surge in US interest rates and sharp
losses in US stocks sent the dollar broadly higher in North America yesterday. The
$42 bln of two-year notes auctioned by the US Treasury saw the highest yield in
more than a quarter-of-a-century (4.67%) and it still produced a small tail.
Sterling, helped by its own surprisingly strong data, was the only G10 currency
to have gained against the surging dollar. Still, no important technical levels
were breached, though the greenback rose to nearly seven-week highs against the
Canadian dollar. The US dollar also rose to new highs for the year against the
Japanese yen before settling at about JPY135.00.

Rising US rates and falling
stocks are the main driver and the FOMC minutes later today are the focus. While
the US economic calendar is

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Upside Surprise in UK’s Flash PMI and Better-than-Expected January Public Finances Lift Sterling

Overview: Rising interest rates are weighing on risk
appetites and the dollar is broadly stronger. Sterling is a notable exception
after a stronger than expected flash PMI and better than expected public
finances. The correlation between higher US rates and a weaker yen is
increasing and the greenback looks poised to rechallenge the JPY135 area. A
slightly better than expected preliminary PMI and hawkish minutes from the
recent RBA meeting has done little to support the Australian dollar, which is
among the weakest of the G10 currencies today. Nearly all the emerging market
currencies are softer today. While mainland Chinese equities
and Korea and Taiwan eked out small gains, the other larger Asia Pacific
bourses fell. Hong Kong and mainland shares that trade there posted the
steepest

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Monday: A Short Note while US is on Holiday

The dollar is mostly softer, but
turnover is mostly quiet.  The Swedish krona leads the move after
higher-than-expected underlying inflation.  It is a mild risk-on day with
equities moving higher too.  In the Asia Pacific region, China stood with
the CSI 300 up almost 2.5%.  Europe’s Stoxx 600 is up fractionally to
recoup most of the pre-weekend decline.  US equity futures are narrowly
mixed.  European bond yields are little changed, with a couple of
exceptions:  Sweden 6-7 bp higher on the back of the inflation and UK
yields a few basis point softer even though the UK is expected to report its
large January budget deficit in a quarter of a century tomorrow.   China
indicated it will propose a peace plan for Russia-Ukraine on February 24, the
anniversary of Russia’s invasion.  It says it

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Week Ahead: Market Seeks Proper Balance after Exaggerating in Both Directions

The pendulum of market sentiment swung from
fear of a synchronized recession in the US and Europe to optimism that a
recession can be avoid. The perceived reduction of downside risks had driven
the upside performance of equities and bonds. Just as the data seems to confirm
it, the rally in in stocks and bonds faltered. The MSCI Emerging Markets equity
index gained 7.8% last month but is off almost 3.8% this month, and has fallen for three consecutive weeks. The performance
of the developed markets has held up better. The MSCI World Index (developed
economies) rose 7.0% in January and is up slightly so far here in February. A reassessment of the trajectory of Fed policy, which has
seen the markets converge with the Fed’s message, has helped the dollar correct
higher after falling for the

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Dramatic Swing in Sentiment Extends the Greenback’s Rally

Overview:  A series of strong US high-frequency
data points after a poor finish to last year has spurred a dramatic shift in
market expectations. And talk among a couple of (non-voting) FOMC members of a
50 bp hike has provided added fodder. The greenback is extending its recovery
today against all the major currencies, with the Australian and New Zealand
dollars hit the hardest. Emerging market currencies have also been knocked
back. This is part of a larger risk
off move and even the yen’s decline to new lows for the year failed to help
Japanese equities. Indeed, Japan, Hong Kong, and China saw more than a 1% slide
in their main equity indices. Europe’s Stoxx 600’s four-day rally is being
snapped, and US futures indices are 0.5%-0.75% lower. Benchmark 10-year yields
are rising. The US

Read More »

Markets Catch Collective Breath

Overview:  On the
heels of a dramatic jump in US job creation and firmer than expected
year-over-year CPI, the US reported a larger than expected jump in retail sales
and a strong recovery in manufacturing output. Few think that economic momentum
that the recent data implies can be repeated, the "no landing" camp
has gained adherents. We suspect that says more about psychology than the
economy. The US two-year note is threatening to snap a five-day 20 bp advance today
and is coinciding with a somewhat heavier dollar tone. There is a batch of US
economic data today, including PPI, weekly jobless claims, and housing starts
and permits. Several Fed officials speak today, including St. Louis Fed’s
Bullard, who is among the leading hawks. China
reported new house prices did not fall last

Read More »

US Dollar Comes Back Better Bid

Overview: Although the US January CPI was in line with
expectations, the year-over-year rate was a little firmer than expected. Still, the measure that Fed Chair Powell has underscored, core services, excluding shelter, moderated with a 0.3% month-over-month gain. US rates shot up and this lent
the dollar support, while weighing on equities and risk sentiment. The US
two-year note yield rose to almost 4.64% yesterday, the highest in three months.
The greenback is higher with the Australian and New Zealand dollars knocked the
most (~1.3% and 0.9%, respectively). Softer UK inflation is taking a toll on
sterling (~-0.8%). The large bourses in Asia were mostly lower, with India a notable exception.
Europe’s Stoxx 600 has shrugged off the global headwinds and is posting a minor
gain. It is up

Read More »

Dollar and Rates Soften a Little Ahead of US CPI

The focus is on the US CPI report today, but the price action is anything but intuitive. Although the revisions of the basket and methodological changes reinforce expectations for the largest rise in three months, the US dollar continues to trade heavily after rallying last week. The dollar-bloc currencies are underperforming today. And US rates are softer. The US 2- and 10-year yields are 1-2 bp lower.

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Yen Retreats Ahead of Formal BOJ Announcement Tomorrow and US CPI

Overview: A consolidative tone is mostly the theme of the day. The revisions to the US CPI announced before the weekend add to the uncertainty and focus on tomorrow’s report. At the same time, investors watch ongoing air space activity that has led to a few objects being shot down over the US and Canadian airspace.

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Week Ahead: US CPI to Begin Sharper Deacceleration through H1 23

After selling off sharply in the past four months, the dollar rebounded. Since the FOMC meeting on February 1, it has enjoyed one of the strongest bounces since it topped out in late September/early October. The incredible US jobs data, sharp bounce in the January services ISM, speculation of BOJ Governor Kuroda’s successor, and some easing of the euphoria over China’s re-opening have been notable drivers.

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A Day of Surprises

(I
am on a business trip and did not intend to post any analysis today. However,
there have been a number of unexpected developments that warrant some
commentary. Thanks for bearing with me.) Japanese press reports that the BOJ Deputy
Governor Amamiya turned down the opportunity to become the next BOJ governor. Instead,
next week, former BOJ board member Kazuo Ueda will be nominated. The market
reacted dramatically, taking the yen sharply higher and sold JGBS. Japanese
stocks eked out small gains, while the other large Asia Pacific equity markets
sold-off. The dollar initially fell to about JPY129.80 from around JPY131.55. It
subsequently recovered and is back above JPY131.00. There will be two new
deputies as well:  Uchida, the BOJ’s executive director in charge of
monetary policy and

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US Interest Rate Adjustment Post-Jobs is Over as the 2-Year Yield Backs Away from 4.50%

Overview: The capital markets have shrugged off the
more than 1% loss of the Nasdaq and S&P 500 yesterday and have jumped back
into risk assets. The stocks and bonds have been bought and the dollar sold. Chinese
and Hong Kong shares gained more than 1% today. Japan was mixed and Taiwan and
South Korean equites saw minor losses. Europe’s Stoxx 600 is up over 1%. Nasdaq
futures are up nearly 1.2% while the S&P 500 is lagging slightly. European
bonds yields are 8-10 bp lower. Sweden’s Riksbank was more aggressive than
expected with an announcement not only a a 50 bp rate hike but of active bond
selling in a couple of months. Its 10-year yield is up almost 25 bp. The Swedish krona is the best
performing G10 currency today, surging 2.3% against the US dollar, which is
trading broadly

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Markets Calm after Dramatic Swings on Powell’s Comments

The US dollar is mostly trading with a downside bias today against the G10 and most emerging market currencies. It had begun the week extending the gains spurred by the dramatic jump in nonfarm payrolls and the strong ISM services survey. Market expectations for the trajectory of Fed policy in the first part of this year converged with the Fed’s December dot plot. The market now leans toward two more quarter-point hikes this year.

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No Turn Around, but Consolidation Featured

Overview:  After large moves yesterday, the capital
markets ae quieter today. Stocks are mostly firmer, and the 10-year US yield is
a little softer near 3.62%. Strong nominal wage increases in Japan and a
hawkish hike by the Reserve Bank of Australia helped their respectively
currencies recover, though remain within yesterday’s ranges. The euro briefly
traded below $1.07, and sterling has been sold through $1.20. That said, a
consolidative tone is the main feature today through the European morning. Gold has steadied after falling
$63 an ounce last week. News that China boosted its gold holdings for the third
consecutive month should be placed within the context of its overall reserve
growth. Consider that the dollar value of its reserve rose by nearly $56.8 bln
last month. Its gold

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Greenback Extends Recovery

Overview: The honeymoon for risk assets that began
the year ended with a bang at the end of last week with the monster US jobs
report and the rebound in the service ISM. Disappointing news from several large
US tech companies provided extra encouragement. The yen’s weakness helped
Japanese stocks today, but the other larger bourses in the Asia Pacific area
were sold, with losses in Hong Kong, the CSI 300, South Korea, and Taiwan off
more than 1%. Europe’s Stoxx 600 also is down more than 1% today, which if
sustained would be the second largest drop this year. US futures are also
sharply lower. The bond sell-off seen before the weekend is also continuing. The
US 10-year yield is up eight basis points to trade above 3.60%. European yields
are mostly 8-12 bp higher and the peripheral premium

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February 2023

The
new year began amid optimism among investors. Equities and bonds rallied in
January, clawing back some losses from last year. The dollar traded heavily,
falling against most G10 and emerging market currencies. However, after the February 1 FOMC meeting, the dollar’s sell-off exhausted the
near-term selling pressure. An upside correction may be seen in the first
part of February. We see this as a countertrend move and expect dollar weakness
to re-emerge. The reopening of supply chains and the
still strong labor markets have seen the pendulum of sentiment push away from
the pessimism seen in the waning months of 2022. There is increasing
speculation of soft landings in the US and Europe, including by the vocal Fed
critic Lawrence Summers and the International Monetary Fund. A relatively

Read More »

The Dollar Pares Yesterday’s Gains but Near-term Change in Sentiment may be at Hand

Overview: The dollar remained firm yesterday, even
after the ECB’s hawkish stance, reaffirming its intention to hike rates by
another 50 bp next month. We had expected the greenback to have been sold in
North America yesterday. That this did not materialize warns that despite its
pullback in Asia and especially Europe today, that near-term sentiment may be
changing with the Fed and ECB meetings over and die cast for next month, where
the Fed is seen hiking by a quarter-point and the ECB by half. This suggests a
consolidative/corrective phase for the dollar may be seen in the coming days,
ahead of the January CPI on February 14. We expect US consumer inflation to
slow considerably in the coming months, beginning with this report. Still, the
market must get through today’s US employment

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North America likely will Sell USD Bounce Seen in Europe

Overview: The failure of the Federal Reserve to push harder against the market’s dovish views and the easing of financial conditions encouraged a risk-on trade that saw the dollar and yields slump and equities rally. There has been limited follow-through dollar selling today, and a small recovery ahead of the Bank of England and European Central Bank meetings.

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Will What the Fed Says be More Important than What it Does?

Overview:  The focus is squarely on the Federal Reserve today. There is nearly universal agreement that it will lift the target by 25 bp. The market is inclined to see the shift as a sign that the Fed is nearing the end of its tightening cycle, and sees, at most, one more quarter-point hike. Despite the Fed’s warnings, including in the December FOMC minutes, about the premature easing of financial conditions, the market has done precisely that.

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Position Adjustments at Month-End and Ahead of FOMC Outcome Lifts the Greeenback

Overview: A combination of month-end adjustments and
positioning ahead of the outcome of tomorrow’s FOMC meeting has taken the shine
off equities and has helped lift the dollar. On the heels of yesterday’s sharp
decline on Wall Street, several large markets in the Asia Pacific region,
including China’s CSI 300, the Hang Seng, and both South Korea’s Kospi and
Taiwan’s Taiex fell by more than 1%. Although the eurozone eked out a small
expansion in Q4 22, the Stoxx 600 is sliding 0.8% in late morning turnover. In
US futures, trading the S&P 500 is off about 0.35%, half as much as the
NASDAQ. Bond markets are drawing some support with most European benchmark
yields off 1-2 bp, while the 10-year US Treasury yield is slightly lower near
3.53%. The US dollar is firm, with the
Norwegian krone and

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Anti-Climactic Return of China

Overview: The re-opening
of China’s mainland market amid reports of strong activity during the holiday,
was relatively subdued. The CSI 300 rose less than 0.5% and the Shanghai
Composite eked out less than a 0.2% gain. The 0.5% gain in the yuan was largely
in line with the performance of the offshore yuan. Indeed, it seems like a bit
like "buy the rumor sell the fact" type of activity as Hong Kong’s
Hang Seng tumbled 2.75%, to give back most of last week’s gains. The same is
true of the index of mainland shares that trade in Hong Kong. The Federal Reserve, European
Central Bank, and the Bank of England are expected to hike rates and this
anticipation has seen equity markets stumble today. Europe’s Stoxx 600, which
rose almost 0.7% in the past two sessions is off 0.6% today. The UK’s FTSE

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Week Ahead Alchemy: Can Powell Turn a Quarter-Point Move into a Hawkish Hike?

The new year is still
young, but the week ahead may be one of the most important weeks of
the year. The divergence that the market has been anticipating will
materialize. The Federal Reserve will most likely hike by 25 bp on Wednesday,
followed by half-point moves by the European Central Bank and the Bank of
England the following day. On Friday, February 3, the US will report its
January employment situation. It could be the slowest job creation since the
end of 2020. The Bureau of Labor Statistics also will release the preliminary
estimate of its annual benchmark revisions. 
The markets’ reaction may be less a function of what is done than what is
communicated. The challenge for Fed Chair Powell is to slow the pace of hiking
while pushing against the premature easing of financial

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Bannockburn World Currency Index Recoups 50% of Loss since June 2021 High, with Golden Cross

The Bannockburn’s World Currency Index (BWCI) is a
GDP-weighted currency basket representing the currencies of the top 12
economies, with the eurozone counted as one.

The US is the world’s largest economy and the dollar’s share
of the index is almost 31%. China is the second-largest economy and has a
nearly 22% weight.

The euro is next with a 19% weight, followed by Japan with
about a 7.5% weight. After that, the weights drop off to less than 5% for the
other members.

It has risen, meaning that the foreign currencies have risen
against the dollar, by about 5.4% since forging a bottom late last year.

It has recouped about half of what it lost since peaking in
June 2021.

Because of the dollar’s large role, it is more of a
confirmation indicator than leader in trend changes.

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Subdued Ending to a Quiet Week, Ahead of Next Week’s Fireworks

Overview: Leaving aside the Australian dollar, which
is benefiting from the optimism over China’s re-opening and a reassessment of
the trajectory of monetary policy after a stronger than expected inflation
report, the other G10 currencies traded quietly this week and are +/- less than
0.5%. The risk-on honeymoon to start the year remains intact. The MSCI Asia
Pacific Index has risen every day this week and index of mainland shares that
trade in Hong Kong rose nearly 6.3%. This suggests positive impulses for
Chinese stocks when the mainland markets re-open Monday. Europe’s Stoxx 600 is
up about 0.5% this week. In the US, the S&P 500 closed above the downtrend
line from January 2021 and made new highs for the month yesterday. US stock
futures are trading with a slightly heavier bias now.

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Euro Closed above $1.09 but Follow-Through Buying Limited

Overview: After
some intraday penetration, the euro finally settled above $1.09 yesterday. However,
follow-through buying has been limited and technical and option-related
resistance is seen in the $1.0940-50 area. The dollar is more broadly mixed
today, with the dollar-bloc and Norwegian krone leading the advancers. The
euro, yen, and sterling are nursing small losses near midday in Europe. The
recovery of US equity indices yesterday after gap lower openings failed to help
most of the Asia Pacific markets. However, the re-opening in Hong Kong saw
sizeable gains and South Korea’s Kospi continued its advance after re-opening
yesterday, despite news that the economy contracted by 0.4% in Q4 22. Europe’s
Stoxx 600 has recouped the losses of the past two sessions, and US futures are
trading

Read More »

No Follow-Through Euro Buying while S&P Holds Yesterday’s Breakout

Overview:  A quiet consolidative session has been recorded
so far today as North American leadership is awaited. The preliminary PMI
readings are mixed. Japan and the eurozone look somewhat better, but Australia
and the UK disappointed.  The dollar is trading with a mostly firmer bias,
but largely confined to yesterday’s ranges.  The markets seem to be looked
ahead toward next week’s Fed, ECB, and BOE meetings, and the return of China
from this week’s holiday.  

Yesterday’s rally in US equities, which saw the S&P 500 close above the
down trendline from last January (came in around 4010), helped give the Asia
Pacific markets that were open a constructive bias. Europe’s Stoxx 600 is off
around 0.4%. It has posted one losing session a week in the first three weeks
of the year. US futures

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Euro Pokes Above $1.09. Will it be Sustained?

Overview: The Lunar New Year holiday has shut many centers in Asia until the middle of the week, though China’s mainland is on holiday all week. The signaling of a downshift in the pace of Fed tightening by some notable hawks helped lift risk appetites ahead of the weekend and saw the
S&P 500 snap a four-day decline.

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Are We Still on the New Year Honeymoon? A Look at the Week Ahead

There are several macro
highlights in the week ahead, during which Chinese markets are closed for the
Lunar New Year celebration. The preliminary January purchasing managers surveys
pose headline risk. However, the survey data, for example, had the US composite below the 50 boom/bust level every month in H2 22, which likely overstates the case, as the first look at Q4 22 US GDP will probably show. While some improvement is expected, composite PMI readings are expected to have remained below 50. Still, the pendulum of
market sentiment has swung, and it has begun looking at the glass as half full
rather than half empty. By that, we mean market
participants have been flirting with the possibility of a soft(ish) landing.
The easing of supply chain disruptions, the anticipated re-opening of

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Dismal UK Retail Sales Weigh on Sterling, While the Yen Softens

Overview: The US dollar is mostly softer today against the G10
currencies, with the notable exception, yen, Swiss franc, and sterling. The
risk-on mood is seen in the foreign exchange market with the Antipodean and
Scandi currencies leading the move against the greenback. The yen has fallen by
about 1.3% this week, leading losers, while sterling’s 1.1% gain puts it at the
top. Despite the poor showing of US equities yesterday, risk appetites returned
and most of the large bourses rose in the Asia Pacific region, led by a 1.8%
rally in Hong Kong and a 2.3% gain in the index of mainland companies. Both
indices are up more than 11% this year. Europe’s Stoxx 600, which snapped a
six-day advance yesterday with a 1.6% loss has stabilized and is up about 0.4%
today. It has risen by almost 6.5%

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Poor US Data Cast Doubts on New Found Hopes of a Soft-Landing

Overview:  Yesterday’s string of dismal US economic
data delivered a material blow to those still thinking that a soft-landing was
possible. Retail sales by the most in the a year. Manufacturing output fell by nearly 2.5% in the last two months of 2022. Bad
economic news weighed on US stocks. The honeymoon of New Year may have ended
yesterday. The US 10-year yield fell below 3.40% for the first time since the
middle of last September. The Atlanta Fed’s GDPNow tracker reduced its
projection from 4.1% for Q4 22 to 3.5%, which is still higher than most
economists’ forecasts. Ironically, this comes as former Treasury Secretary
Summers, a vocal Fed critic, conceded yesterday that a recession could
ultimately be avoided, and the headline of the Financial Times yesterday was
about the brighter

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The BOJ Surprises by Standing Pat

Overview: The BOJ defied speculation and stuck to its
current policy, which saw the yen sell-off sharply. The dollar rallied about
3.4 yen before falling back. The greenback is broadly lower against the other
G10 currencies. However, for the fifth consecutive session, the euro has
stalled around $1.0870. While UK headline inflation softened, mostly due to fuel,
core prices were unchanged, and this may have helped sterling extend its recent
gains to almost $1.2365. Softer US economic data (retail sales producer prices,
and industrial production) pose headline risk in early North America, but rates
seem to have made the adjustment last week, when the two-year note yield fell
to almost 4.10%. It is around 4.18% now. 

The
weaker yen helped lift Japanese equities while most other Asia-Pacific

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With Trepidation, the Market Awaits the BOJ

With the market nearly ruling out a 50 bp hike by the Federal Reserve on February 1, the interest rate adjustment appears to have largely run its course. This may be helping to ease the selling pressure on the greenback.

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Monday and Beyond

Monday Ranges: Euro: $1.0802-$1.0874JPY/$: JPY127.23-JPY128.87GBP: $1.2172-$1.2289CAD/$: CAD1.3353-CAD1.3418AUD: $0.6941-$0.7019MXN/$: MXN18.7313-MXN18.8566Rumors of an emergency BOJ meeting sent the dollar to its lows in Tokyo, slightly below the pre-weekend low (~JPY127.46). The on-the-run (most current) 10-year yield settled above the 0.50% cap and the generic 10-year bond has not traded below the 0.50% level since January 5. The market is pressing hard, and volumes in the futures market are elevated. News of higher producer prices (10.2% year-over-year in December from a revised 9.7% in November that was initially 9.3%) did not help matters. The median forecast was for 9.5%. The BOJ meeting concludes Wednesday. China reports a slew of December data first thing Tuesday,

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On Our Radar Screen for the Week Ahead

The week ahead is chock full of data, including Japan, the UK, and Australia’s CPI. The UK and Australia report on the labor market. The US, UK, and Canada also report retail sales. The early Fed surveys from New York and Philadelphia for January will be released.

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Dollar Index Gives Back Half of 21-Month Gains in 3 1/2 Months

Overview: The continued easing of US price pressures
has strengthened the market’s conviction that the Federal Reserve will further
slow the pace of rate hikes and that the terminal rate will be near 5.0%. The
decline in US rates has removed a key support for the US dollar, which has
fallen against all the G10 currencies this week. The Dollar Index has now retraced half of what it gained since bottoming on January 6, 2021. Meanwhile, there are positive
developments elsewhere. The German economy appears to have stagnated in Q4 22
rather than contracted, and the UK economy grew in November when most
economists expected it to have shrunk. The Japanese yen has led the
move against the dollar, rising 2.8% this week amid heightened speculation that
the Bank of Japan could take another step away

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Is it Too Easy to Think the Market Repeats its Reaction to a Soft US CPI?

The market expects a soft US CPI print today, which has recently been associated with risk-on moves. The US 10-year yield is holding slightly above 3.50%, the lowest end of the range since the middle of last month. The two-year yield is a little above 4.20%, also the lower end of its recent range. Most observers see the Federal Reserve slowing the pace of its hikes to a quarter point on February 1.

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Greenback Consolidates Near Recent Lows Ahead of Tomorrow’s US CPI

Overview: Fed Chair Powell did not push against the easing of US financial conditions when he ostensibly had an opportunity yesterday. This coupled with expectations of another decline in the US CPI, which will be reported tomorrow, has kept the greenback mostly consolidating the losses seen last Friday and Monday.

Read More »

Consolidative Tone in FX

Overview: After sharp losses yesterday, the US dollar has stabilized today arguably ahead of Fed Chair Powell’s speech at the Riksbank symposium. Yesterday’s Fed speakers stuck to the hawkish rhetoric, and this seemed to help reverse the equity market gains, though the greenback remained soft.

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Greenback’s Sell-off may Stall Ahead of Powell Tomorrow

Overview: Don’t fight the Fed went the manta as the
market took the US two-year yield back up to 4.50% in the aftermath of the FOMC
minutes last week, the highest in over a month. The minutes warned of a
premature easing of financial conditions. And then bam, softer than expected
hourly earnings and a weak service PMI and bonds and stocks rallied, and the
dollar was sold. This is a key part of the backdrop for this week, for which
several Fed officials will speak, including Chair Powell at a Riksbank event
tomorrow, ahead of the US December CPI on Thursday. The US two-year yield is
stabilizing after slipping through 4.25% before the weekend. The pre-weekend
dollar losses have been extended, but the momentum appears to be stalling in
the European morning, perhaps setting the stage for

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Falling US Yields Stymie the Dollar’s Recovery

We have been torn between our conviction that the dollar’s cyclical rally ended last September-October, and the near-term momentum indicators that warned that the dollar’s pullback was overdone. Aside from the Japanese yen, a consolidative phase dominated December, but the momentum indicators still seemed to suggest upside potential dollar. 

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US CPI Featured and Why the Fed may Still Hike by 50 bp

The most important economic report in the week ahead is the US December Consumer Price Index on January 12. To be sure, the Federal Reserve targets an alternative measure, the deflator of personal consumption expenditures. However, in this cycle, when households, businesses, investors, and policymakers are particularly sensitive to inflation, CPI, which is reported a couple of weeks before the PCE deflator, has stolen the thunder.

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USD Stretched Ahead of Employment Report, while Yuan Jumps on Hopes of New Property Initiatives

Overview: The US dollar extended yesterday’s gains
as the market adjusts positions ahead of the jobs data. Yesterday and today’s
price action looks to have strengthened the near-term technical outlook for the
greenback. However, the intraday momentum indicators are stretched. This warns
of the risk of a counter-intuitive move after the data, barring a significant
surprise. Meanwhile, one of the Fed’s leading hawkish voices, St. Louis Fed
President Bullard seemed to soften his tone yesterday suggesting that 5.1% median
dot for Fed funds would be sufficiently restrictive to curb price pressures. However,
the less hawkish tone was offset by his suggestion that the restrictive zone
should be reached as soon as possible, which seems consistent with our
assessment that the market is

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The Market Appears to Shrug Off the Fed’s Warning

Overview: The US dollar is consolidating in a mixed
fashion today. The FOMC minutes drew much attention but failed, at least
initially, to spur a significant shift in expectations. The pricing in the Fed
funds futures strip is still consistent with a cut later this year, which the
minutes were clear, no officials anticipate. Today’s US ADP jobs estimate, and
November trade balance are being overshadowed by tomorrow’s nonfarm payroll
figures. The Fed’s Harker, Bostic, and Bullard speak today. They should be expected
to stay on message, which is leaning against any premature easing of financial
conditions. Meanwhile, strong buying of
Chinese stocks through the Hong Kong link, and the rally in mainland shares
that trade in Hong Kong suggest investors continue to look past the current
Covid

Read More »

Yesterday’s Gains Unwound may Make the Greenback a Better Buy Ahead of FOMC Minutes

Overview:  Yesterday’s greenback gains have been
mostly reversed today. New efforts by China in its property market and
anticipation of more stimulus helped rekindle the animal spirits today. Asia
and Europe shrugged off yesterday’s losses on Wall Street and the rally in
bonds continued. The 8-12 bp decline in European benchmark 10-year yields comes
even though the final composite PMI was better than expected fanning hopes of a
short and shallow economic downturn. The Australian dollar is leading the G10
currencies higher with the help of the risk-on mood and reports suggesting that
after two years, China may resume buying its coal. Still, dollar’s setback is
stretching the intraday momentum indicators, and this may discourage early
North American operators from chasing the G10 currencies

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The Dollar Jumps

Overview: Market participants have returned from the New Year celebrations apparently with robust risk appetites. Equities and bonds are rallying, and the dollar has surged higher. The markets seem to be looking past the surge in China’s Covid cases and anticipates a recovery, helping Chinese equities lead Asia Pacific bourses higher, where Japanese markets are still on holiday.

Read More »

January 2023

The US
dollar’s bull market appears to have come to a climactic end late in Q3 22 and
early Q4. In the last three months of 2022, the G10 currencies, except the Canadian dollar, rose by more than 5% against the greenback. In
addition, six of the G10 currencies appreciated more than 7.5%. Such
significant moves are often followed by consolidation and corrections. These
countertrend moves can offer new opportunities to adjust currency exposures.Three main considerations mark the turn of
the dollar from valuation levels that were stretched to historic proportions
according to the OECD’s measure of purchasing power parity. Without getting too
granular, the basic premise is that a basket of internationally traded goods
should sell for the same price when the currency adjustment is made. To

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Japan Surprises

The Bank of Japan surprised
everyone may lifting the 10-year yield curve cap to 0.50% from 0.25%.The BOJ also said it would increase its bond purchases to
JPY9 trillion (~$68 bln) a month compared to the current JPY7.3 trillion.  

BOJ Kuroda, whose term ends
next April, insisted that the easy monetary policy stance will continue.  

The surprise decision sent
ripples across the capital markets.  Japanese stocks slumped, with the
Nikkei falling about 2.5%.  Global bond yields jumped.  They were
already rising after the US-European surge yesterday.  The 10-eyar JGB
rose 15 bp to 0.40%.  In early European trading yields, are up 7-10
bp.  Gilts continue to lead the adjustment and are up about 10 bp to 3.6%.
10-year US yield is up about 7.5 bp to 3.66%.   

The dollar dropped sharply against

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Happy Holidays

There will be no daily commentary over the next couple of weeks.  The next post will be the January monthly outlook on December 29.  Here is to a happy and healthy New Year.  Good luck to us all.

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European Rates Continue to Surge, Sending Stocks Spiraling Lower

Overview: Seven of the G10 central banks pumped the brakes between last week and this week as they purposely seek to push demand back into line with supply. And there are more signs that they are succeeding in weakening growth impulses. The dramatic surge in European bond yields continues today with 10-year rates mostly rising another 13-15 bp.

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The Greenback Recovers After the Initial Post-Fed Wobble

Overview: The US dollar has come back bid after losing ground against
most currencies as the markets reacted to the FOMC decision and press
conference. The Antipodeans and Scandis have been tagged the hardest, illustrating
the risk-off mood, and arguably the weakening growth prospects. Countries that
peg their currencies to the dollar have hiked rates, as has the Philippines and
Taiwan. The Swiss National Bank and Norway have also lifted policy rates by 50
bp and 25 bp as expected. The ECB and BOE’s decisions are due shortly. Yesterday’s
sell-off in US equites and the continued sell-off in electronic trading casts a
pall on global markets today. The Hang Seng, Kospi, and Indian markets fell
more than 1%. Europe’s Stoxx 600 is off 1.2%, and if sustained, would be the
biggest loss since the

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What Can the Fed tell the Market it Does Not Already Know?

Overview: The softer than expected US CPI drove the
dollar and interest rates lower, while igniting strong advances in equities,
risk assets, commodities, and gold. Calmer market conditions are
prevailing today, and we suspect that in the run-up to the FOMC meeting, a broadly
consolidative tone will emerge. The dollar is mostly softer, but within yesterday’s
ranges. Only the New Zealand and Canadian dollars among the G10 currencies are softer.
Emerging market currencies are generally firmer, led by the recovery of the Hungarian
forint on the political deal struck yesterday. The Mexican peso and Turkish
lira are the exceptions. Asia Pacific equities generally rose, led by Taiwan
and South Korea. Europe’s Stoxx 600 is cutting yesterday’s 1.3% gain nearly in
half, while US futures are also a

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US CPI ahead of FOMC Outcome Tomorrow

Overview: The dollar
softer against the G10 currencies ahead of today’s CPI report and the FOMC meeting
the concludes tomorrow. Emerging market currencies are most mixed. The
Hungarian forint leads the complex with around a 1% gain on news of a
preliminary deal struck with the EU. The South African rand is the worst
performer, off around 0.8%, as impeachment proceedings against Ramaphosa
proceed. Global equities are mostly higher today after the strong advance seen
in the US yesterday. Chinese equities are a notable exception as profit-taking
sets in after the strong rise amid reports of a surge in Covid cases. Europe’s
Stoxx 600 is up about 0.3% in late morning turnover, while US futures are enjoying
a firmer tone. European benchmark yields are slightly firmer, though 10-year Gilt
yields

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Markets Await Central Banks and Data

Overview: There are two themes today. First, there has been a modest bout of profit-taking on Chinese stocks (and yuan) after last week’s surge. Second, the ahead of the five G10 central bank meeting this week a series of market-sensitive economic reports, a consolidative tone is seen in most of the capital markets. Most of the large bourses in the Asia Pacific region fell, led by a 2.2% loss in Hong Kong and 3% loss in its index of mainland shares.

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Five G10 Central Banks Meet and US CPI on Tap

Half of the G10 central banks meet in the week ahead. The Fed is first on December 14, and the ECB, BOE, Swiss National Bank, and Norway’s Norges Bank meet the following day. Before turning a thumbnail sketch of the central banks, let us look at the November US CPI, which will be reported as the Fed’s two-day meeting gets underway on December 13.

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Chinese Stocks Extend Rally Even Though Covid Infections Appear to be Spreading

Overview:
The easing of vaccination, quarantine, and some travel protocols
related to Covid in China (and Hong Kong) continues to draw funds back into Chinese
stocks, wherever they trade. The Hang Seng rose 2.3% today to close the week
with a nearly 6.6% advance. The index of mainland companies that trade there
rose 2.5% on the day for a7.3% weekly gain. The CSI 300 of mainland shares rose
1% today and almost 3.3% for the week. Japan’s 1% gain today ensured a gain on
the week, while the other large regional markets rose today to narrow the weekly
loss. Europe’s Stoxx 600 is snapping a five-day drop with a modest gain of
about 0.35%. US futures are trading with a slightly firmer bias. European bond
yields are mostly 4-7 bp firmer, while the 10-year US Treasury is little changed
to hold

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Political Developments Overshadow Economics

Overview: There is nervous calm in the capital
markets today.  The weakness of US shares
yesterday is taking a toll today. An exception in the Asia Pacific region is
the Hang Seng and the index of mainland shares that trade there, which up
around 3.5% today on thUe easing of some Covid protocols.  Europe’s Stoxx 600 is off for a fifth day,
its longest losing streak in nearly two months. US futures are posting minor
gains. Benchmark 10-year yields are mostly little changed.  The exceptions are Italy, where the 10-year
yield is up about 2.5 bp and the US Treasury, where the yield is up nearly three
basis points to almost 3.45%.  The dollar
is mostly a little firmer against most of the major currencies.  The Norwegian krone and Australian dollar are
slightly firmer.  Sterling’s 0.35%

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Risk Appetites Challenged after US Equities Tumble

Overview: The sharp sell-off of US stocks yesterday as
sapped the risk appetite today. Equities are being sold. Hong Kong and the
index of mainland shares that are listed there led the regional decline with
3.2%-3.3% losses. Europe’s Stoxx 600 is off about 0.65% in late morning
turnover, the fourth day of losses. US futures are trading with a lower bias as
well. European 10-year bonds are mostly 1-2 bp firmer. The US 10-year Treasury is
practically flat at 3.53%. The dollar is mixed against the G10. Sterling and
the euro are the strongest, up about 0.3%, while the yen, Norwegian krone and
Canadian dollar are off nearly as much. Emerging market currencies are also mixed,
with the Philippine peso, and central European currencies leading the advancers.
The South Korean won is the weakest,

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Yesterday’s Dollar Recovery Questioned Today

Overview: The 11 bp jump in the 10-year US yield yesterday after dropping nearly 26 bp in the previous three sessions, helped the greenback recover and took a toll on stocks. Still, the S&P 500 is above the low set on November 30 (~3939) before Fed Chair Powell’s talk that day.

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Chinese Yuan Jumps While the Dollar recovers After Losses were Extended Against the Euro and Sterling

Overview: The markets remain hopeful about a re-opening in
China and continue to pour into Chinese stocks on the mainland and in Hong Kong. The
index of Chinese companies that trade in the US rose nearly 22.4% last week. Large
bourses in the Asia Pacific region were mixed, but China and Hong Kong stand out.
Europe’s Stoxx 600 is nursing a small loss for the second consecutive session. US
equity futures have a slightly heavier bias. European 10-year yields are 2-5 bp
lower, while the US 10-year Treasury yield is a bit firmer at 3.51%. The dollar
has turned mostly higher in the European morning after the euro and sterling
extended their recent gains. The Canadian and Australian dollars are holding on
to small gains. Among emerging markets, the South African rand is snapping back
after

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Dollar Bears have the Upper Hand

Once again, the dollar was sold into a shallow bounce as the bears maintained the upper hand. There is a growing conviction that the peak in the Fed’s tightening cycle is within view, despite more robust than expected jobs growth and an unexpectedly strong rise in average weekly earnings.

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Week Ahead: RBA and BOC Meetings Featured and China’s Inflation and Trade

The week ahead
is more than an interlude before five G10 central banks meet on December
14-15. The data highlights
include the US ISM services and producer prices, Chinese trade and inflation
measures, Japanese wages, household consumption, and the current account.
Also, the Reserve Bank of Australia and the Bank of Canada hold policy
meetings. Central banks from India, Poland, Brazil, Peru, and Chile also meet.The dollar appreciated in Q1 and Q2 despite the
economy contracting and dramatic widening of the trade deficit (averaged $65.9
bln in Q4 21, $71.9 bln in Q1 22, and $75.4 bln in Q2). The precise performance of the US economy in Q4 does
not matter much to the financial markets. The Atlanta Fed GDPNow tracker is a
little lower than 3%, while the median forecast in Bloomberg’s

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Attention turns to US Jobs while the Yen’s Surge Continues

Overview:  There have been significant moves in the capital markets this week
and participants are turning cautious ahead of the US employment report. After the
US equity market rally stalled yesterday, nearly all the Asia Pacific bourses fell
today. The strength of the yen (~3.8% this week) has weighed on Japanese equities
(Nikkei -1.8% this week) and spurred the BOJ to buy ETFs today for the first
time in five months. Europe’s Stoxx 600 is nursing a small loss as its closes
in on its seventh consecutive weekly advance. US futures are a little heavier in
quiet turnover. European 10-year yields are 3-4 bp lower, bringing the weekly
decline to 20-25 bp. Gilts have underperformed, with the 10-year yield off
about six basis points. The US benchmark yield is little changed near 3.51%. The
US

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December 2022 Monthly

As the year of aggressive monetary tightening winds down, the
Federal Reserve, the European Central Bank, and the Bank of England will likely
slow the pace of rate hikes. All three delivered 75 bp hikes in November and
will probably hike by 50 bp this month and moderate the pace again in the first
part of next year.Price
pressures remain elevated even if near or slightly past the peaks. The G10
central banks are not finished tightening, though central banks from several
emerging markets, including Brazil, Chile, and Czech, may be done. The fact that
the UK and the eurozone have likely entered a recession will not prevent the
Bank of England or the European Central Bank from tightening further. The US
economy has proven quite resilient after contracting in the first half
when companies

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What Did Powell Say?

Overview:  Asia Pacific stocks rallied on the heels of the surge in US equities. China’s CSI 300 led the large bourses higher with a 1% advance. Europe’s Stoxx 600 is matching yesterday’s gain of a little more than 0.6%, while US futures
are a touch softer. European yields are 9-13 bp lower, with the peripheral premiums shrinking.

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Hope Springs Eternal in China

Overview: Hope that the recent events in China are cathartic continues to lift risk appetites. Led by Hong Kong and mainland shares that trade there, the large bourses in the Asia Pacific region rallied. Japan, where macro data continues to disappoint, was the notable exception. Europe’s Stoxx 600 is snapping a three-day down draft and is up about 0.6% in late morning turnover. US futures are trading with a slightly firmer bias.

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China Shakes Markets, Euro Shakes it Off

Overview: The surging Covid cases in China and the protests in
several cities seemed to set the tone for today’s session. Equities are lower. China,
Hong Kong, Taiwan, and South Korea were marked down the most. Of the large
bourses, only India escaped unscathed. Europe’s Stoxx 600 is off more than 0.8%
and US futures are poised to gap lower. Bond markets are quieter. The 10-year
US Treasury yield is off a little more than one basis point to around 3.66%. European
benchmarks are mostly firmer, and peripheral spreads are a few basis points
wider. The US dollar began off stronger, but now only the dollar bloc among the
majors is weaker. The euro rose through the recent high to edge closer to $1.05.
Among emerging market currencies, central European currencies are leading. China,
Taiwan, and

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USD Outlook: Caught between Belief that it has Peaked and Oversold Momentum Indicators

We think the US dollar has put in a
significant high. However, the near-term technical readings are stretched. The
dollar’s bounce from November 15 to November 21 met or approached minimum
retracement targets, but the momentum indicators did not correct. These
conflicting impulses need to be navigated in the days ahead. On balance, we
look for a firmer greenback, which we see as corrective. That is the
prism through which we look at the price action. At the same time, we look for US 10-year yield
to recover from the seven-week low slightly below 3.65% seen before the weekend.
The two-year yield slipped below 4.42% briefly ahead of the weekend. It, too, looks poised to recover in the days ahead. We are not persuaded that the FOMC
minutes revealed anything the market did not already know or

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US Jobs and Eurozone CPI Highlight the Week Ahead

Two high-frequency economic
reports stand out in the week ahead:  The US November employment report
and the preliminary eurozone CPI. The Federal Reserve has deftly distanced itself from any one
employment report. As a result, it would take a significant miss of the median forecast
(Bloomberg survey) to alter market expectations for a 50 bp hike when the FOMC
meeting concludes on December 14.Economists are looking for
around a 200k increase in US non-farm payrolls after 261k in October. In the first ten months of the year, the
US has created 4.07 mln jobs. This is down from 5.51 mln in the Jan-Oct period last
week but a strong performance by nearly any other comparison. In the same
period before the pandemic, the US created about 1.52 mln jobs. Non-farm
payrolls rose by an average of 150k

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Calm Markets with Japan on Holiday Today and the US Tomorrow

Overview: The capital markets are quiet today with
Japan on holiday and the US on holiday tomorrow. Asia Pacific equities were
mostly firmer after yesterday’s rally on Wall Street. Europe’s Stoxx 600 is
about 0.25% higher and at its best level in three months. US futures are steady to
slightly higher. Benchmark 10-year yields are little changed. The dollar is narrowly
mixed against the major currencies, with Scandis leading the way. Sweden is
expected to raise rates tomorrow. Emerging market currencies are also mixed today.
The Philippine peso is the strongest with a 0.75% gain, while the Thai baht is
the softest, with a 0.50% decline. Gold was capped near $1750 yesterday and is
near the week’s low set Monday around $1732.50. January WTI is pushing below $80 a
barrel after testing a

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Consolidative Session, even if Not Turn Around Tuesday

Overview: The US dollar is trading with a somewhat heavier bias after bouncing
higher yesterday. All the G10 currencies are higher, led by the New Zealand
dollar, where the central bank is expected to hike first thing tomorrow. Most emerging
market currencies are also firmer. Those that are not, like the South Korean
won and Mexican peso, are nursing minor losses. The surge in Covid cases
weighed on Chinese shares that trade in Hong Kong, while the CSI 300 posted the
smallest of gains. Outside of South Korea, most of the other large bourses rose.
Europe’s Stoxx 600 is recouping yesterday’s small loss to trade near the three-month
high set a week ago. US futures are slightly higher. European benchmark 10-year
yields are 1-2 bp firmer, while the US 10-year Treasury yield is off almost four

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Dollar Jumps, while Surge in Covid Cases Raise Questions about China’s Pivot

Overview: Surging Covid cases in China and Hong Kong
are undermining hopes of a Covid-pivot and the US dollar is broadly higher.
Equities are under pressure to start the week. Most of the large bourses in the
Asia Pacific but Japan, fell earlier today. Europe’s Stoxx 600 is paring last
week’s minor gain, which was the fifth consecutive weekly rise. US stock futures
are lower, while the 10-year US Treasury yield is flat near 3.83%. European
yields are mostly around two basis points firmer, but Italy’s benchmark is up
six basis points, perhaps amid some nervousness ahead of the cabinet vote on
the budget in the middle of the week. Sweden is expected to deliver a 75 bp rate
hike later this week but it is not offering the krona much support. It is
leading losses among the G10 currencies and

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Macro and Prices: Data and Psychology in the Week Ahead

The week ahead has a relatively light economic schedule, punctuated by the US Thanksgiving Day holiday on November 24. Nevertheless, the data highlights include the preliminary November PMIs, Tokyo’s November CPI, and the FOMC minutes from this month’s meeting.

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Higher Japanese CPI Won’t Change the BOJ’s Stance

Overview: The capital markets are heading into the
weekend mostly quietly in a consolidative fashion.  Ambiguous signals from yesterday’s US
equities saw a narrowly mixed performance among the large Asia Pacific bourses,
but of note, Hong and China markets saw this week’s gains trimmed. Europe’s
Stoxx 600 is up around 1% near midday and is slightly above last week’s
close.  US equity futures are trading
with a firmer bias ahead of a large expiration of equity options today.  Coming into today’s session the Nasdaq is up
about 0.25% while the S&P 500 is down as much.  The US 10-year yield is near 3.79%, a couple
basis points firmer on the day, but off nearly seven basis points on the
week.  European yields are mostly 2-4 bp
higher, though the 10-year Gilt is up about six basis points to

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The Dollar Comes Back Better Bid

Animal spirits are retreating today. Asia Pacific and European equities are lower, and US futures are narrowly mixed. US 2- and 10-year yields are edging higher, while European benchmark 10-year yields are mostly softer.  Italy and the UK are notable exceptions.

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Poor Chinese and Japanese Data Are Not Deterring Euphoria

Overview: Recent developments have spurred a euphoria
that is exciting the animal spirits. Greater confidence that US inflation has
peaked, and new initiatives from China, and yesterday’s Biden-Xi meeting are all
feeding this narrative. The dollar, which
slumped last week, is sliding anew today. Strategically, we anticipated the
turn, but tactically, we thought last week’s move had stretched the near-term
technical condition.  The dollar is sharply
lower (~-1%) against half of the G10 currencies and weaker against most emerging
market currencies.  Australian equities
bucked the regional trend that saw the large Asia Pacific bourses rally, led by
Hong Kong’s 4.1% gain.  Europe’s Stoxx
600 is struggling to extend its rally into a fourth session, while US equity futures
are extending

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Dollar Turn More Credible but Maybe Too Much Too Fast

Even before the softer-than-expected US inflation, we had been suggesting the dollar was in the process of carving out a significant high. Our strongest conviction was that sterling bottomed in late September at a record low near $1.0350. Our conviction had also been growing that the greenback has topped against the Canadian dollar, a little shy of our CAD1.40 target.

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Caution Advised in Chasing FX, but Wow!

Overview:  The softer than expected US inflation figures unleashed significant market adjustment that continue to ripple through the capital markets. The modification of some of China’s Covid stance may have also fanned some optimism, but we suggest that measures are modest tweaks, and the surge in infections will prevent the end of disruptive restrictions.

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High Anxiety: China’s Covid and US Inflation

Overview: Anxiety is running high. Rather than ease its Covid restrictions, a surge in cases is seeing more areas in China come under restrictions. The US reports CPI and of the ten reports this year, seven of them have been stronger than expected.

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Markets Consolidate After US Election

Overview: It is difficult to see the impact of the US midterm election in the immediate aftermath. The dollar is stronger against all the major currencies, but this seems to be mostly position adjusting ahead of tomorrow’s CPI report after a pullback in recent days.

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The Dollar Edges Higher

Overview: After selling off amid
speculation that China’s Covid policy was going to ease, we expected the greenback
to recover and consolidate ahead of Thursday’s CPI. This did not materialize
yesterday, but the dollar has come back better bid today. Equity markets are
mostly firmer, but nearly all the large markets, but China/Hong Kong, rising in
the Asia Pacific region. Europe’s Stoxx 600 is posting small gains. It is the third
session in a row of gains. US futures are firm. Benchmark 10-year in Australia
and New Zealand jumped in response to local data (Australian spending and New
Zealand inflation expectations) and a little catch-up after the rise in US and
European yields yesterday. The US 10-year Treasury yield is a little softer at
4.20%, and European yields are 1-2 bp softer. The

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Risk Appetites Survive China Keeping Zero Covid Policy

Overview: Chinese officials denied plans to end the zero-Covid policy
and after a brief wobble, risk assets have traded better. Asia Pacific equities
rallied, led by Hong Kong and mainland stocks that trade in Hong Kong. Europe’s
Stoxx 600 opened lower but recovered and is around 0.5% higher after the 1.8%
gain before the weekend. US futures are firm. Benchmark 10-year yields are mostly
2-4 bp softer in Europe and the US. The dollar is mixed. The dollar-bloc, which
led the advance before the weekend, is nursing small losses, while sterling and
the Swedish krona are up 0.5-0.6%. Emerging market currencies are mostly
firmer, led by a 1.3% rally in the South Korean won. The Chinese yuan is giving
back around a third of its pre-weekend gains and is the weakest in the emerging
market space

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The Week Ahead: How Sticky is US Inflation and How Soft is China’s?

There are three potential inflection points. The first is a
pause from the Fed; if nothing else, Powell signaled it was too early to think
about it. The second is for the Bank of Japan to change monetary policy.
Governor Kuroda has signaled that it is not time. Conventional wisdom is there
will not be a change until Kuroda’s term ends next April. However, we note that
the surveys suggest economists and BOJ inflation forecasts for next year have
converged. The third potential development can alter the investment climate if
China fundamentally changes the way it is resisting Covid. Reports are playing
up this possibility, and it emerged as a significant factor ahead of the
weekend as metals and oil soared while the dollar gave back a chunk of its
post-FOMC gains. However, while there do

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US Dollar Offered Ahead of the Employment Report

Overview: Risk appetites have returned but may be
tested by the US jobs report. News of progress with US auditors in China helped
lift Hong Kong and Chinese equities. Most of the large bourses in the region
also rose. Europe’s Stoxx 600 is up a little more than 1% near midday after
shedding 1.3% over the past two sessions. US futures also are trading with an
upside bias. Benchmark 10-year yields are mostly a little softer today. The 10-year
US Treasury yield is at 4.13%, down slightly. The greenback is softer against all
the major currencies and most of the emerging markets as well. The dollar-bloc
leads the G10, while Thailand and Hungary lead the emerging market currencies. Softer
rates and the US dollar are helping gold recover from the push below $1617
yesterday. It is probing

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Fed’s Hawkishness Roils the Capital Markets

Overview: The Fed delivered the expected 75 bp
rate hike, and although it says it will take into account the cumulative effect
of past hikes and their lagged impact, the takeaway has been a hawkish message.
Risk appetites have evaporated. The dollar is stronger, while stocks and bonds
have been sold. Japan’s markets were spared due to the national holiday, but the
other large markets in the area were sold, lead by the 3% decline in the Hang
Seng. Europe’s Stoxx 600 gapped lower and is off almost 0.9% near midday. US
futures are nursing small losses after yesterday’s stunning downside reversal. Benchmark
yields are 11-15 bp higher in Europe, while the 10-year US Treasury yield is up
nine basis points to 4.19%. The dollar rides high, gaining on all the major and
emerging market currencies.

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It is not So Much about the Fed’s hike Today but the Forward Guidance

Overview: A consolidative tone has emerged ahead of the outcome
of the FOMC meeting later today. The focus is not so much on the 75 bp rate
hike, but on its forward guidance. Many expect the Fed to signal it will return
to a 50 bp move next month, but we are not convinced that it will go beyond indicating
that 50 bp or 75 bp will be debated in December, depending on the data. The market
has a 5% terminal rate discounted. The Fed does not need to validate it now. Next
month it updates the dot plot and that is a more reasonable forum. Equities in Asia
Pacific and Europe rose. US futures are slightly firmer. Benchmark 10-year
yields are mixed. The US is flat around 4.04%, while European yields are mostly
1-3 bp firmer. The dollar is trading with a lower bias, with the fear of intervention

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RBA Hikes by 25 bp, Chinese Stocks Surge, and the Greenback Trades Heavier

Overview: Risk appetites have returned today. Bonds
and stocks are advancing, while the dollar is better offered. Unsourced claims
that Beijing has formed a committee to assess how to exit the zero-Covid policy
sent Chinese shares sharply higher. An index of mainland companies list in Hong
Kong jumped nearly 7% and closed up almost 5.5%. The Hang Seng surged 5.2%,
while all the large markets in the region advanced. Europe’s Stoxx 600
recovered yesterday and is up another 1.1% today. It is the sixth gain in the
past seven sessions. US futures are broadly higher. Benchmark 10-year yields
are mostly 7-10 bp lower, while the US 10-year Treasury yield is off about 9 bp
to 3.96%. The dollar is broadly lower. Among the majors, the Norwegian krone is
leading the charge with a 1% gain ahead of

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The Dollar Returns from the Weekend Bid

The dollar has come back from the weekend bid. After the ECB and BOJ meetings last week, the focus has shifted back to the US where the FOMC meeting concludes in the middle of the week and the October employment report is out ahead of the weekend. Sterling and the yen are the weakest performers among the G10 currencies and are off 0.45%-0.50%. The Antipodeans are performing best and are straddling little changed levels.

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November 2022 Monthly

With this month’s hike, the Federal Reserve would have raised overnight rates by 300 bp while doubling the pace that its balance sheet is shrinking over the past 100 days. The US economy is the largest in the world, and US interest rates and the dollar are vital benchmarks.

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Dollar Slump Stalls Ahead of ECB Meeting

The dollar’s recent losses have left it stretched on a near-term basis after today’s ECB meeting, the focus will shift to the Federal Reserve, next week’s meeting, and the employment report. The greenback is trading with a firmer bias against the G10 currencies, while the emerging market currencies are more mixed.

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Consolidative Tuesday

Overview: The yen and sterling are trading quietly after the recent drama, but with the Party Congress ending, the Chinese yuan has been permitted to fall faster. It approached the 2% band today and its loss of about 0.65% today makes it the weakest among the emerging market currencies.

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Macro and Prices: The Week Ahead

There are five macro highlights in the week ahead. After providing a thumbnail sketch of them, we will look more closely at the price action of the leading dollar-pairs. We suspect that the dollar is in the process of carving out a top amid ideas that a 5.0% terminal Fed funds rate is discounted.

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Currency and Bond Markets Challenge the Bank of Japan

Asia Pacific equities were mixed as the China, Hong Kong, Taiwan, and South Korean markets, among the large markets were unable to gain in the wake of a solid performance in the US. Europe is also struggling to maintain the upside momentum that has lifted the Stoxx 600 for the past four sessions.

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Turn Around Tuesday Aside, is the Dollar Topping?

Global equities moved higher in the wake of the strong gains in the US yesterday. US futures point to the possibility of a gap higher opening today. Most of the large Asia Pacific bourses rallied 1%-2%, with China’s CSI a notable exception, slipping fractionally.

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Sterling and UK Debt Market Respond Favorably to the Return of Orthodoxy

Overview: The markets have returned from the weekend with a greater appetite for risk. Equities and bonds are rallying, and the dollar is better offered. China, Hong Kong, South Korea, and Indian bourses advanced. Mainland shares edged higher even though Zhengzhou, a city of one million people, near an iPhone manufacturing hub was locked down due to Covid. Europe’s Stoxx 600 is up nearly 0.5% to extend its recovery into a third session.

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Is a Failed Bearish Technical Signal Bullish?

By nearly any measure one chooses, the dollar is historically rich. When it does turn, it would likely be dramatic. That is what happened after the stronger-than-expected US CPI figures. However, the lack of follow-through is what one would expect if the greenback’s bull move was intact.  Still, we expect the dollar’s super-cycle is entering a new phase. 

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Can We Look Past US CPI ?

Overview: There seems to be a nervous calm today ahead of the US CPI. The dollar is hovering near JPY147 but the risk of BOJ intervention in the North American session seems slim. The BOE’s emergency Gilt buying operation ends tomorrow and UK bonds yields have tumbled. While equities in the Asia Pacific region lost ground, Europe’s Stoxx 600 is trying to snap a six-day decline.

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The Tragedy of the Commons

Overview: The dramatic moves spurred by the BOE maintaining the end of the week deadline for its Gilt purchases, which have been quite modest given its wherewithal, have calmed. Sterling is firmer on the day, though long-end Gilt yields are higher. The dollar has pushed above JPY145.90, where the BOJ intervened last month.

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New Week, but same Old Stocks (Heavier) and Dollar (Stronger)

The start of the new week has not broken the bearish drive lower in equities. Several Asia Pacific centers were closed, including Japan, Taiwan, and South Korea. China’s markets re-opened, and the new US sanctions coupled with the disappointing Caixin service and composite PMI took its toll.

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No Rest for the Weary: The Week Ahead

In Volcker’s days, when he used money supply to justify tightening monetary policy despite high unemployment, the money supply was released while markets were open, and it was The report. Later, by the mid-1980s, leading up to the Plaza Agreement, the deterioration of the US monthly trade balance was critical.

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Volatility Snaps Near-Term Conviction

Overview:  The markets seem to lack conviction today. Stocks in the Asian Pacific region advanced. Europe’s Stoxx 600 is giving up its earlier advance, and US futures are heavier. Australian and New Zealand bonds played catch-up after the rise in the US and Europe yesterday.

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Dollar Slump Halted as Stocks and Bonds Retreat

Overview: Hopes that the global tightening cycle is entering its last phase supplied the fodder for a continued dramatic rally in equities and bonds. The euro traded at par for the first time in two weeks, while sterling reached almost $1.1490, its highest since September 15.

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Stocks and Bonds Extend Rally

The big bond and stock market seen yesterday has continued today. The Reserve Bank of Australia’s reversion to a quarter-point hike stokes hope that the aggressive tightening cycle more broadly is set to slow.

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Monday Blues

The markets begin October with some trepidation.  Rumors continue to circulate about the health of a large European bank, cross currency swaps are elevated, suggest dollars are more difficult to access. 

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October 2022 Monthly

The historic dollar rally accelerated in September. By some measures, it is as rich as it has been in the half-century since the end of Bretton Woods. Persistent price pressures, a robust labor market in many dimensions, and the Federal Reserve’s latest forecasts warn that financial conditions will tighten into next year

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Week Ahead: Macro and Prices

The market has much to digest. The Bank of England’s new purchases of Gilts coincided with a reassessment of the trajectory of Fed policy. After the hawkish FOMC decision and forecasts, the market briefly thought the terminal rate could be 5.25-5.50% in the middle of next year. However, by the end of last week, it had returned to around 4.5% at the end of Q1 23.

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Wake Me Up When September Ends

Benchmark 10-year yields are off 6-8 basis points in Europe and the United States. The panic seen at the start of the week in the UK has subsided considerably, as sterling recovered to almost where it was a week ago, while BOE’s hand has help steady the Gilt market. Equities in Asia Pacific suffered after the losses in the US yesterday. Hong Kong and India were notable exceptions.

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Semblance of Calm Returns

(Business travel will prevent me from updating the blog for the next couple of days.  Thank you for your patience.  Good luck.)Overview: After extending last week’s moves yesterday, the capital
markets are mostly calmer today. Sterling is firmer, as are UK Gilts.

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Sterling Continues to be Pounded

Overview: Sterling’s pounding continued in Asia where it was driven to $1.0350, a new record low before stabilizing. UK rates also continued to rise sharply after the new government promised more tax cuts next year. The right-wing victory in Italy was not surprising but it kept
pressure on Italian bonds.

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It will be Enough, even if Too Much

Business travel commitments
keep me from updating the blog until the weekend, but I wanted to share a
few thoughts post-Fed. First, the Fed was more
hawkish, and the median dot sees 125 bp increase in the target rate in
Q4.  The hawkish thrust was also evident in projecting that the target
rate will remain higher for longer.  Even in 2025 sees the target rate
above the longer-term (neutral) level.   Second, the market still
does not fully accept the Fed’s message. The unemployment rate (pain) peaks at
4.6% in 2023.  This seems optimistic given the weak growth it
project.  It revised down this year’s growth to 0.2%–stagnation–from
1.7% in June.  Next year’s growth is seen better at 1.2%.  The
projections for the PCE deflator have it remaining above 2% in 2024 while the
Fed funds target

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Putin and Powell Lift Dollar

Overview: Between Putin’s mobilization of 300k Russian troops and Fed
Chair Powell expected to lead the central bank to its third consecutive 75 bp
hike later today, the dollar rides high. It has recorded new two-year highs
against the dollar bloc and Chinese yuan, while sterling was sent to new lows
since 1985. Asia Pacific bourses were a sea of red for the sixth decline in the
regional benchmark in the past seven sessions. Surprisingly, Europe’s Stoxx 600
is trying to snap a six-day losing streak and is posting small gains near midday.
Energy and utilities are leading the move. US futures are steady. Benchmark bond
yields are 3-5 bp lower today. That puts the US 10-year near 3.53%. Gold remains
stuck in the range seen at the end of last week (~$1654-$1680) but is firm. December
WTI is

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Riksbank Hikes 100 bp but the Krona gets No Love

Overview: Yesterday’s late rally in US shares
carried into the Asia Pacific session where all of the large markets advanced. However,
the bears are not abdicating and Europe’s Stoxx 600 is off for the sixth
consecutive session and US futures are trading lower. The sell-off in the bond market
continues. European benchmark yields are mostly 8-10 bp higher and the US 10-year
Treasury yield is up nearly five basis points to approach 3.54%. The two-year continues
to knock on 4%. The US dollar is firmer against all the major currencies. Despite
Sweden’s 100 bp rate, the krona is among the weakest of the G10 currencies,
losing ground against all but the Norwegian krone and New Zealand dollar. The
central bank of South Korea has requested hourly reports from the foreign
exchange traders. This

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The Greenback Firms to Start the New Week, Stocks Slide

Overview:  The busy week is off to a slow
start as Japan is on holiday and the UK and Canadian markets are closed to
honor Queen (Australia will commemorate with a holiday on Thursday). Nevertheless,
the sell-off in equities continues and the US dollar is firm. Most of the large
markets in Asia fell. India is a notable exception. Its benchmark rose for the
first time in four sessions, helped by bank shares and Infosys. Europe’s Stoxx
600 is off for the fifth consecutive session, and US futures are trading broadly
lower. European benchmark yields are mostly 3-6 bp higher. US Treasuries have
not trade in cash market, while the December futures point to a couple basis
points higher yield. The dollar is rising against most currencies today. The Antipodeans
and Scandis are bearing the brunt.

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The Dollar may Stabilize Ahead of the FOMC

Verbal intervention proved sufficient to keep the US dollar below JPY145, but the greenback gained broadly. It rose to new two-year highs against the dollar-bloc and Chinese yuan ahead of the weekend and to levels against sterling not seen since 1985.

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No One Wants a Recession, but Central Banks are willing to Take the Risk to Demonstrate Anti-Inflation Resolve

The
week ahead is busy. Three G7 central banks meet, the Federal
Reserve, the Bank of Japan, and the Bank of England. In addition, Japan and Canada
report their latest CPI readings, and the flash September PMI are
released.  There
are three elements of the Fed’s meeting that are worth previewing. First is the
interest rate decision itself and the accompanying statement. Ironically, this
seems to be the most straightforward. Even before the August CPI
surprise, the Fed funds futures market was confident of another, the third, 75
bp increase. The labor market’s strength gives the Fed confidence
that the economy can still handle the expeditious attempt to bring inflation
back to target. The statement itself need not change very
much. It may recognize the weakening of the housing market or

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The Dollar Heads into the Weekend Well Bid

Overview:  The dollar is well bid. It has risen to new two-year highs against
the dollar bloc and Chinese yuan. Aided by worse than expected retail sales,
sterling, on its anniversary of leaving the European Exchange Rate Mechanism fell
to its lowest level since 1985. This fits into the broader risk-off move. The
S&P 500 fell to new two-month lows yesterday, and FedEx warnings after the
bell yesterday add to the string of worrisome comments from leading US corporates.
Asia Pacific equities bled lower. The Nikkei, Shanghai and Shenzhen, Australia,
and Index fell 1%-2% today. The MSCI Asia Pacific Index fell for the fifth
consecutive week. Europe’s Stoxx 600 is off more than 1% as it slides for the
fourth consecutive session. US futures are trading more than 1% lower, as well.
Bonds are

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Calmer Capital Markets…for the Moment

Overview: The capital markets are quiet today. Equity markets and bond yields have a slight upside bias, while the dollar is little changed. Despite reports that the lockdown in Chengdu is easing, Chinese equities underperformed in the Asia Pacific region.

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Markets Remain on Edge

Overview: The firmer than expected US CPI set off a major reversal of the recent price action. It is a two-prong issue. The first is about inflation and the squeeze on the cost-of-living.

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Will the Dollar Recover After CPI?

Overview: The US dollar remains offered ahead of today’s CPI report. Most European currencies are outperforming the dollar bloc, and the greenback is holding inside yesterday’s range against the yen. Most emerging market currencies are firmer, as well.

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Careful about Chasing the Dollar Lower in North America Today

The bout of profit-taking on long dollar positions begun last week has carried into the start of this week. Despite the escalating rhetoric, the yen is not participating today and is trading within the pre-weekend ranges. The greenback’s lows have been set in the European morning and have stretched the intraday momentum indicators, suggesting that North American dealers may not follow suit.

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The Dollar: Was it the ECB and BOJ or the Bounce in Equities?

After extending its recent gains, the dollar fell sharply at the end of last week. Many factors could have sparked the pullback, including the stronger expressions of concern by Japanese officials with an implicit threat of intervention and perceptions of an increased likelihood that the ECB will deliver another 75 bp hike next month.

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US CPI in Focus

The US dollar rally is of historic proportions. Its climb is relentless, though there was around a 4-7% pullback for a few weeks beginning in mid-July. Since then, the greenback has made up for lost time and appreciated to multiyear highs against most of the major currencies. The first real bout of profit-taking in nearly a month seen in recent days looks corrective in nature.  

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Sharp Dollar Setback may offer Bulls a Bargain

The dollar is having one of the largest setbacks in recent weeks. We expected the dollar to soften ahead of next week’s CPI, which may fan ideas/hopes of a peak in US price pressures, but the magnitude and speed of the move is
surprising, and likely speaks to the extreme positioning.

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ECB: Coping with Conflict, Covid, and Climate

Overview: Heightened warnings from Japanese officials has helped the dollar steady against the yen, while the euro hugs parity ahead of the outcome of the ECB meeting, where a 75 bp hike is anticipated. Most Asian equity markets rallied in the wake of yesterday’s gains in the US.

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The Yen and Yuan Continue to Weaken

While the US dollar appears to be consolidating its recent gains, the Japanese yen and Chinese yuan remain under pressure. Officials seem more concerned about the pace of the move than the level it has reached. New and large fiscal initiatives that the new UK government has floated has failed to change sentiment toward sterling, which is the second weakest major currency today after the Japanese yen.

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What Happened Monday

The US and Canada may have been on holiday on September 5, but the world waits for no one and there were several significant developments. First, Gazprom’s decision to indefinitely suspend gas shipments through the Nord Stream 1 pipeline announced before the weekend saw the European natgas benchmark soar 23.7.

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Nord Stream’s Indefinite Shutdown Keeps Dollar Bulls in Control

Over the past month, the yen and sterling have been the weakest of the major currencies, off 5.00%-5.40%. The yen is at 24-year lows, while sterling swooned nearly eight cents in less than four weeks toward the March 2020 extreme (~$1.14). The yen’s weakness is more clearly a function of the divergence of policy.   The correlation with US Treasuries has been too strong and too stable to dismiss easily. Back in July, when the dollar had approached JPY140, Japanese officials expressed various degrees of consternation. Talk of material intervention always seemed wide of the mark to us. Officials seemed to be more concerned about the pace of the move rather than the direction or level. Volatility has not returned to the highs seen earlier despite the recent slide in the yen, and Japanese

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RBA, BOC, and ECB Meetings and more in the Week Ahead

All
three major central banks that meet in the coming days will hike rates. The question is by how much. The Reserve Bank of Australia makes its
announcement early Tuesday, September 6. One of the challenges for policymakers and investors is
that Australia reports inflation quarterly. The Q2 estimate was released on July
27. It showed prices accelerating to 6.1% year-over-year from 5.1% in Q1. The
trimmed mean rose to 4.9% from 3.7%, and the weighted median stood at 4.2% from 3.0%. Starting in October, the Australian Bureau of Statistics (ABS) will
begin reporting a monthly estimate released four weeks after the end of
the reference month. It will cover 62%-73% of the weight of the quarterly
basket, which will remain the key measure. Methodological differences will
mean that the

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Can the US Employment Report be Anti-Climactic Ahead of Long North American Weekend?

Overview:  Nothing is decisive, but the recent
string of data pushes the needle a little more to a soft landing for the US
economy and gave the US dollar another leg up. The risk is that some of the buying
drained some of the interest that may materialize after today’s US jobs report. The
greenback is softer against the major currencies except the Japanese yen. The
dollar is extending its rally against the yen for the sixth consecutive session
and reached almost JPY140.45 earlier today. The firmer euro tone, after holding
above $0.9900 on yesterday’s push is lending support to the central European
currencies, but most of the emerging market currencies are softer. Despite the
late rally in the S&P 500 yesterday and positive close, the large equity
markets in the Asia Pacific region

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September 2022 Monthly

The highlights of September include continued substantial rate hikes by the major central banks, save Japan. The Tories will pick a new leader, who will become the next prime minister of the UK. Italy looks determined to have a right-wing government. Sweden goes to the polls in mid-September.

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EMU August CPI at 9.1%, while the Core Rate Jumps to 4.3%

Overview: The rise in global interest rates continues. The US 10-year yield is a few basis points near 3.15% and European benchmarks are mostly 5-6 bp higher. Of note, the sharp sell-off in UK Gilts has being extended. Yesterday’s 10 bp rise has been followed by another 14 bp surge today. Italian bonds are also getting hit. The 10-year yield is up a little more than 10 bp.

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Stocks and Bonds Sell Off, while the Dollar Rallies

Overview: The reverberations from last week continue to roil the capital markets today. Equities and bonds have been sold and the greenback bought. Most of the large markets in Asia Pacific fell by more 2%, including Japan’s Nikkei, Taiwan’s Taiex, and South Korea’s Kospi.

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The Week Ahead: Dollar Bulls Still in Charge

The poor preliminary PMI readings, the ongoing European energy crisis, and the recognized commitment of most major central banks to rein in prices through tighter financial conditions are risking a broad recession. These considerations are weighing on sentiment and shaping the investment climate. Most high-frequency data due in the days ahead will not change this, even if they pose some headline risk.  

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Jackson Hole and More

Overview: Ahead of the much-anticipated speech by
Federal Reserve Chair Powell, the Fed funds futures are pricing in about a 70%
chance of a 75 bp hike next month.  The
US 10-year yield is up nearly five basis points today to 3.07% and the two-year
yield is firm at 3.38%.  Asia Pacific equities
were mostly higher, with China the main exception among the large markets, after
US equities rallied yesterday.  Europe’s
Stoxx 600 is off about 0.3% to bring this week’s loss to a little over 1%.  It would be the first back-to-back weekly loss
in two months.  US futures are seeing
yesterday’s gains pared.  Europe’s
benchmark 10-year yields are mostly 4-8 bp higher.  The greenback is mixed with the European currencies
mostly higher, led by the euro, pushing above parity where options for 1.5 bln

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Dollar Longs Pared as Jackson Hole Gathering is set to Start

Overview: It seems that many market participants had
the same thing in mind, cut dollar longs before the Jackson Hole gathering. The
Antipodeans lead the majors move, encouraged perhaps by China’s new economic
measures, with around a 1% gain. The euro and sterling are up about 0.35% and
are the laggards. Emerging market currencies are higher as well, with the
notable exception of India and Turkey, which are nursing small losses. Equities
are having a good day. All the major bourses, but India, rose in the Asia
Pacific area, led by the 3.6% surge in HK. South Korea’s 25 bp hike did not
prevent the Kospi from rallying over 1% today. The Stoxx 600 is up by about
0.3%, and US futures are 0.5%-0.6% better. European 10-year benchmark yields are
4-7 bp lower and the periphery is doing better

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New Recession Worry Stalls Dollar Express but Doesn’t Derail It

A simply dreadful flash US PMI stopped the dollar’s four-day rally in its tracks. It followed news that the eurozone, Japan, and Australia’s composite PMIs are below the 50 boom/bust level. However, the dollar recovered, even if not fully as the market seemed unconvinced that the data could change Fed Chair Powell’s message at Jackson Hole on Friday. A consolidative tone is evident today. Asia Pacific equities were mixed.

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Surging Energy Prices Pushing Europe Closer to Recession

The poor eurozone PMI underscores likely recession and weighs on the single currency, which was sold to a new 20-year low.  Rather than a “Turn Around Tuesday”  a broadly consolidative session is unfolding. Asian and European equities are weaker, while US futures are positive but little changed.  Benchmark 10-year bond yields are mostly firmer and the premium offered by Europe’s periphery is edging higher.  The US 10-year is little changed near 3.02%.

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No Relief for the Euro or Sterling

Overview: The euro traded below parity for the second time this year and sterling extended last week’s 2.5% slide. While the dollar is higher against nearly all the emerging market currencies, it is more mixed against the majors.

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Flash PMI, Jackson Hole, and the Price Action

For many, this will be the last week of the summer. However, in an unusual twist of the calendar, the US August employment report will be released on September 2, the end of the following week, rather than after the US Labor Day holiday (September 5). 

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The Dollar is on Fire

The dollar is on fire. It is rising against all the major currencies and cutting through key technical levels like a hot knife in butter. The Canadian dollar is the strongest of the majors this week, which often outperforms on the crosses in a strong US dollar environment. It is off 1.5% this week.

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Fed Minutes were Not as Dovish as Initially Read

Overview: The sell-off in European bonds continues today. The 10-year German Bund yield is around four basis points higher to bring the three-day increase to about 22 bp. The Italian premium over Germany has risen by almost 18 bp over these three sessions. 

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Markets Look for Direction

Overview: The biggest development today in the capital markets is the
jump in benchmark interest rates.  The US
10-year yield is up five basis points to 2.86%, which is about 10 bp above
Monday’s low.  European yields are up 9-10
bp.  The 10-year German Bund yield was
near 0.88% on Monday and is now near 1.07%. 
Italy’s premium over German is near 2.18%, the most in nearly three
weeks.  Although Asia Pacific equities
rallied, led by Japan’s 1.2% gain, but did not include South Korea, European equities
are lower as are US futures.  The Stoxx
600 is struggled to extend a five-day rally. 
The Antipodeans are the weakest of the majors, but most of the major
currencies are softer. The euro and sterling are straddling unchanged levels
near midday in Europe.  Gold is soft in
yesterday’s range,

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Greenback Remains Firm

Overview: After retreating most of last week, the US
dollar has extended yesterday’s gains today. The Canadian dollar is the most resilient,
while the New Zealand dollar is leading the decline with a nearly 0.75% drop ahead
of the central bank decision first thing tomorrow. The RBNZ is expected to
deliver its fourth consecutive 50 bp hike. Most emerging market currencies are
lower as well, led by central Europe. Equities in Asia Pacific and Europe are
mostly higher today. Japan and Hong Kong were exceptions, and China was mixed with
small gains in Shanghai and Shenzhen composites, but the CSI 300 slipped. Europe’s
Stoxx 600 is stretching its advance for the fifth consecutive session. It is at
two-month highs. US futures are softer. The US 10-year yield is slightly firmer
near 2.80%, while

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China Disappoints and Surprises with Rate Cut

Overview: Equities were mostly higher in the Asia
Pacific region, though Chinese and Hong Kong markets eased, and South Korea and
India were closed for national holidays. Despite new Chinese exercises off the
coast of Taiwan following another US congressional visit, Taiwan’s Taiex gained
almost 0.85%. Europe’s Stoxx 600 is advancing for the fourth consecutive session,
while US futures are paring the pre-weekend rally. Following disappointing data
and a surprise cut in the one-year medium-term lending facility, China’s
10-year yield fell to 2.66%, its lowest in two years. The US 10-year is soft
near 2.83%, while European yields are mostly 2-4 bp lower. Italian bonds are
bucking the trend and the 10-year yield is a little higher. The Antipodeans and
Norwegian krone are off more than 1%, but

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Is the Dollar’s Month-Long Pullback Over?

The bullish dollar narrative was fairly straightforward. Yes, the US main challengers, China and Russia, have been hobbled in different ways by self-inflicted injuries. Still, the driver of the dollar was the expected aggressive tightening by the Federal Reserve.

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Week Ahead: More Evidence US Consumption and Output are Expanding, and RBNZ and Norges Bank to Hike

After two-quarters of contraction, many still do not accept that the US economy is in a recession. Federal Reserve officials have pushed against it, as has Treasury Secretary Yellen. The nearly 530k rise in July nonfarm rolls, more than twice the median forecast in Bloomberg’s survey, and a new cyclical low in unemployment (3.5%) lent credibility to their arguments. If Q3 data point to a growing economy, additional support will likely be found.  While the interest rate-sensitive housing sector may still feel the squeeze, we note that activity is at historically strong levels. Housing starts are expected to have fallen for the third consecutive month in July. That would be the longest decline since the last four months of 2018. However, around 1.5 mln annualized pace, starts are still

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Heading into the Weekend, Dollar’s Downside Momentum Stalls

Overview: The markets are putting the finishing
touches on this week’s activity. Japan, returning from yesterday’s holiday
bought equities, and its major indices jumped more than 2%. China, South Korea,
and Australia struggled. Europe’s Stoxx 600 is firmer for the third consecutive
session. It is up about 1.3% this week. US futures are also firmer after reversing
earlier gains yesterday to close lower on the day. The US 10-year yield is flat
near 2.88%, while European benchmarks are 4-6 bp higher. The greenback is mixed.
The dollar-bloc currencies and Norwegian krone are slightly firmer, while the
Swedish krona, sterling, and the yen are off around 0.3%-0.6%. Emerging market
currencies are also mixed, though the freely accessible currencies are mostly
firmer. The JP Morgan Emerging Market

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US Dollar Soft while Consolidating Yesterday’s Drop

Overview: The US dollar is consolidating yesterday’s losses but is still trading with a heavier bias against the major currencies and most emerging market currencies. The US 10-year yield is soft below 2.77%, while European yields are mostly 2-4 bp higher.

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US Dollar Offered but Stretched Intraday

The US dollar is trading heavily against all the major currencies, led by the Norwegian krone and euro. Emerging market currencies are also firmer. However, risk-appetites seem subdued. Even though most large bourses in Asia Pacific advanced but Japan and Hong Kong, European markets are nursing small losses and US futures are little changed. 

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Dog Days

The dog days of August for the Northern Hemisphere are here and the capital markets are relatively subdued. Equities are firmer. The notable exceptions in Asia was China, Hong Kong, and Taiwan. The MSCI Asia Pacific Index has advanced for the last three weeks.

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Inflation

(Traveling and unable to provide a technical overview this week.) Rising price pressures,
stronger and more persistent than generally expected, has been the main
challenge for consumers, businesses, and policymakers. It will stay top of mind in the week
ahead as both the world’s two largest economies, the US and China, report July
consumer and producer prices.  During the Great Depression, the
central governments discovered their balance sheets, and budget deficits became
a nearly permanent fixture. This is true even for countries like Germany, which ostensibly
shunned Keynesian demand management and embraced "ordo-liberalism."
During the Global Financial Crisis, the central bank balance sheet was called
into action as policy rates hit zero (and fell into negative territory for the

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Downside Risks to the US Employment Report?

Overview: The US dollar enjoys a firmer bias against
the major currencies ahead of the July employment data. Emerging market
currencies are mixed. Asian currencies are generally firm while central Europe is a bit softer. Some detect a relaxation in tensions around Taiwan, though
China’s aerial harassment continues. Taiwanese shares jumped 2.25% to lead the
region that saw China’s CSI 300 rally over 1%. Europe’s Stoxx 600 is giving
back yesterday’s 0.2% gain, even though Germany, France, and Spain reported stronger
than expected June industrial output figures. US futures are narrowly mixed.
The 10-year US Treasury yield is around 2.69%, flattish, while European yields
are slightly firmer. Gold approached $1800 but has been turned back. It is near
$1785 near midday in Europe as it

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Over to the BOE

Overview: Strong gains in US equities yesterday and
easing fears following Pelosi’s visit to Taiwan helped lift most Asia Pacific
equities, with Hong Kong leading the way with a 2% rally. Taiwan, Australia,
and India did not participate in the regional rally. The Stoxx 600 is edging higher
today. It was flat on the week through yesterday. US futures are a little
firmer. The greenback is offered against the major currencies led the Antipodeans.
The Japanese yen continues to pare its recent gains, encouraged by the recovery
in US yields. Most emerging market currencies are also trading firmer. A few
central European currencies have joined the Indian rupee to trade a bit lower. The
10-year JGB, which is capped at 0.25%, is below 0.18% today. The US benchmark
is firm near 2.73%, while

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Market Takes China’s Response in Stride, Risk Appetites Recover

Overview: The market is
judging China’s response to Speaker Pelosi’s visit in a mild way and risk
appetites returned. Equity markets are higher, even though Chinese shares
weakened. Europe’s Stoxx 600 is edging higher after two days of small loses,
and US futures enjoy a firmer bias. The surge in US rates yesterday has calmed.
The US 10-year yield is firm near 2.76% and the 2-year yield is up a
couple of basis points near 3.07%. European yields are 4-5 bp higher and the peripheral
premium has narrowed a little. The dollar, which was buoyed by the jump in rates
yesterday, is mostly softer today. The Scandis lead the move, while the Swiss
franc and New Zealand dollar are softer. Swiss CPI was in line with expectations,
with the EU-harmonized measure, rising to 3.3% from 3.2%, easing fears

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Aussie Hit with Profit-Taking after RBA Hikes 50 bp

Speaker Pelosi’s visit to Taiwan has added to the risk-off mood of the capital markets today. Most of the large Asia Pacific equities sold off, with Australia and India being notable exceptions. Europe’s Stoxx 600 is off for the second consecutive session, and by the most (~0.60%)
since mid-July. US futures are also weaker. Benchmark 10-year rates are lower.

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Yen Squeeze Continues

The US dollar begins the new month better offered. It is softer against all the major currencies. Short yen positions continue to get unwound, which is leading the move, followed  by the Antipodeans, where the Reserve Bank of Australia is expected to hike rates tomorrow.

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Macro and Prices

Next week, there are three big events:  the US jobs report, the Reserve Bank of Australia meeting, and the Bank of England’s meeting. That said, the final PMI readings may be more helpful this time than we often see because of how quickly it appears activity has stalled.

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August 2022 Monthly

We can hope that August will be quiet. The Federal Reserve, the European Central Bank, and the
Bank of Japan do not meet until September. With a snap Italian election on September 25, an Italian political storm may wait for vacationers to return.

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EMU GDP Surprises, while the Yen’s Short Squeeze Continues

Overview: The month-end and slew of data is making for a
volatile foreign exchange session, while the rash of earnings has generally
been seen as favorable though weakness was seen among the semiconductor chip
fabricators. China, Hong Kong, and Japanese equities fell but the other large
markets in the region rose.

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Fed Day

Overview: Better US news from the likes of Google, Microsoft, and Texas Instruments has helped lift sentiment today and is encouraging a more risk-on mood ahead of the FOMC meeting. News that US President Biden and China’s Xi will talk tomorrow for the second time this year may be notable but does not appear to be impactful in the capital markets.

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Greenback Jumps Back

Overview: With the exception of Japan, Taiwan, and India, the large equity
markets in the Asia Pacific region traded higher today. The Hang Seng led the
move (1.65%) amid reports that Alibaba will seek its primary listing there. Europe’s
Stoxx 600 is edging higher today. If it can hold on to the gains, it will be
the fourth consecutive rise, the longest advance since May. US futures are slightly
under water. Benchmark 10-year yields are mostly lower, with the US off a couple
of basis points to 2.77%. European yields are mostly 4-7 bp lower, but Italy’s
10-year is off only one basis point. The US dollar is mostly firmer. Among the
majors, the yen is the exception, and it is flat to slightly higher. The
pressure on the euro is dragging the central European currencies lower. The
Philippine

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Greenback Softens, but Think Twice about Chasing It

Overview: Aside from political economic risks, three
other challenges are emerging. First, the new sub-variant of Covid is spreading
rapidly. BA5 reportedly is accounting for around 80% of the new cases. It is
better able to evade antibodies from vaccines and earlier infections. Hospitalization
rates are also climbing. Dining, retail, and travel may be impacted. Second,
the World Health Organization declared monkeypox a global emergency. The US may
make a similar declaration shortly. It would ostensibly facilitate greater
global cooperation. Third, the heatwave looks set to continue for the coming
days. It is affecting energy production and consumption as well shipment using
some waterways, like the Rhine. Asia Pacific equities fell after US losses
ahead of the weekend. European stocks

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The Fed and GDP: Week Ahead

The outcome of the Federal
Reserve Open Market Committee meeting on July 27 is the most important event in
the last week of July. After a brief flirtation with a 100 bp hike after the June
CPI accelerated, the market has settled back to a 75 bp move. The Fed
funds futures are pricing about a 10% chance of a 100 bp
hike. The market anticipates that after the second 75 bp hike, the Fed will most likely return to a 50 bp hike in September.  Fed Governor Wall, a leading
hawk, pushed back against the larger move but kept the door open pending new
data. He
specifically cited retail sales and the housing data. Retail sales were
stronger than expected (1.0% vs. 0.9% median forecast in Bloomberg’s survey), and the May series was revised to show a 0.1% decline instead of -0.3% as initially

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Dismal EMU Flash PMI on Heels of First ECB Rate Hike since 2011

Overview:  The euro is over a cent lower from yesterday’s peak, pressured by
the drop in the flash PMI composite below 50 for the first time since early
last year. More generally, the flash PMIs have shown the global economic
momentum is waning, and the bond markets have responded accordingly. The US
10-year yield is flirting with 2.80%, its lowest level in more than two weeks. European
yields are 15-20 bp lower and the spread between Italian and German bonds has stabilized.
Equities in the Asia Pacific region were mixed. Of the major markets, only
China’s CSI 300 finished lower on the week. Europe’s Stoxx 600 is up about 0.5%.
If it holds on to these gains, it will be the best week (~3.1%) since March. US
futures are softer. Most of the major currencies, led by the euro, are trading

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Italian Politics Complicate the ECB’s Task

The appetite for risk seen earlier this week is fading. Yesterday’s US equity gains helped lift most of the large markets in the Asia Pacific region, but China’s CSI 300 fell 1.1%, giving back most of this week’s gains as credit issues from the property sector haunt sentiment.

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Calm before the Storm?

The biggest rally in the S&P 500 in three weeks helped lift global equities today. The MSCI Asia Pacific index rose for the third consecutive session, the longest streak this month. Europe’s Stoxx 600 is up for a fourth day and is at its best level since mid-June.

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The Dollar is on its Back Foot

The dollar’s downside correction continues today, helped by hawkish signals from the Reserve Bank of Australia and unnamed sources who have played up the chances of a 50 bp hike by the European Central Bank on Thursday.

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Euro Parity Holds ahead of US CPI

Overview: The US dollar is consolidating with a slight downside bias ahead of the June CPI report. The euro held above $1.00 but is still pinned in the trough. The rate hike by the Reserve Bank of New Zealand failed to have much impact.

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Euro Tests Parity

Equities remain under pressure as investors contemplate tighter financial conditions and the risks of recession. Most of the large equity markets in the Asia Pacific region sold-off, led by a 2.7% drop in Taiwan.

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Monday Blues

Overview:  The US dollar is bid against most currencies today, encouraged not just by good news in the US and poor news out of China, where Covid is flaring up and new social restrictions are fared, while Macau has been lockdown for a week.

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What Happened Today in a Few Bullet Points

1. The most important thing to appreciate is that the market has moved to price not one but two cuts next year.  The first is priced into the September Fed funds futures and the second is in the Dec Fed funds futures. 

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Macro and Prices

(Combining the weekend macro commentary and price action review in one note.  Check out the July monthly.) Three economic reports highlight the week ahead:  Japan’s labor cash earnings at the start of the week and the US employment report and China’s CPI at the end of the week.

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Spanish Inflation Shocks

Overview: The sharp sell-off in US equities yesterday, led by tech, is weighing on today’s activity. Most of the large Asia Pacific markets excluding Japan and India lost more than 1% today.

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No Turn Around Tuesday

Overview: The global capital markets are calm today. Most of the large bourses in the Asia Pacific extended yesterday’s gain. Europe’s Stoxx 600 is advancing for the third consecutive session and is near two-and-a-half week highs.

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Consolidation in FX Featured

Overview: The strong equity market rally seen at the end of last week is carrying into today’s activity. Most of the large markets in Asia Pacific rose by at least 1%.

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The Dollar: Don’t Get too Far Ahead of the Story

The most important development in foreign exchange probably took place in the interest rate market last week. A series of disappointing US economic data and the Fed’s “unconditional” commitment to rein in inflation have heightened concerns that economic weakness will limit the Fed’s ability to hike rates. 

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The End Game Approaches

The pendulum of market sentiment swings dramatically.  It has swung from nearly everyone and their sister complaining that the Federal Reserve was lagging behind the surge in prices to fear
of a recession.

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Risk Appetites are Fickle

Overview: Yesterday’s strong US equity gains failed to carry over into today’s session. Japanese and Australian shares fared the best among the large Asia Pacific market, with the Nikkei off less than 0.4% and the ASX off less than 0.25%.

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Dollar Jumps, Stocks and Bonds Slide

The prospect of a more aggressive Federal Reserve policy has spurred a sharp sell-off in global equities and bonds and sent the dollar sharply higher. The large Asia Pacific bourses were off mostly 2%-4%.

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Greenback Poised to Challenge May Highs

The firmer than expected US CPI did not change expectations that the Federal Reserve will hike the Fed funds target by 50 bp on June 15. What it did was boost the chances that the 50 bp steps will continue through at least November.

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Over to the ECB

Overview: Equity markets in Asia Pacific and Europe are weaker.  The main exception in Asia Pacific was India, where the market rose by about 0.75%. 

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The Greenback Bounces Back

Overview: After modest US equity gains yesterday, the weaker yen and Beijing’s approval of 60 new video games helped lift most of the large markets in the Asia Pacific region.

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Moderating Labor Market is what the Fed Wants

Overview: For the large rally in US stocks yesterday and the sell-off in the dollar, US rates were surprisingly little changed. This set the tone for today’s action, ahead of the US employment data. Asia Pacific equities moved higher and Europe’s Stoxx 600 has edged up to extend yesterday’s rise. The 10-year US Treasury yield is little changed, hovering around 2.91%. European benchmark yields are 1-3 bp higher.

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Dollar Gains Pared

Asia Pacific equities were mostly lower.  China and India bucked the trend.  Europe’s Stoxx 600 is steady with no follow through selling after yesterday reversal. US index futures are posting modest gains and are trying to snap a two-day drop. 

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Bank of Canada’s Turn

Overview: The recent equity rally is stalling. Asia Pacific equities were mixed, with Japan, South Korea, and Australia, among the major bourses posting gains. Europe’s Dow Jones Stoxx 500 is slipping lower for the second consecutive session, ending a four-day bounce. US equity futures are little changed.

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Dollar and Yen Surge

Overview: Global equities are bleeding lower. Several large markets in the Asia Pacific region, including Hong Kong, Taiwan, and India are off more than 2%. Japan and Australian bourses fell by more than 1.5%.

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Greenback Softens Ahead of CPI

Overview: It appears that investors have become more concerned about growth prospects and less about inflation in recent days. The US 10-year yield that had flirted with 3.20% at the start of the week is now around 2.93%.

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No Rest for the Weary

Overview: Risk appetites are improving on the margin. Asia Pacific stocks still fell after the sharp losses on Wall Street on Monday. Still, China, Taiwan and Indian equities traded higher. Europe’s Stoxx 600 is snapping a four-day 6.5%+ slide and is up around 1.2% in late European morning turnover.

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Fed Day

Overview: The markets are mostly treading water ahead of the FOMC decision later today. Tech stocks tumbled in Hong Kong and the Hang Seng fell a little more than 1%, while India was the worst performer in the region falling over 2% following an unexpected and intra-meeting hike by the Reserve Bank of India.

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RBA Surprises with a 25 bp Hike

Overview: The large bourses in Asia Pacific except Hong Kong eased.  Japan and China’s mainland markets are closed for the holiday.  Europe’s Stoxx 600 is up about 0.6%.  It gapped lower yesterday and has not entered the gap today.  US futures are a little softer. 

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May 2022 Monthly

The general contours of the business and investment climate are being shaped by three forces.  First, Russia’s invasion of Ukraine and the sanctions boost price pressures and slow growth.

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The Yen Bounces after 13-Day Slide and BOJ Defends Yield Cap

Overview: The record-long yen slide has stalled just shy of JPY129.50, even though the Bank of Japan defended its Yield-Curve Control cap on the 10-year bond and will continue to do so for the next four sessions. The greenback fell to almost JPY128 before steadying.  China again defied expectations for lower rates (loan prime rate), the yuan’s sell-off accelerated and slide to its lowest level since last October.

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Yen Blues

Benchmark 10-year bonds yields in the US and Europe are at new highs for the year.  The US yield is approaching 2.90%, while European rates are mostly 5-8 bp higher.  The 10-year UK Gilt yield is up nine basis points to push near 1.98%. The higher yields are seeing the yen’s losing streak extend, and the greenback has jumped 1% to around JPY128.45  The dollar is trading lower against the other major currencies but the Swiss franc.

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Greenback Starts New Week on Firm Note

Overview: With many financial centers, especially in Europe, closed for the long holiday weekend, risk-appetites remain in check. Most Asia Pacific markets fell, and poor earnings from Infosys and Tata Consultancy, saw India pace the decline with a 2% drop. US futures are also trading with a heavier bias. 

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Good Friday

Overview:  Most centers are closed for the holidays today.  The Asia Pacific equity markets were open and moved lower following the losses on Wall Street yesterday.  The weakness of the yen failed to underpin Japanese shares.

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Short Covering in the US Treasury Market Extends the Yield Pullback

Overview: What appears to be a powerful short-covering rally in the US debt market has helped steady equities and weighed on the dollar.  Singapore and South Korea joined New Zealand and Canada in tightening monetary policy.  Attention turns to the ECB now on the eve of a long-holiday weekend for many members.  The tech-sector led the US equity recovery yesterday, snapping a three-day decline.  Most of the major markets in Asia Pacific advanced but Taiwan and India. 

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New Day, Same as the Old Day

Overview:  It is a new day, but with the continued rise in interest rates and weaker equities, it feels like yesterday.  Only China and Hong Kong among the major markets in Asia Pacific resisted the pull lower.  Europe’s Stoxx 600 is off by more than 0.5% led by health care and real estate. It is the fourth loss in five sessions and brings the benchmark to its lowest level since March 18.  US futures are flattish. 

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Equities Finding a Bid in Europe After Sliding in Asia Pacific

Overview:  The capital markets are calmer today.  The market is digesting the FOMC minutes, where officials tipped an aggressive path to shrink the balance sheet and confirmed an “expeditious” campaign to lift the Fed funds rate to neutrality.  Benchmark 10-year yields are softer, with the US off a couple basis points to 2.58%.  European yields are 1-3 bp lower. 

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RBA Drops “patience” to Send the Aussie Higher

Overview: The Reserve Bank of Australia hinted that it was getting closer to a rate hike.  The Australian dollar was bid to its best level since the middle of last year.  Australian stocks advanced in a mixed regional session while China and Hong Kong markets were closed for the local holiday.  BOJ Kuroda called the yen’s recent moves “rapid.”  The yen is sidelined today as the dollar weakens against other major currencies, led by the Antipodeans. 

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The Greenback has Struggled even as Rate Expectations Rise

The effectiveness of the Federal Reserve’s communication seems clear. The market has nearly 90 bp of tightening discounted here in Q2. This means that after a 25 bp hike to initiate the tightening cycle, the labor market’s strength will allow the central bank to accelerate the pace.

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Calmer Markets: Hope Springs Eternal

Overview:  Interest rates continue to rise, but equities are looking through it today and the dollar is drawing less succor.  Asia Pacific equities were mostly higher.  With half of Shanghai in lockdown, Chinese equities were unable to join the regional advance.  Europe’s Stoxx 600, led by energy and consumer discretionary sectors, is rising for the third consecutive sessions. US futures have a small upward bias. 

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Yields Jump, Greenback Bid

Overview: Yields are surging.  Canada and Australia’s two-year yields have jumped 20 bp, with
the US yield up 10 bp to 2.37% ahead of the $50 bln sale later today.  The US 10-year yield has risen a more modest three basis points to 2.50%, flattening the 2-10-year yields curve.  The 5–30-year curve has inverted for the first time since 2016. 

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Cautious Markets after China Disappoints

Overview: Ukraine’s Mariupol refuses to surrender as the war is turning more brutal according to reports.  Iran-backed rebels in Yemen struck half of a dozen sites in Saudi Arabia, driving oil prices higher.  China’s prime lending rates were unchanged.  The MSCI Asia Pacific Index, which rallied more than 4% last week, traded heavily today though China and Taiwan’s markets managed to post small gains.  Tokyo was closed for the spring equinox.

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FX Daily, March 17: Investors are Skeptical that the Fed can Achieve a Soft-Landing. Can the BOE do Better?

EUR/CHF and USD/CHF, March 17

Overview:  The markets continue to digest the implications of yesterday’s Fed move and Beijing’s signals of more economic supportive efforts as the Bank of England’s move awaited.  The US 5–10-year curve is straddling inversion and the 2-10 curve has flattened as the Fed moves from one horn of the dilemma (behind the inflation curve) to the other horn (recession fears).  Asia Pacific equities extended yesterday’s surge.  The Hang Seng led the charge with a 6.7% gain. 

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Fed Delivers Hawkish Hike

The Federal Reserve hiked the Fed funds target rate by 25 bp as widely anticipated.  It clearly signaled it was beginning an ongoing hiking cycle.  The FOMC statement also indicated the balance sheet roll-off would begin at a coming meeting.  The uncertainty posed by Russia’s invasion of Ukraine was acknowledged, but the FOMC recognized that in the first instance it boosts price pressures while also weakening growth. 

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China and Hong Kong Stocks Plummet, Yields Soar

Overview: While the World Health Organization debates about downgrading Covid from a pandemic, the rise China and Hong Kong cases is striking.  A lockdown in Shenzhen and restrictions in Shanghai, coupled with a record fine by PBOC officials on Tencent drove local stocks sharply lower.  China’s CSI 300 fell 3% and a measure of Chinese stocks that trade in HK plunged more than 7%. 

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Risk Assets Given a Reprieve

Overview: US equities failed to sustain early gains yesterday, but risk appetites have returned today.  Asia Pacific equities had a poor start, with Chinese and Japanese indices losing ground, but the equity benchmarks in Taiwan, Australia, India, and most of the smaller markets traded higher.  Taiwan’s 1.1% gain is notable as foreign investors continued to be heavy sellers. 

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Vladimir Nogoodnik Roils Markets

Overview:  The economic disruption seen since the US warning of an imminent Russian attack on February 11 continue to ripple through the capital and commodity markets.  Equities are being slammed.  Most Asia Pacific bourses were off 2-3% today. Europe’s Stoxx 600 gapped lower ad has approached February 2021 levels, orr about 2.6% today.  US futures are around 1.5% lower.

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ECB Meeting and US and China’s CPI are the Macro Highlights in the Week Ahead

One of the most significant market responses to Russia’s attack on Ukraine is in the expectations for the trajectory of monetary policy in many of the high-income countries, including the US, eurozone, UK and Canada.  The market has abandoned speculation of a 50 bp hike in mid-March by the FOMC and the Bank of England.  It has also scaled back the ECB’s move to 20 bp this year from 50 bp.

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Capital and Commodity Markets Strain

Overview:  The capital and commodity markets are becoming less orderly.  The scramble for dollars is pressuring the cross-currency basis swaps.  Volatility is racing higher in bond and stock markets.  The industrial metals and other supplies, and foodstuffs that Russia and Ukraine are important providers have skyrocketed.  Large Asia Pacific equity markets, including Japan, Hong Kong, China, and Taiwan fell by 1%-2%, while South Korea, Australia, and India managed to post modest gains today.  Europe’s Stoxx 600 is off more than 2.5% to bring this week’s loss to a little more than 6%. 

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European Currencies Continue to Bear the Brunt

Overview: Russia’s invasion of Ukraine and the global response is a game-changer, as Fed Chair Powell told Congress yesterday.  The UK-based research group NISER estimated that world output will be cut by 1% next year or $1 trillion, and global inflation will be boosted by three percentage points this year and two next. 

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The Dollar and Yen’s Safe Haven Appeal Slackens

Russia’s invasion of Ukraine overwhelmed other drivers of the foreign exchange market.  When everything was said and done last week, the odds of a 50 bp hike by the Federal Reserve in the middle of March was little changed slightly above 25%. The odds of a 50 bp hike by the Bank of England have been reduced from a little over 60% before the US government’s warning that a Russian attack could happen at any time on February 10 to 36% on February 18. 

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Russia’s Military Action Shakes Markets

Overview: News that the separatists were calling on Moscow for military assistance began the risk-off move, and Russia hitting targets across Ukraine has rippled across the capital markets.  Equites have been upended.  Most bourses in the Asia Pacific region were off 2%-3%, while the Stoxx 600 in Europe gapped lower and is off around 3.5% in late morning dealings. 

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FX Daily, January 17: PBOC Eases, but the Yuan Firms

EUR/CHF and USD/CHF, January 17

Overview: Russia is thought to be behind the cyber-attack on Ukraine at the end of last week, but a military attack over the weekend may be underpinning risk appetites today.  The dollar’s pre-weekend gains are being pared slightly.  Led by the Canadian dollar and Norwegian krone, the greenback is lower against most major currencies, with the yen being the notable exception, which is off about 0.2%.

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Is the Dollar Due for a Bounce?

The US dollar had one of its worst weeks in a few months.  Although there has been some talk about the historical pattern of weakness after the first Fed hike in a cycle, many participants were surprised.  The dollar struggled in the last couple of weeks of 2021, but this seemed to be explained by year-end position squaring amid light interest.

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Inflation and Geopolitics in the Week Ahead

The Omicron variant may be less fatal than the earlier versions, but it is disrupting economies. The surge in the Delta variant well into Q4 in the US and Europe was already slowing the recoveries.  Investors will likely take the high-frequency real sector data with the proverbial pinch of salt until January data available beginning later this month.

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The Chagrin of Beijing and the Problem of Time

The central bank meeting cycle is over. Most of the important high-frequency data has been released until early January. The US debt ceiling has been lifted, avoiding an improbable default. A year ago, there was a sense of optimism, with a couple of vaccines being announced and monetary and fiscal stimulus boosting risk-appetites. Populism, which had been in the ascendancy after the Great Financial Crisis, seemed to be retreating in Europe and the United States.  Equities were rallying. In the last two months of 2020, MSCI’s free-float weighted global index rallied around 17.8%. It closed the year with a 14.3% gain. Through last week, it was up about 14.5 this year. The US 10-year yield, a global benchmark, peaked in March near 1.77%. Following a disappointing jobs report, the yield

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Bulls Shrug Off Bout of Profit-Taking, Leaving the Greenback Poised to Rally into Year-End

(The regular analysis will resume after the New Year.  In the meantime, look for several occasional thematic posts over the next couple of weeks.  Here is to a healthy and happy New Year!).  The dollar recovered from the bout of profit-taking seen after the FOMC largely confirmed market expectations to post a weekly advance against all the major and most emerging market currencies.  The omicron variant continues to sweep across the world, and efforts in large parts of Europe and the US to cajole employees into returning to offices were set back.  Growth concerns and the confirmation of the hawkish pivot by the Federal Reserve weighed on the dollar-bloc currencies and the Scandia.   The fact that New Zealand (November 23) and Norway (December 16)  hiked rates for the second time the cycle

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The Week Winds Down with Equities under Pressure and the Dollar Mostly Firmer

Overview: The combination of the volatility and a large number of central bank meetings have exhausted market participants, and the holiday phase appears to have begun. Equities are under pressure following the sell-off yesterday in the US. Japan, China, and Hong Kong suffered more than 1.2% losses, while Australia, South Korea, and Taiwan posted minor gains. It was the fifth loss in the past six sessions for the MSCI Asia Pacific Index. Europe’s Stoxx 600 is off around 0.7% today, which is sufficient to put into the red for the week. US futures point to a softer opening. The debt market is quiet. The 10-year yield is little changed at 1.42% and is practically flat on the week. European yields are slightly softer and are 2-6 bp higher for the week. UK Gilts yields are slightly firmer. The

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Fed Unleashes Animal Spirits

Overview:  The Fed’s hawkish pivot came a few weeks before yesterday’s FOMC meeting, which confirmed more or less what the market had already largely anticipated. Buy the (dollar) on rumors (of tapering and more aggressive stance on rates) and sell the fact unfolded, and unleashed the risk-appetites which rippled through the capital markets. US stocks rallied yesterday, and the futures point to a gap higher opening today. Large Asia Pacific bourses, led by a 2% rally in the Nikkie advance. Australia, despite strong jobs growth, as did New Zealand, while India struggled. Still, the MSCI Asia Pacific Index snapped a four-day slide. Europe’s Stoxx 600 gapped higher. The bond market remains subdued. The US 10-year yield is hovering around 1.44%, while European yields are slightly firmer ahead

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FOMC Sets New Course

The Fed delivered what it was expected to do:  double the pace of tapering and project a more aggressive interest rate response with its individual forecasts.  The dollar initially rallied on the headlines, and new sessions highs were recorded, but the price action was a bit of a head-fake, as it were. The greenback’s gains were quickly pared,  though it remained above JPY114 ahead of Chair Powell’s press conference. The market had already discounted two hikes and almost 3/4 of the third hike before the FOMCmeeting. The adjustment also requires moving the 2023 profile as well.  The FOMC statement also reads hawkishly, too, in the sense that the Fed acknowledges the solid jobs growth continued, and it no longer characterizes inflation as transitory. Again, this was largely anticipated by

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Has the Market Carried the Fed’s Water? Is the Dollar Vulnerable to Buy the Rumor and Sell the Fact?

Overview: The US dollar is trading with a bit of heavier bias against most of the major currencies as the focus turns to today’s FOMC meeting, where a clear consensus has emerged in favor of faster tapering and a dot plot pointing to a steeper pace rate hikes.  Emerging market currencies led by Turkey and South Africa are mostly lower. The JP Morgan Emerging Market Currency Index is lower for the third straight session.  The US 10-year Treasury yield is flat, near 1.44%, while European yields are mostly a little higher.   The US two-year yield is flat around 66 bp, while the 2-year Gilt yield jumped around 5 bp after higher than expected CPI.  New US sanctions against Chinese companies took a toll in Chinese and Hong Kong indices, while Japan, South Korea, and Taiwan posted modest gains.

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No Turnaround Tuesday for Equities?

Overview:  Activity in the capital markets is subdued today, ahead of tomorrow’s FOMC meeting conclusion and the ECB meeting on Thursday.  The MSCI Asia Pacific equity index fell for the third consecutive session.  European bourses are heavy after the Stoxx 600 posted an outside down day yesterday. Today would be the fifth consecutive decline. Selling pressure on the US futures indices continues after yesterday’s losses.  Australia and New Zealand bonds played catch-up to the large drop in US Treasury yields yesterday, while European benchmark yields are edging higher.  The 10-year US Treasury yield is around 1.43%.  The dollar is mixed against the major currencies.  The Canadian and Australian dollars and Norway are softer, while the Swiss franc and euro lead with around a 0.25%-0.35%

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Dollar Starts the Week Bid ahead of the FOMC

Overview: Equities, bonds, and the dollar begin the new week on a firm note.  Japanese, Chinese, Australian, and New Zealand equities advanced in the Asia Pacific region.  Europe’s Stoxx 600 is snapping a three-day decline, and US futures are 0.25%-0.35% higher.  The US 10-year yield is a little softer at 1.48%. European benchmark yields are mostly 1-2 bp lower, and near 0.71%, the UK Gilt’s yield is at a three-month low.  The dollar is rising against all the major currencies and is 0.3%-0.45% higher against most.  The Canadian dollar and sterling are the most resilient.  Among emerging market currencies, the Chinese yuan continues to defy official signals to eke out a small gain.  The Turkish lira is off more than 2%, after having dropped 4% initially. Intervention at the end of last

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Can Dollar Bears Resist the Fed? Can Yuan Bulls Shrug-Off the PBOC?

US yields and the dollar softened after the release of the November CPI figures before the weekend.  The data were in line with expectations showing the headline rate accelerated to 6.8% and the core rate to 4.9%.  The price action likely reflected positioning rather than a reassessment of the outlook for next week’s FOMC meeting.  Nearly everyone recognizes the likelihood that the pace of tapering is quickened, and the individual forecasts reflect a more aggressive tightening path than anticipated in September. With the diverging monetary policy impulses are evident in the shifting two-year interest rate differentials in the US favor, it is increasingly expensive to resist a stronger greenback.  A critical part of the backdrop is that market participants feel more comfortable that the

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Central Bank Fest

Next week is the last big week of the year, and what a week it will be:  Five major central banks meet and at least nine from emerging market countries.  Norway’s Norges Bank is the most likely major central bank to hike its key (deposit) rate (December 16).  It would be the second hike of the year.  The economy is enjoying a solid recovery, and headline inflation rose to 4.6% in November, its fastest pace since 2008.  The underlying rate, which Norway adjusts for tax changes and excludes energy, appears to have bottomed out, and the base effect warns up upside pressure over the next few months.  The unemployment rate fell to pre-Covid levels of 2.1% last month.  The Bank of England had been in play. However, ideas that this last meeting of the year (December 16) was live has faded,

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Yuan Rises Despite China’s Move and the Fed’s Course is Set Regardless of Today’s CPI

Overview:  After US equity indices posted their first loss of the week,  Asia Pacific and European equities fell.  While the MSCI Asia Pacific Index fell for the first time since Monday, Europe’s Stoxx 600 is posting its third consecutive decline.  US futures are trading slightly firmer.  The US 10-year Treasury yield is up about 1.5 bp to 1.51%, which is about eight basis points higher than it settled last week when the sharp drop in equities saw the yield fall to almost 1.33%, the lowest in three months.  European yields are mostly 1-2 basis points higher today and 5-7 on the week,   Italy and Greek benchmark yields are 12-14 bp higher this week.  The greenback is trading with a firmer bias against most major currencies. However, the Norwegian krone and Australian dollar are the most

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Markets Turn Cautious Ahead of Tomorrow’s US CPI

Overview: The euro has come back offered after its seemingly inexplicable advance yesterday.  The dollar is firmer against most major currencies today, with the yen an exception after JPY114.00 held on yesterday’s advance.  Most emerging market currencies are also softer, with a handful of smaller Asian currencies proving a bit resilient.  Most large bourses advance in the Asia Pacific region, except Japan and Australia.  Europe’s Stoxx 600 is steady after retreating late yesterday while US futures are pointing to a softer opening.  After rising for the past three sessions (~18 bp), the yield of the 10-year US Treasury is consolidating by hovering a little below 1.5%.  European yields are 3-5 bp softer.   Gold is little change.  This week’s quiet tone contrasts with the sharp moves in

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Markets Calmer, Awaiting Fresh Incentives

Overview:  The capital markets are calmer today, and the fear that was evident at the end of last week remains mostly scar tissue. Led by gains in Japan, China, Australia, New Zealand, and India, the MSCI Asia Pacific Index extended yesterday’s gains.  Europe’s Stoxx and US futures are firm.  The US 10-year yield is softer, around 1.43%, while European yields are mostly 1-2 bp lower.  The Norwegian krone and euro lead major currencies higher against the greenback, but the New Zealand dollar and sterling are underperforming. Most of the emerging market currencies are enjoying an upside bias. The Turkish lira is giving back a little more than half of yesterday’s 2.25% bounce.  Gold is edging higher and is near the 200-day moving average (~$1792).  January WTI is off $1 around  $71 after

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Animal Spirits Roar Back

Overview:  A return of risk appetites can be seen through the capital markets today, arguably encouraged by ideas that Omicron is manageable and China’s stimulus.  Led by Hong Kong and Japan, the MSCI Asia Pacific rose by the most in three months, while Europe’s Stoxx 600 gapped higher, leaving a potentially bullish island bottom in its wake.  US futures point to a gap higher opening when the local session begins.  The bond market is taking it in stride.  The US 10-year Treasury is slightly firmer at 1.44%, while European yields are 1-3 bp higher.  The dollar-bloc currencies and Norway are leading the move higher among most major currencies.  The yen and euro are softer.  Sterling struggles to sustain upticks. Among emerging markets currencies, the Turkish lira is bouncing, while most

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Aussie Slumps below $0.7000 and the Loonie Can’t Sustain Upticks Despite a Monster Jobs Report

The US dollar rose to new highs for the year last week against sterling, the Australian dollar, the New Zealand dollar, and the Norwegian krone.  In late November, the greenback recorded the high for the year against the euro, yen, and Swedish krona.  The high for the year was recorded in April against the Swiss franc and in August against the Canadian dollar.  The greenback remained resilient in the face of some disappointing elements of the jobs report.  The establishment survey found only 210k people were added to the payrolls, less than half of the 550k expected (median forecast in Bloomberg’s survey) and the least this year.  The September and October series were revised up by 82k, with the bulk in September (+67k ), not October (+15k). The economic impact is likely mitigated by two

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US CPI to Accelerate, while Omicron adds Color to Covid Wave that was Already Evident

At the risk of over-simplifying, there seem to be three sources of dynamism in the investment climate:  Covid, the Federal Reserve, and market positioning.  The last of these is often not given its due in narratives in the press and market commentary, so let’s begin there.  The anthropologist Clifford Gertz once posed the question about distinguishing between someone winking and someone with a twitch in their eye, and a person mimicking the wink or twitch.  Context matters.  All buying is not going long.  Sometimes it is short-covering.  Nor is all the buying and selling done as an active response to what preceded it.  Sometimes it is passive, as stop losses are triggered.  There still is a bias in the currency market of talking about the Japanese yen or Swiss franc as safe-havens.  There

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The Greenback Finds Traction ahead of the Jobs Report

Overview:  The Omicron variant has been detected in more countries, but the capital markets are taking it in stride.  Risk appetites appear to be stabilizing.  The MSCI Asia Pacific Index rose for the third consecutive session, though Hong Kong and Taiwan markets did not participate in the advance today.  Europe’s Stoxx 600 is struggling to hold on to early gains, while US futures are narrowly mixed.  The US 10-year yield is a little near 1.43%, down around six basis points this week.  European yields are slightly softer. Core yields are off 5-6 bp this week.  The dollar is firm ahead of the jobs data.  The Antipodeans and Swedish krona are the heaviest, falling around 0.6% through the European morning.  The Swiss franc and euro are up about 0.1% and are the most resilient so far today.

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December Monthly

The pandemic is still with us as the year winds down and has not yet become endemic, like the seasonal flu.  Even before the new Omicron variant was sequenced, Europe was being particularly hard hit, and social restrictions, especially among the unvaccinated, were spurring social strife.  US cases, notably in the Midwest, were rising, and there is fear that it is 4-6 weeks behind Europe in experiencing the surge.  Whatever herd immunity is, it has not been achieved.  Moreover, despite plenty of vaccines in high-income countries, inoculation efforts in many low-income countries won’t begin in earnest until next year.  That said, the new variant has injected a new element into the mix, and it is with a heightened degree of uncertainty that we share our December outlook.  Given the unknowns,

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Fragile Calm Returns and Powell’s Anti-Inflation Rhetoric Ratchets Up

Overview:  Into the uncertainty over the implications of Omicron, the Federal Reserve Chairman injected a particularly hawkish signal into the mix in his testimony before the Senate.  These are the two forces that are shaping market developments.  Travel restrictions are being tightened, though the new variant is being found in more countries, and it appears to be like closing the proverbial barn door after the horses have bolted. Equities are higher.  The MSCI Asia Pacific Index, led by South Korea, and India, rose for the first time in four sessions, and Europe’s Stoxx 600 is recouping more of yesterday’s loss.  US futures are trading more than 1% higher.  Benchmark yields are higher.  The 10-year US Treasury yield is up four basis points though is still below 1.50%.  European yields

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Pessimistic Omicron Assessment Squashes Risk Appetites

Overview: A pessimistic assessment offered by the CEO of Moderna shattered the fragile calm seen yesterday after the pre-weekend turmoil.  Risk appetites shriveled, sending equity markets lower and the bond markets higher.  Funding currencies rallied, with the euro and yen moving above last week’s highs.  The uncertainty weighs on sentiment and makes investors question what they previously were certain of.  The MSCI Asia Pacific Index fell over 1% before the weekend and again yesterday.  Today, South Korea’s 2% slide led the regional decline that saw Japan and Hong Kong fall more than 1%.  Australia, Taiwan, and India managed to post minor gains.  Europe’s Stoxx 600 is off over 1.5%, giving back all of yesterday’s gain (~0.7%) after the pre-weekend 3.6% drop.  US futures are sharply

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Sentiment Remains Fragile

Overview: The fire that burnt through the capital markets before the weekend, triggered by the new Covid mutation, burned itself out in the Asian Pacific equity trading earlier today. A semblance of stability, albeit fragile and tentative, has emerged. Europe’s Stoxx 600 is up about 1%, led by real estate, information technology, and energy.  US index futures are trading higher, with the NASDAQ leading.  Benchmark 10-year yields are firmer.  The US 10-year Treasury yield has risen about six basis points to 1.53%.  European yields are mostly 1-2 basis points higher, while the UK Gilt yield is up four basis points. The dollar remains, as we say, at the fulcrum of the major currencies, but in an opposite way, with the funding currencies that rallied strongly before the weekend seeing their

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The Dollar Moves Back to the Fulcrum between the Funding and Higher Beta Currencies

The new covid variant injected a new dynamic into the foreign exchange market.  The World Health Organization cautioned against the need to impose travel restrictions, but policymakers, by and large, do not want to be bitten by the same dog twice.  To err on the side of caution is to minimize one’s biggest regret.  The risk is that the uncertainty is not lifted quickly but lingers, which would likely unpin volatility.  US and European benchmark 10-year yields fell sharply ahead of the weekend.  In the US, the market unwound some of its aggressive pricing in of Fed policy.  This is reflected in the commensurate drop at the short-end.  In Europe, the decline in 10-year yield reflected a slowing of growth/inflation as its short-end was largely unchanged.  There are three areas in which

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Covid Strikes Back

Overview: Concerns that a new mutation of the Covid virus has shaken the capital markets.  Equities are off hard, and bonds have rallied.  In the foreign exchange market, the Japanese yen and Swiss franc have rallied.  While there may be a safe haven bid, there also appears to be an unwinding of positions that require the buying back of the funding currencies, which is also lifting the euro.  The currencies levered from growth, the dollar-bloc and Scandis are weaker.   Oil has been knocked back by around  6.7%, with January WTI trading near $73.Led by 2%+ losses in Japan, Hong Kong, and India, and 1%+ losses in South Korea, and Taiwan, the MSCI Asia Pacific Index has slumped to its lowest level since July.   Europe’s Stoxx 600 gapped lower and is off around 2.4% near midday.  US futures

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Turkey gets a Reprieve before US Thanksgiving, but Capital Strike may not be Over

Overview:  The dramatic collapse of the Turkish lira was like an accident one could not help look at, but it was not an accident, but the result of a disregard for the exchange rate and compromised institutions.  The lira was off around 15% at its worst yesterday, before settling 11.2% lower.  After falling for 11 sessions, it has steadied today (~2.7%)  but the capital strike may not be over.  On the other hand, the Reserve Bank of New Zealand delivered the 25 bp rate hike and seemed to give hawkish guidance, and yet the New Zealand dollar was sold and the worst-performing of the major currencies, off 0.65% through the European morning.  The tech losses on Wall Street yesterday weighed on Asia Pacific equities today, where the large markets fell but in China.  Europe’s Stoxx 600 is less

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Tech Sell-Off Continues

Overview:  The markets are unsettled.  Bond yields have jumped, tech stocks are leading an equity slump, and yesterday’s crude oil bounce reversed.  Gold, which peaked last week near $1877, has been dumped to around $1793.  The tech sell-off in the US carried into the Asia Pacific session, and Hong Kong led most markets lower.  The local holiday let Japanese markets off unscathed, though the Nikkei futures are off about 0.4%.  Australia and India managed to post minor gains as the MSCI Asia Pacific Index fell for the fourth time in five sessions.  Europe’s Stoxx 600 has slid around 1.5% today, its fourth consecutive decline, but has clawed back nearly half the gains.  It is the longest retreat in two months.  US futures are lower, with the NASDAQ leading the move.   Near 1.64%, the US

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Market Shrugs Off Chinese Signals and Keeps the Yuan Bid

Overview:  The US dollar has come back bid from the weekend against most currencies following the talk by a couple of Fed governors about the possibility of accelerating the tapering at next month’s FOMC meeting.  The weekend also saw protests against the social restrictions being imposed by several European countries in the face of a surge in Covid cases.  The Swedish krona, yen, and sterling are the weakest, while the dollar-bloc currencies are resisting the greenback’s tug. Most of the freely accessible and liquid currencies among emerging market currencies, including Russia, Hungary, South Africa, and Mexico, are heavy. At the same time, the Turkish lira recoups a little of the ground lost last week, and the Chinese yuan shrugged off apparently warnings from the PBOC to post its first

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Flash PMIs Play Second Fiddle to US PCE Deflator and Accelerating Inflation

The flash November PMIs would be the main focus in the week ahead if it were more normal times.  But these are not normal times, and growth prospects are not the key driver of the investment climate.  This quarters’ growth is largely baked into the cake.  The world’s three largest economies, the US, China, and Japan, are likely to accelerate for different reasons in Q4 from Q3.  Europe is the weak sibling, and growth in the eurozone and UK may slow sequentially.  The fiscal and monetary induced rebound from the global shutdown last year has peaked. However, there is still sufficient support for growth in most high-income and medium-income countries to remain above trend for a few more quarters.  The rebuilding of inventory will also help sustain growth through the first half of next

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Covid Wave Knocks Euro Down and to new 6-year Lows Against the Swiss Franc

Overview:  Concerns about the virus surge in Europe cut short the euro’s bounce and sent it back below $1.1300 and are also weighing on central European currencies, including the Hungarian forint, despite yesterday’s aggressive hike of the one-week deposit rate.  Austria has reintroduced a hard 20-day lockdown.  Germany’s health minister warned that the situation deteriorated and vaccines were not enough to break the wave.  He was explicit that a lockdown cannot be ruled out.  The US dollar is trading broadly higher.  Only the yen is resilient on the day, but sterling is the only major currency that has edged higher this week.  The Scandis and euro are off more than 1%.  Speculation that Turkey may announce measures over the weekend to stabilize the lira may be helping to deter new sales

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Euro Bounces Back, but the Turkish Lira Remains Unloved

Overview:  The US dollar’s sharp upside momentum stalled yesterday near JPY115 and after the euro met (and surpassed) a key retracement level slightly below $1.1300.  Led by the Antipodean currencies today, the greenback is mostly trading with a heavier bias.  Among the majors, helped by a steadying of US yields, the yen is soft.  In the emerging market space, the Turkish lira continues its headlong plunge while the yuan softened and the Mexican peso is off.  Hungary’s central bank surprised with a 70 bp hike in the one-week deposit rate.  The JP Morgan Emerging Market Currency Index is posting a small gain through the European morning.  Disappointing tech results in China (Baidu and Bilibili) weighed on Chinese shares, but most markets in the region fell but Australia and Taiwan.

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European Gas Jumps, while the Euro and Yen Slump

Overview: The prospects that the 6.2% CPI will prompt the Fed to move quicker continue to underpin the dollar.  The euro fell to about $1.1265, its lowest level since last September, and the Japanese yen slumped to a fresh four-year low.  The JP Morgan Emerging Market Currency Index tumbled 1% yesterday, the largest decline since February.  A more stable tone is evident in Europe, as the euro has recovered above $1.13, and the JP Morgan Index is paring yesterday’s losses.  The dollar is holding just below JPY115.00.  Asia Pacific equities did not fare well.  Only China and Taiwan markets, among the large regional markets, managed to rise.  Europe’s Stoxx 600 is edging higher for the sixth consecutive session.  Recall it has fallen only once since October 27.  US futures are narrowly

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Biden-Xi “Summit” Leaves Markets Unmolested, While Bailey Continues to Blame Investors for Misunderstanding Him

[unable to retrieve full-text content]Overview: The much-heralded Biden-Xi meeting left little impression on the capital markets.  Equities in the region were mixed, and China’s main markets fell, alongside Australia, South Korea, and India.  European equities continue their upward market, with the Stoxx 600 gaining for a fifth consecutive session. US futures are softer.  The bond market is quiet, with the US 10-year yield softer slightly below 1.60%.  European benchmark yields are 1-2 bp lower and the periphery is outperforming the core.  Encouraged by a strong employment report, sterling is the strongest of the majors, gaining about a third of one percent.  Most major currencies are trading with a heavier bias, and the euro is pinned near 19-month lows.  The dollar is gaining against

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The Greenback Slips to Start the New Week

Overview:  While the Belarus-Poland border remains an intense standoff, there have been a couple other diplomatic developments that may be exciting risk appetites today.  First, Biden and Xi will talk by phone later today.  Second, reports suggest the UK has toned down its rhetoric making progress on talks on the implementation of the Northern Ireland Protocol.

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US Retail Sales and Industrial Output to Accelerate; China not so Much

At the halfway point of Q4, the markets’ focus is on three things:  inflation, growth, and central banks’ response. With US and Chinese October inflation readings behind us, the focus shifts to the real economy’s performance, the world’s two largest economies reporting retail sales and industrial production figures.   Helped by stronger auto sales, the first increase in six months, US retail sales likely turned in another solid showing of around 0.8%, the average pace in August and September.  The core measure, which some models use to help forecast GDP, posted back-to-back increases in August and September for the first time in nearly a year.  It rose by 0.8% in September, half of this year’s average in a highly volatile year (range this year -3.3% to up 8.6% month-over-month). More

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Euro and Sterling Record New Lows for the Year

Overview: The capital markets remain unsettled.  The US CPI with a 6%-handle has lifted bond market volatility, disrupted rallies in stocks, and extended the dollar’s rally.   Small gains in the US S&P 500 and NASDAQ yesterday and a better news stream from China helped lift Asia Pacific equities today.  Benchmarks in Japan, South Korea, and India rose more than 1%.  Europe’s Stoxx 600 is struggling as energy, health care, and utilities are mostly offsetting gains in consumer discretionary and communication, and real estate sectors.  It has increased 19 of the past 24 sessions.  US futures are posting slight gains.  The bond market remains under pressure.  The US 10-year yield is three basis points higher at 1.58%, which puts it up nine basis points this week. European benchmarks are

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Half a Dozen Things You Should Know about FX

1.  The market is still digesting the implications of Wednesday’s CPI shock.  The dollar has strengthened, yields have risen, the stock market wobbled after a long advancing streak, and in any event, stabilized in light trading during the US and Canadian holidays. However, given the low year-ago reading, there is a significant risk that inflation (including the core rate) will accelerate over the next few months. As a result, the Federal Reserve needs greater flexibility to raise rates sooner than it has envisioned.  The main restraint now is the pace of tapering.  The FOMC committed to reducing its bond-buying by $15 bln in November and December.  Its statement indicated that it anticipated maintaining the rate afterward, but the FOMC also reserved the right to adjust the pace if

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China’s CPI Accelerated to 1.5%, US CPI to Approach 6%

Overview: As bond yields slumped yesterday, stocks snapped their advancing streak.  The Stoxx 600 fell for the first time in nine sessions yesterday and is lower today.  The S&P 500 ended a nine-session advance, and the NASDAQ snapped a 12-session rally.  Futures on the indices point to a lower open.  Bonds are paring yesterday’s gain, which saw the US 10-year yield fall below its 200-day moving average (~1.45%) and may explain the soft auction results.  The yield is about three basis points higher, around 1.48% in the European morning, while the local bond yields are also mostly 2-4 bp higher.  Canadian bonds are an exception.  The yield is off nearly four basis points, and that may reflect foreign demand as the Canadian dollar is the best performing major currency, eking out a small

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FX Daily, November 9: Falling Yields Give the Yen a Boost

Overview: Reports that the Fed’s Brainard was interviewed for the Chair helped soften yields a bit, not that they needed extra pressure, on ideas she is more dovish than Powell.  In turn, the lower yields saw the yen rise to its best level in nearly a month and led the major currencies higher against the dollar. 

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Markets Await Fresh Developments

Overview: Last week’s bond market rally has stalled.  Benchmark 10-year yields are up 1-3 bp in Europe, and the three bp increase in the US puts the yield slightly below 1.50%.  Equities were mixed in the Asia Pacific region. 

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Profit-Taking on Dollar Longs after Better than Expected Jobs Report Sets Stage Until CPI

The US dollar turned in a solid week’s performance, rising against most currencies and recording a marginal new high for the year against the euro.  Sterling and the Australian dollar competed for the worst performer.  Both central banks pushed against market expectations for aggressive near-term tightening. The central banks triggered a short squeeze in the bond market, where 10-year benchmark yields from 10 bp in the US to 34 bp in Italy.  UK 10-year Gilts and French Oats yields fell nearly 22 bp.  Germany lagged with an almost 18 bp decline.  The speculative market had its largest net short Treasury note futures position since March 2020.  It has swung from its largest net long position in four years (~181k contracts) in early October to a net short position of almost 270k as of

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US and China’s October Inflation Featured in the Week Ahead

The cycle of the major central bank meetings has passed.  The Anglo-American central banks and Norway are ahead among the high-income countries in the adjustment of monetary policy. Meanwhile, the pandemic continues to scar, and flare-ups are extending the economic and social disruption in some large countries, including China and Russia.  Parts of Europe are experiencing another wave, including Ireland, the UK, and Germany. From the RBA and ECB to the Bank of England and Federal Reserve, the central banks pushed back against the dramatic backing up in short-term rates with varying degrees of adamance. Two-year yields, a useful proxy, fell 10 in the US and 12 in Germany and nearly 28 bp in the UK.  The implied yield of the December 2022 Fed funds futures fell 11 bp. The implied yield of

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Isn’t the Labor Shortage Transitory?

Overview:  The major central banks have successfully pushed back against the aggressive tightening the market had discounted.  The Bank of England’s decision not to raise rates after key officials seemed to suggest one was imminent. On the heels of what we argued was a dovish tapering announcement by the Fed, it spurred a dramatic decline in short and long-term interest rates. The drop in UK rates–21 bp in the 2-year and nearly 14 bp in the 10-year is the largest in several years.  The S&P and NASDAQ  rose to new highs.  The former rose for the 15th time in the past 17 sessions.  The latter is up for nine consecutive sessions coming into today.  Still, the MSCI Asia Pacific Index pared this week’s gains, as only Taiwan, Australia, and India rose among the prominent bourses.  The Stoxx

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And the Dollar Bounces Back, While BOE is in Focus

Overview:  The Federal Reserve announced tapering and, like the Reserve Bank of Australia earlier in the week, did not validate expectations for an aggressive rate hike.  Now the focus is on the Bank of England, where several officials seemed to goad the market into lifting short-term rates. The S&P 500 and NASDAQ rallied to new record highs yesterday and helped raise global shares today.  Among the large markets in the Asia Pacific region, only Taiwan and India did not participate in today’s dance.  In Europe, the Stoxx 600 is extending its advance for the sixth consecutive session and nine of the past ten.  US futures are trading firmer.  The market is trimming yesterday’s 5.5 bp rise in the US 10-year yield. It is about 3 bp lower near 1.57%.  European yields are 1-3 bp lower. The

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What Might it Take for the Fed to Deliver a Hawkish Tapering Announcement?

Overview: With the FOMC’s decision several hours away, the dollar is trading lower against nearly all the major currencies.  The Antipodeans and Norwegian krone are leading.  The euro, yen, and sterling are posting minor gains (less than 0.1%).  Most of the freely liquid and accessible emerging market currencies are also firmer.  The Turkish lira is a notable exception.  The decline in the core inflation and a smaller than expected rise in the headline pace embolden officials for another rate cut when the central bank meets on November 18.  The JP Morgan Emerging Market Currency Index is rising for the second consecutive session after falling in the previous four sessions.  Equities are lower.  The MSCI Asia Pacific Index fell for the fifth session in the past six.  Among the large

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RBA Jettisons Yield Curve Control but Continues to Resist Market Pressure

Overview: The third record close of the S&P 500 failed to lift Asia Pacific and European shares today.  In Asia, the large bourses fell, except South Korea, which rallied a little more than 1%.  Europe’s Stoxx 600 is threatening to snap a three-day advance, while US index futures are soft.  The US 10-year yield is firm, around 1.56%.  European bonds are rallying.  Peripheral yields are off 8-9 bp, while core rates are 3-5 lower.  The Reserve Bank of Australia formally abandoned its yield-curve control, and the local debt market was quiet, but the Australian dollar is selling off and dragging the other dollar-bloc currencies lower.  Only the yen, among the majors, is gaining on the greenback.  Emerging market currencies are faring better, led by Asian currencies and most central and

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November Monthly

Three main forces are shaping the business and investment climate:  Surging energy prices, a dramatic backing up of short-term interest rates in Anglo-American countries, and the persistence of supply chain disruptions. The US and Europe have likely passed peak growth.  Fiscal policy will be less accommodative, and financial conditions have tightened. Japan appears to be getting a handle on Covid and after a slow start.  Its vaccination rate has surpassed the US.  The lifting of the formal state of emergency and a hefty dose of fiscal stimulus is expected to be delivered in the coming months. Many developing economies have already lifted rates, some like Brazil and Russia, aggressively so.  They will likely finish earlier too.     US light sweet crude oil rose nearly 12% last month, even

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US-EU Rapprochement, Can France and UK Do the Same?

Overview:  It is mostly a quiet start to the new month.  Most of Europe is closed for the All -Saints holiday and the week’s key events start tomorrow with the Reserve Bank of Australia meeting.  News that the Liberal Democrats retained a majority in the lower chamber of the Diet helped lift Japanese indices by 2%.  Most of the large regional markets gained, though China and Hong Kong markets fell. US index futures are trading with a higher bias after eking out minor gains ahead of the weekend.  The 10-year US Treasury yield is up a couple of basis points to 1.57%.  Australian and New Zealand yields pared the pre-weekend surge.  Australia’s 10-year yield is off 16 bp, and the two-year yield is down 6 bp.  New Zealand rates eased five and four basis points, respectively, for the 10-year

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Greenback has Legs Ahead of the Fed and Jobs

The US dollar turned in a mixed performance last week but ended on a solid note.  The pre-weekend and month-end activity may have exaggerated the greenback’s gains, but we suspect ahead of the FOMC meeting and the US jobs data that is the direction. Our understanding of the technical condition also favors a stronger dollar. The jump in Australian rates may help explain why the Aussie was the strongest of the majors (~0.75%).  However, the trajectory of monetary policy does not offer satisfying insight into other currencies.  The underperformance of the Norwegian krone (~-1.0%), where the central bank will most likely hike rates next week, for example. It seems almost as if the markets have concluded that most major central banks are behind the inflation curve.  It expects that officials

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The Week Ahead: Four Central Banks and the US Jobs Report

The Bank of England and the Federal Reserve meetings are the highlights of the week ahead.  Usually, the US jobs report is the main feature of the beginning of a new month’s high-frequency data cycle. However, the FOMC meeting two days earlier may take away some of its significance, even if it still possesses some headline risk.  Two other major central banks meet in the first week of November.  The Reserve Bank of Australia meets early on November 2 in Wellington.  At its last meeting, it confirmed the reduction of its bond purchases but extended them until mid-February 2022.  Governor Lowe may push against market expectations for a rate hike next year (~85 bp of tightening is priced into the swaps market in 12-months).  He has argued that a rate hike is not justified until inflation is

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Rate Adjustment Continues and the Greenback Pares the Week’s Losses

Overview:  Disappointing Apple and Amazon earnings news after the NASDAQ set a record high set the stage of a weaker bias in the Asia Pacific region today.  China and Japan still posted gains, while local developments, like an unexpected drop in South Korea’s industrial output, and Australia struggling to exit its yield-curve control, saw equities lose more than 1%.  Europe’s Stoxx 600 is paring this week’s gains but is holding on to some for the fourth consecutive week.  US futures are still trading heavily, but they will extend the advance for the fourth straight week, barring a rout today.  The bond market sell-off in the Asia Pacific region saw the Australian 10-year yield jump nearly 30 bp, the most since March 2020 to over 2.00%, the highest yield in a year.  New Zealand’s benchmark

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Eyes Turn to the ECB and the First Look at Q3 US GDP

Overview:  The market awaits the ECB meeting and the first look at the US Q3 GDP.  The pullback in US shares yesterday was a drag on the Asia Pacific equities.  It is the first back-to-back loss of the MSCI Asia Pacific in a few weeks.  Europe’s Stoxx 600 is recovering from early weakness and US future indices are firm.  The US 10-year yield is flat, around 1.55%, after falling around 15 bp over the past four sessions.  European bonds are paring yesterday’s gains, and yields are up 2-6 bp.  The dollar is mixed.  Among the majors, the yen, New Zealand dollar, and Norwegian krone are firm, while the Australian and Canadian dollars, Swedish krona, and euro are slightly lower.  Emerging market currencies are also mixed.  The Turkish lira and South African rand are the weakest, while the

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Today’s Big Events Still Lie Ahead

Overview: The day’s big events lie ahead:  the UK’s budget, the Bank of Canada, and the central bank of Brazil meetings.  The US data on tap, especially trade and inventories, will allow economists to fine-tune their forecasts for tomorrow’s first estimate of Q3 GDP. The mixed tech earnings helped spur a bout of profit-taking in Asia Pacific equities, where most of the large markets fell. Europe’s Stoxx 600 is posting a slight loss for the first time in four sessions, while US futures are slightly firmer.  The US 10-year note yield is softer and is slipping below 1.60%.  European benchmark yields are 2-3 bp lower.  The dollar is stronger against most of the major currencies, but the yen and Swiss franc. The greenback is also firmer against most emerging market currencies, with the Turkish

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Strong Earnings and Easing of (Some) Political Tensions Bolster Sentiment

Overview:  Helped by new record highs in the S&P 500 and Dow Industrials, constructive earnings, and an easing of political tensions, risk appetites are robust today.  The MSCI Asia Pacific Index recouped yesterday’s losses plus more as the large equity markets in the region, but China and Hong Kong rose, led by a more than 1% gain in Tokyo.  European shares are rallying, and the Stoxx 600 is posting gains for the ninth session in the last 11 and is at its best level since early September.  US futures are extending yesterday’s gains.  European and US benchmark yields are softer.  The US 10-year is slipping below and little changed near 1.62%.  It had probed the 1.70% area at the end of last week.  It has not been below 1.60% for a week.  European yields are mostly 1-3 bp lower.  The

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Big Week Begins Slowly

Overview:  The global capital markets give little indication of the important economic and earnings data that lie ahead this week.  There is an eerie calm. Equities in Asia were mixed.  Japan and Hong Kong, and most small bourses were lower.  Last week, the MSCI Asia Pacific Index gained almost 0.9%. Europe’s Stoxx 600 is little changed after rising about 0.5% last week. US futures are firm.  The S&P 500 and Dow Jones Industrials reached record-highs before the weekend.  The US 10-year yield is up a couple of basis points to 1.66%.  Last week, it briefly traded above 1.70%. European core yields have edged slightly higher, while the peripheral bonds are outperforming. The Antipodeans and Norwegian krone are leading the way higher among most majors, with the yen, Swiss franc, and Swedish

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Are the Technicals Anticipating a Soft US GDP Report? Could it be a “Sell the Rumor buy the Fact?”

Rising yields and record highs in the S&P 500 and NASDAQ failed to lift the dollar.  Indeed, the greenback fell against all the major currencies, even the Japanese yen, against which it had reached new four-year highs (~JPY114.70) before pulling back.  On the other hand, the Antipodean currencies and the Norwegian krone continued to lead the move against the US dollar. The Aussie rose to new three-month highs, while the Kiwi, Nokkie, and Canadian dollar saw four-month highs.  Emerging market currencies were more mixed than the majors.  At the end of the week, Russia’s larger than expected 75 bp rate hike helped lift the rouble, the best emerging market currency, last week. It reached a 15-month high ahead of the weekend.  The Chinese yuan reached its best level in five months last

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Week Ahead: The First Look at US and EMU Q3 GDP and more Tapering by the Bank of Canada

The macro highlights for the week ahead fall into three categories.  First are the preliminary estimates for Q3 GDP by the US and the EMU.  Second, are the inflation reports by the same two.  The US sees the September PCE deflator, which the Fed targets, while the eurozone releases the first estimate for October CPI.  Third are the meetings of three G7 central banks, the BOJ, the ECB, and the Bank of Canada. The broad backdrop includes softening PMI readings, the continued rise in oil prices, and a sharp backing up of interest rates.   On the eve of last month’s FOMC meeting conclusion, the August 2022 Fed funds future contract implied an average effective rate of 11 bp.   It is now yielding almost 32 bp, nearly completely discounting a 25 bp rate hike at the late July 2022 FOMC meeting

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The Euro and Sterling Remain within Tuesday’s Ranges

Overview: A new record high in the S&P 500 yesterday and news that Evergrande had made an interest rate payment failed to lift most Asia Pacific bourses, though Japan and Hong Kong, among the large markets, posted modest gains.  The Dow Jones Stoxx 600 is pushing higher in the European morning to put its finishing touches on its third consecutive weekly gain.  US tech is trading off, and this is weighing on the NASDAQ futures while the S&P 500 is little changed.  The US 10-year yield had probed 1.70% yesterday and is coming back a basis point or two lower. European benchmark yields are mostly a little higher, but soft UK data are helping the Gilts outperform.  The Antipodeans are recovering from yesterday’s fall and leading the major currencies higher against the dollar.  Sterling is

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Markets Turn Cautious

Overview: After a couple of sessions of taking on more risk, investors are taking a break today.  Equities are mostly lower today after the S&P 500’s six-day advance took it almost to its record high, while the NASDAQ’s streak was halted at five sessions.

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Dollar Slumps

Overview:  While equities and bonds are firmer, it is the dollar’s sell-off that stands out today.  The greenback has retreated broadly.   

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The Dollar Slips Ahead of CPI

 The US dollar is trading with a lower bias ahead of the September CPI report due early in the North American session.  Long-term yields softened yesterday and slipped further today, leaving the US 10-year yield near 1.56%.  European benchmark yields are 3-4 bp lower.  The shorter-end of the US coupon curve, the two-year yield is firmer.

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The Euro Remains Within Last Wednesday’s Range

Overview:  A weak close in US equity trading yesterday and the widening of China’s “cultural revolution” for a two-month investigation of the financial sector stopped a three-day advance in the MSCI Asia Pacific Index.  China, South Korea, and Taiwan saw more than a 1% decline in their major indices. 

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FX Daily, October 11: Rate Expectation Adjustment Continues

Overview:  Equities are softer and yields higher to start the new week.  The dollar is mixed.  Oil and industrial metals are higher. There are several developments over the weekend, but the focus seems to be on central bank action, inflation reports by the US and China, and the start of the Q3 earnings season. 

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Trees and the Forest

The Pando (pictured here) appears to be 107 acres of forest, but scientists have concluded that the nearly 47,000 genetically identical quaking aspen trees share a common root system.

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Hope Springs Eternal, or at least enough to Lift Risk Taking Today

Overview:  The animal spirits have been reanimated today.  Encouraged by the dramatic reversal in oil and gas prices, a deal in the US that pushes off the debt ceiling for a few weeks and talk of a new bond-buying facility in the euro area spurred further risk-taking today, ahead of tomorrow’s US employment report. 

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Dollar Rallies as Energy Surge Quashes Animal Spirits

Overview: Investors worry that surging energy prices will sap economic activity and boost prices.  It is sparking a sharp drop in equities and bonds while lifting the dollar.  The Nikkei fell for the eighth consecutive session, and today’s 1% drop brings the cumulative decline to 9%.  South Korea’s Kospi also fell by more than 1%. 

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Hard to Be Sterling

Overview: Energy prices pulled back late yesterday, but it offered little reprieve to the bond market where the 10-year benchmark yields in the US, UK, Sweden, and Switzerland reached new three-month highs.  November WTI traded to almost $76.70 before reversing lower and leaving a potentially bearish shooting star candlestick in its wake. 

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FX Price Action in the Context of Global Macro Developments

The dollar was lifted at the start of the last week by safe-haven demand as China’s Evergrande multi-month collapse triggered a sort of panic attack by global markets.  The dollar strengthened after the initial drop following the FOMC meeting.  The Fed’s confirmed tapering announcement is likely at the next meeting (Nov), but this has been well tipped.  The market also expected that a few more officials would see a hike next year as appropriate  This too was delivered as expected.  

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Taper, No Tantrum

Overview:  The market’s reaction to the FOMC statement was going according to our script, with the dollar backing off on a buy rumor sell the fact type of activity until Powell provided an end date for the tapering (mid-2022) before providing a start date (maybe next month).  This spurred a dollar rally. 

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What to Expect When You are Expecting

Overview: The markets have stabilized since Monday’s panic attack but have not made much headway.  China and Taiwan returned from the extended holiday weekend.  Mainland shares were mixed. Shanghai rose by about 0.4%, while Shenzhen fell by around 0.25%.

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Ever Grand

Overview: Coming into yesterday’s session, the S&P 500 had fallen in eight of the past ten sessions.  It closed on its lows before the weekend and gapped.  Nearly the stories in the press blamed China and the likely failure of one of its largest property developers, Evergrande. 

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Risk Appetites Didn’t Return from the Weekend

Overview: Investors’ mood did not improve over the weekend, and the lack of risk appetites are rippling through the capital markets today.  Equities have tumbled, yields have backed off, and the dollar is well bid.  Hong Kong and Australia led the sell-off in the Asia Pacific region, off 3.3% and 2.1%, respectively. 

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Is it Really all about US CPI?

Overview:  The markets are in a wait-and-see mode, it appears, ahead of the US CPI figures, as it absorbs bond supply from Europe and monitors the potential restructuring of China’s Evergrande.  A new storm may hit US oil and gas in the Gulf before recovering from the past storm and helping to underpin prices.

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How (Not) to Win Friends and Influence People

Overview:  There are two big themes in the capital markets today.  The first is the ongoing push of the Chinese state into what was the private sector.  Today’s actions involve breaking Ant’s lending arms into separate entities, with the state taking a stake.  This weighed on Chinese shares and Hong Kong, where many are lists. On the other hand, Japanese markets extended their recent gains.

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Don’t Resist the Dollar’s Pull Ahead of the FOMC Meeting

The US dollar enjoyed a firmer bias last week despite the disappointing jobs growth reported on September 3.  The Norwegian krone was the only major currency that gained against the greenback.  Brent was less than a quarter of a dollar firmer, so the likelihood of the central bank raising rates later this month offers a more compelling explanation. 

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Don’t Make a Fetish Out of What may be a Minor Change in the Pace of ECB Bond Buying

Overview: Yesterday’s retreat in US indices was part of and helped further this bout of profit-taking. The MSCI Asia Pacific Index ended an eight-day advance yesterday and fell further today. Japanese indices, which had set multiyear highs, fell for the first time in nine sessions. Hong Kong led the regional slide with a 2.3% decline as China’s crackdown on the gaming industry continued. 

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The Greenback Continues to Claw Back Recent Losses

Overview:  The US dollar continues to pare its recent losses and is firm against most major currencies in what has the feel of a risk-off day.  The other funding currencies, yen and Swiss franc, are steady, while the euro is heavy but holding up better than the Scandis and dollar-bloc currencies.  Emerging market currencies are also lower, and the JP Morgan EM FX index is off for the third consecutive session. 

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Risk Appetites Return from Holiday

Overview: After an ugly week, market participants have returned with strong risk appetites.  Equities are rebounding, and the greenback is paring recent gains.  Bond yields are firm, as are commodities.  Asia Pacific equities got the ball rolling with more than 1% gains in several large markets, including Japan, China, Hong Kong, and Taiwan. 

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Consolidative Mood Grips Markets

Overview:  The dollar is consolidating yesterday’s advance and is confined to fairly narrow ranges in quiet turnover.  Most of the major currencies are within 0.1% of yesterday’s close near midday in Europe. The $1.1700-level held in the euro. 

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Rising Rates Underpin the Greenback

Overview: The US dollar remains firm ahead of the July CPI release, and even though Chicago Fed Evans demurred from the hawkish talk, the market is getting more comfortable with the idea of a rate hike next year. 

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Gold’s Flash Crash and Limited Follow-Through Greenback Gains

Overview:  A flash crash saw gold drop more than $70 an ounce in early Asia. Silver was dragged lower too.  The precious metals have stabilized at lower levels, but it signals a rough adjustment to a higher interest rate environment as a hawkish BOE and strong US employment data suggest peak monetary stimulus is at hand. 

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Yesterday’s Dollar Recovery Stalls

Overview: US interest rates and the dollar turned higher following comments by the Fed’s Vice Chairman Clarida, who appeared to throw his lot with the more hawkish members. The dollar recovered from weakness that had seen it fall to almost JPY108.70, its lowest level since late May, and lifted the euro to $1.19. 

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Greenback Softens amid Stronger Risk Appetites to Start August

Overview: Risk appetites snap back after easing in the waning hours last month. The MSCI Asia Pacific equities jumped back after dropping 1.8% last week for the second week in a row. Japan’s Topix and China’s CSI 300 rose by more than 2%, and Hong Kong, Taiwan, and Australia gained more than 1%. 

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FX Daily, July 22: Enguard Lagarde

Overview: The rally in US shares yesterday, ostensibly fueled by strong earnings reports, is helping to encourage risk appetites today.  The MSCI Asia Pacific Index is posting its biggest gain in around two weeks, though Japan’s markets are closed today and tomorrow.  The Dow Jones Stoxx 600 is building on yesterday’s rally, and with today’s ~0.8% gain, it is up on the week.

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FX Daily, July 21: Did Japan Deliver a Fait Accompli to the US?

Overview:  The biggest rally in US equities in four months has helped stabilize global shares today.  In the Asia Pacific region, Japan, China, and Australian markets advanced.  Led by information technology and consumer discretionary sectors, Europe’s Dow Jones Stoxx 600 is up around 1.35% near the middle of the session. 

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FX Daily, July 20: Doom and Gloom Takes Toll

Overview:  The capital markets have begun stabilizing after yesterday’s dramatic moves.  The MSCI Asia Pacific Index did, though, see follow-through selling, and the third consecutive loss saw the benchmark close below its 200-day moving average for the first time in a year.  Europe’s Dow Jones Stoxx 600 is posting small gains to snap a four-day drop. 

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FX Daily, July 16: BOJ Tweaks Forecasts

The markets head into the weekend with little fanfare. Most large equity markets in the Asia Pacific region slipped earlier today. Hong Kong, which will be exempt from the need to secure mainland’s cybersecurity approval for foreign IPOs, and Australia were notable exceptions. European bourses are edging higher, while US futures are oscillating around unchanged levels.

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Measuring Inflation and the Week Ahead

There is quite an unusual price context for new week’s economic events, which include June US CPI, retail sales, and industrial production, along with China’s Q2 GDP, and the meetings for the Reserve Bank of New Zealand, the Bank of Canada, and the Bank of Japan.

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FX Daily, July 08: Capital Markets Remain Unhinged

The dramatic move in the capital markets continues. The US dollar is soaring as yields and equities slide. The US 10-year yield has fallen below 1.30 to 1.26%  European benchmark yields are 1-4 bp lower, while Australia and New Zealand have seen a 7-9 bp drop today.

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FX Daily, July 02: US Jobs and OPEC+ Day

The US jobs report and OPEC+ decision are awaited. The dollar remains bid.  Only the yen and Canadian dollar are showing a hint of resilience, though, on the week, the Scandis and dollar-bloc currencies are off between around 1-2%. The greenback is also firmer against the emerging market currency complex, and the JP Morgan index is off for the sixth consecutive session.

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FX Daily, June 30: The Greenback is Firm into Quarter-End

The dollar is finishing the quarter on firm footing, gaining against most of the major currencies today. The euro is straddling the $1.1900 area, having begun the month above $1.22. Sterling has tested the $1.38 area. It had traded at a three-year high near $1.4250 at the start of the month.

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FX Daily, June 21: Dollar Surge Stalls

Pressure on equities seen last week carried over into Asia and Europe today. The MSCI Asia Pacific Index fell for the fourth consecutive session, led by more than a 3% decline in the Nikkei. Australia, Taiwan, and Hong Kong bourses fell by more than 1%. European equities opened lower, but have turned higher.

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FX Daily, June 18: Markets Quiet Ahead of Triple Witching

After some dramatic moves over in the immediate post-Fed period, the markets have quieted. The kind of volatility that is sometimes associated with triple witching expirations in the US may have already taken place. Asia Pacific equities were mixed, but the MSCI benchmark finished with its second consecutive weekly decline. 

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FX Daily, June 17: Fed Rocks the World

A more hawkish than expected Federal Reserve sent the US dollar and interest rates higher and spurred an equity sell-off. The knock-on effect sent ripples through the capital markets today. Most equity markets in the Asia Pacific region fell. China, Hong Kong, and Taiwan were notable exceptions.

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FX Daily, June 16: Will the Fed Talk the Talk?

With the outcome of the FOMC meeting awaited, the dollar is narrowly mixed in quiet turnover. The Scandis are the weakest (~-0.3%) among the majors, while the Antipodeans are the strongest (~+0.25%). JP Morgan’s Emerging Market Currency Index is snapping a three-day decline

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FX Daily, June 15: Commodities Ease though Oil remains Firm

The new record high in the S&P 500 and the NASDAQ’s sixth gain in seven sessions may have helped lift Asia Pacific markets today. Only China and Hong Kong did not participate. MSCI’s regional index rose for its fourth consecutive session. Europe’s Dow Jones Stoxx 600 is moving higher for the eighth session in a row. 

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FX Daily, June 14: Dollar Becalmed as Markets Wait for US Leadership

The short squeeze that lifted the US dollar ahead of the weekend has seen limited follow-through buying, and instead a consolidative tone emerged. Europe is searching for direction and perhaps waiting for US leadership after a quiet Asia Pacific session, with several centers closed for holiday today (China, Hong Kong, Taiwan, and Australia).

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FX Daily, June 11: US Yields Stabilize After Falling to Three-Month Lows

The 10-year US Treasury yield steadied after reaching a three-month low near 1.43%, despite the US CPI rising more than expected to 5% year-over-year. On the week, the decline of around a dozen basis points would be the largest in a year. Australia, New Zealand, and Italy benchmark yields have seen a bigger decline this week.

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FX Daily, June 10: ECB Meeting and US CPI: Transitory Impact

The ECB meeting and the US May CPI report is at hand. The US dollar is consolidating at a higher level against most of the major currencies. Softer than expected, inflation readings are weighing on the Scandis, which are bearing the brunt. The US 10-year yield closed below 1.50% for the first time in three months yesterday, and this may have helped underpin the Japanese yen.

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FX Daily, June 08: Marking Time ahead of the Week’s Big Events

The capital markets appear to be in a holding pattern ahead of this week’s big events, including the US CPI and the ECB meeting. Equities are little changed but with a heavier bias evident. Most of the large bourses in the Asia Pacific region were lower, except Australia, which eked out a small gain.

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FX Daily, June 02: The Dollar Snaps Back

The US dollar is enjoying broad, even if not large, gains today following yesterday’s recovery from three-year lows against sterling and four-year lows against the Canadian dollar. The greenback is firmer against all the major currencies.

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FX Daily, May 25: Softer Yields Weigh on the Greenback

The decline in US 10-year rates to two-week lows below 1.59% is helping rebuild bullish enthusiasm for stocks and weighing on the US dollar. The NASDAQ reached two-week highs yesterday, and almost all the large markets in the Asia Pacific region rose, though India struggled.

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FX Daily, May 20: Market Stabilize after Yesterday’s Tumultuous Session

US equity indices finished lower, but the real story was their recovery. Asia Pacific equities were mixed, with Australia’s 1.5% rally leading the recovery in some markets, including Tokyo and Singapore. Europe’s Dow Jones Stoxx 600 is up a little more than 0.5% near mid-session, led by information technology and industrials, while energy and financials lagged with small gains.

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FX Daily, May 19: Now What Does Bitcoin say About the Dollar and the US?

A setback in commodities and technology are roiling equity markets today. The inability of US equities to sustain yesterday’s rally provided an initial headwind to trading in the Asia Pacific region today. Hong Kong and South Korea markets were closed for holidays, but most of the bourses fell, led by Australia, where the market tumbled nearly 2%, the most in almost three months as the drop in mining and energy took a toll.

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FX Daily, May 18: Risk Appetites Return Bigly

In Asia, equities markets rallied strongly, led by the more than 5% gain in Taiwan, the most in over a year as Monday’s 3% drop was more than overcome. The Nikkei gained more than 2% despite the deeper than expected contraction in Q1 GDP. Hong Kong, South Korea, and India also rose more than a 1% gain as tech came roaring back.

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FX Daily, May 17: US and Europe may Announce Tariff Truce

There are two general developments as the busy week gets underway. First, despite accelerated price readings in the US (CPI, PPI, import prices, and University of Michigan survey), US rates are soft. The 10-year yield is near 1.61% after rising to 1.70% after the CPI surprise last week.

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FX Daily, May 14: Softer Yields = Softer Dollar

The surge in consumer prices reported on Wednesday saw rates jump and the dollar push higher. Stronger than expected producer prices yesterday, and news of wage increases (average 10%) at Mcdonalds and for 75,000 people Amazon wants to hire, saw rates ease and the dollar’s upside momentum stall.

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FX Daily, May 13: Long Lost Bond Vigilantes Sighted, Gives Dollar Fillip

It is as if the bond vigilantes were pushed too far. US inflation is accelerating more than expected, and it cannot all be attributed to the base effect, and the Federal Reserve, to many investors, is tone-deaf. With powerful fiscal stimulus, nominal growth above 10%, and the economy re-opening, albeit unevenly, does the monetary accelerator need to be fully engaged?

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The Dollar and the Fed

One of the stark developments since the initial shock of the pandemic has been the aggressiveness of the US monetary and fiscal response. This was also true in dealing with the Great Financial Crisis. The divergence then and now had shaped the investment climate.

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The Dollar can Build on the Pre-Weekend Gains

The US dollar traded heavily most of last week but rebounded ahead of the weekend, with some month-end flows impacting.  The Japanese yen was a notable exception.  The rise in US yields helped lift the greenback nearly a percent against the yen.  The Fed’s standpat stance in light of the surging economy and signals the Norwegian central bank and the Bank of Canada seemed dovish.  The contrast carried the Norwegian krone and Canadian dollar to new three-year highs last week.  Even if the greenback’s pre-weekend advance was exaggerated, it looks to be turning after trending lower in April.  The Federal Reserve’s broad trade-weighted nominal dollar index fell by about 7.5% in the last three quarters of 2020 after rising by 4.6% in Q1 as the pandemic struck and the dollar was bought partly as

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FX Daily, April 29: US GDP: The V

Overview:  The market’s initial reaction to the Federal Reserve statement and the press conference was that it was dovish: the 10-year yield slipped, and the dollar was sold to new lows.  In fact, the two countries that appear to be ahead of the curve among high-income countries, Canada and Norway, saw their currencies rally to new three-year highs.

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FX Daily, April 28: Biden and Powell are Center Stage

Overview: It appears that the backing up of US yields is giving the dollar a better tone and challenging the Eurosystem, which has stepped up its bond purchases.  The US 10-year yield is around 1.65%, roughly a two-week high and back above the 20-day moving average. 

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FX Daily, April 27: Markets Mark Time Ahead of Fed

Short-covering ahead of the FOMC’s outcome tomorrow appears to be lending the US dollar support today. It has extended yesterday’s gains against the euro, sterling, and yen.  Among emerging market currencies, the Turkish lira, along with the South Korean won and Taiwanese dollar, lead the few advancers.

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FX Daily, April 23: Greenback Slips into the Weekend

Overview:  Many narratives link the prospect of higher capital gains tax on about a third of 1% of Americans as the catalyst for losses in US equities yesterday (and Bitcoin) and weakness in some global shares today.  Of the large markets in the Asia Pacific region, only Japan, which is reimposing a formal emergency in Tokyo, Osaka, and two other prefectures, fell. 

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FX Daily, April 12: Capital Markets Look for Direction

Overview: Risk appetites have not returned from the weekend.  Equities are heavy, and bond yields softer.  The dollar is drifting lower in Europe.  China’s unusually candid admission of the shortcomings of its vaccine and record new cases in India saw all the equity markets in the region fall.  Only South Korea and Taiwan escaped the carnage that saw the Indian market tumble 3.5%. 

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FX Daily, April 8: Calm Capital Markets See the Dollar Drift

Overview:  Global stocks are moving higher today.  Fears of a new lockdown in Tokyo amid rising covid cases weighed on Japanese stocks, a notable exception as the MSCI Asia Pacific Index rose for its fifth session of the past six.  Europe’s Dow Jones Stoxx 600 is edging to new record highs today and is advancing for its fifth session of the past seven. 

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FX Daily, April 5: Market Pushes First Rate Hike into 2022

Overview: Many financial centers in Asia and Europe remain closed for the extended holiday. Although several markets that were open were higher in the Asia Pacific region, India was an exception as a record contagion sent stocks down the most in five weeks. US futures are pointing higher, led by the Dow, while the NASDAQ lags.

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April Monthly

Four major forces shaped the investment climate in the first quarter:  the evolution of the virus and the rollout of the vaccine, the rising long-term interest rates driven by higher oil prices, America’s large fiscal stimulus, and optimism about the outlook, a sharp divergence between the US and other high-income countries, and a recovery in the US dollar after sliding in November and December 2020.

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FX Daily, March 15: Big Week Begins Quietly

The capital markets are beginning a new and busy week in a non-committal fashion.  Equities are mixed.  Except for Japan, Hong Kong, and Australia, most markets in the Asia Pacific region were lower, led Chinese and Indian shares. 

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FX Daily, March 11: Risk Extends Gains Ahead of the ECB

Overview: Even though the NASDAQ closed lower yesterday and the reception of the 10-year Treasury auction did not excite, market participants are growing more confident.  Led by China, the major markets in the Asia Pacific region rallied.  The Shanghai Composite’s 2.35% gain not only snaps a five-session slide but is the largest rally since last October.

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FX Daily, March 9: Turn Around Tuesday Strikes

It is not clear the trigger, but risk-taking appetites rebounded smartly today after the NASDAQ completed a more than 10% pullback from its highs yesterday.  Ironically, the Dow Jones Industrials set new record highs yesterday too.  Most equity markets in the Asia Pacific region rallied.  The notable exceptions were South Korea and China. 

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FX Daily, March 4: OPEC+ and Powell are Awaited

Overview:  Equities are under pressure following yesterday’s sharp losses in the US.  The MSCI Asia Pacific Index suffered its biggest decline of the week today as Japanese, Chinese, and Hong Kong benchmarks slid by more than 2%.  The Dow Jones Stoxx 600 Index in Europe is buckling under the pressure and is posting its first decline of the week. 

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FX Daily, March 2: The Dollar Finds Better Footing

Overview: A warning from China’s top banking regulator about the frothiness of foreign markets appeared to blunt the knock-on effect of yesterday’s largest rise in the S&P 500 since last June (~2.4%) and weighed on global equities.  The large markets in the Asia Pacific region but India and South Korea fell.

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FX Daily, February 18: Markets Chill

The bout of profit-taking in equities continued today, and most markets in Asia Pacific and Europe are lower. China’s markets re-opened but struggled to sustain early gains. However, the Shanghai Composite rose by about 0.5%, and a smaller increase was recorded in Taiwan and an even smaller gain in Australia.

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FX Daily, February 16: Greenback Remains Heavy

The equity rally appears undeterred by the rise in interest rates or the surge in oil prices.  Led by Tokyo and Hong Kong, Asia Pacific equities advanced.  China, Taiwan, and Vietnam markets remain closed. After gapping higher yesterday and extended the gains in early turnover today, the Dow Jones Stoxx 600 is consolidating.

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FX Daily, February 9: Players are Not Buying Everything Today

The rally of US benchmarks to new record highs helped lift most Asia Pacific markets today, but the bulls are pausing in Europe, and there has been little follow-through buying of US shares.  Australia, South Korea, and Indonesia did not participate in today’s regional advance led by a 2% rally in China’s main indices.

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FX Daily, February 8: Limited Follow-Through Dollar Selling to Start the Week

Overview: The US dollar has drifted higher against the major currencies and most of the freely accessible emerging market currencies, paring the losses seen before the weekend in response to the disappointing employment report. Easing pressure from the pandemic as the surge in cases after the holidays may also be encouraging risk-taking to extend the global equity rally.

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FX Daily, February 4: Negative Rates and the Bank of England: Having Your Cake and Eating it Too

Overview:  The euro has been sold through $1.20 for the first time since December 1 and has now given back roughly half of the gains scored from the US election (~$1.16) to the early January high (~$.1.2350).  More broadly, the greenback is bid against most of the major currencies, with the Australian dollar more resilient after reported record iron ore exports and all but a handful of emerging market currencies. 

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FX Daily, February 1: Markets Snap Back

Global equities are snapping back today, while the greenback retained the strength seen last week that was attributed to safe-haven flows. The MSCI Asia Pacific Index snapped a four-day decline led by Hong Kong, South Korea, India, and Indonesia.

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FX Daily, January 29: Please Stay Seated, the Ride is not Over

Powerful corrective forces continue to grip the market. After a large rally to start the New Year, the correction is punishing. Most Asia Pacific equities markets were off again today to bring the week’s loss to 2.5% to 5.5% throughout the region. Europe’s Dow Jones Stoxx 600 is a little more than 1% lower on the day. 

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FX Daily, January 27: The Fed and Earnings on Tap

Overview:  Risk appetites seem subdued even if GameStop’s surge draws attention. Asia Pacific equities mostly slipped lower, and profit-taking was seen in Hong Kong and Seoul, which are off to an incredibly strong start to the year. Small gains were reported in Tokyo, Beijing, and Taipei.

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FX Daily, January 26: Subdued Activity as New Incentives Awaited

Overview:  After rallying strongly to start the year, Asia Pacific equities, led by the high-flying Hang Seng, sold-off, led by Tencent.  Most markets in the region were off at least 1%.  Australia and India escaped the profit-taking due to holidays.  Europe’s Dow Jones Stoxx 600 is faring better and looks poised to snap a two-day fall, led by materials, financials, information technology, and consumer staples.

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FX Daily, January 25: A Subdued Start to a Big Week

What promises to be an eventful week has begun off on a mostly subdued note. Asia Pacific equities moved higher, again led by Hong Kong and ostensibly mainland buying. The Hang Seng rose 2.4% to bring this year’s gain to 10.75%. South Korea’s Kospi also increased by more than 2%, and, so far this month, it is up almost 11.7%. 

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FX Daily, January 22: Faltering Friday

Fear that social restrictions may have to be broadened and extended is helping spur a wave of profit-taking and de-risking, which has also been encouraged by disappointingly high-frequency data. The equity rally seemed to falter a bit in the US, as the S&P 500 eked out a minor 0.03% gain yesterday.

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FX Daily, January 19: Even When She Speaks Softly, She’s Yellen

Overview: The animal spirits are on the march today.  Equities are mostly higher, peripheral European bonds are firm, and the dollar is mostly softer. After posting the first back-to-back decline this year, the MSCI Asia Pacific Index bounced back today, led by a 2.7% gain in Hong Kong (20-month high) and a 2.6% rise in South Korea’s Kospi. 

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FX Daily, January 18: US is on Holiday, but the Dollar has Legs

Overview: The new week has begun like last week ended.  Equities are a bit heavy.  The MSCI Asia Pacific Index fell for the second session, its first back-to-back loss since before Christmas.  China and Hong Kong were the notable exceptions, perhaps helped by stronger than expected GDP. 

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FX Daily, January 13: PBOC Sends Signal as Market Looks Past Impeachment Vote

The US dollar is regaining ground lost in yesterday’s setback against the major currencies. Sterling is the notable exception. It was toying with the $1.37 area, perhaps helped by the Governor of the Bank of England signal that there still are hurdles to adopting negative interest rates, which the futures market is still discounting for as soon as midyear.

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FX Daily, January 12: Markets Catch Collective Breath

Overview:  The capital markets were stabilizing today after dramatic moves yesterday. Equity markets are recovering, and the dollar is paring yesterday’s gains.  Most equity markets in the Asia Pacific region rose, though Taiwan, South Korea, and Australia were notable exceptions. 

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FX Daily, January 11: Greenback Extends Recovery

Julius Ceasar is said to have "crossed the Rubicon" on January 10, 49 BCE, taking the 13th Legion into Rome, defying orders from the Senate, and precipitating the Roman Civil Wat that marked the end of the republic and the birth of the empire.

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FX Daily, January 6: High Drama Weighs on the Greenback and Lifts Yields

Overview:  One of the two Georgia Senate contests remains too close to call, but the market appears to be pricing in a Democrat sweep.  The 10-year yield has punched above 1% but has offered the greenback little support.  Yesterday, the dollar-bloc currencies rose to highs since early Q2 2018 and are extending those gains today. 

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January Monthly

It might not feel like a New Year, as the pandemic continues to ravage most countries. On top of the human toll, the economic fallout will continue to depress activity in the first part of 2021.  However, policymakers throughout the G7 provided more stimulus in late 2020 and extended many emergency facilities well into the New Year.

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Inflating Inflation Expectations

Rising prices feature in many economic forecasts for the US.  It is seen as part of the reflation meme as the vaccines roll out.  There seem to be three threads to the discussion.  The first is practically mathematically certain.  Economists refer to it as the base effect.  As the pandemic struck and the economy shut down, prices fell.  Headline CPI fell by 0.4% in March 2019, by 0.8% in April, and another 0.1% in May.  The PCE deflator, which the Fed targets, fell by 0.3% in March and by 0.5% in April.  It rose by 0.2% in May. The point is the negative prints will drop out of the year-over-year comparisons, and barring a new sharp economic downturn, they will be replaced by higher numbers. This will be reflected in an increase in the year-over-year rate and provide the grist for an

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Cool Video: A Look Ahead to 2021

I joined Ben Lichtenstein, host of the morning futures program at TDAmeritrade.  It is in the futures market that I began my career, and where I gained respect for local traders, who do not have a large institutional backing such as a bank or hedge fund, and are trading their own capital, and taking the risk often from those institutional participants. 

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The Dollar’s Evolving Outlook

The foreign exchange market sees an average daily turnover of something on the magnitude of $6.6 trillion a day.  In a week, the turnover is sufficient to more than cover world trade for a year.  It is the largest of the capital markets.  Trends in the currency market can last for years.  

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FX Daily, December 21: Happy Holidays

No daily commentary until the New Year, but watch this space for thematic pieces over the next two weeks. Here is to a safe, healthy, and prosperous 2021. Thank you for your support.  

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FX Daily, December 17: Dollar Thumped

Overview: The prospects of a UK-EU deal and US stimulus continue to underwrite risk appetites and weigh on the dollar.  Equity markets are moving higher.  Led by Australia and China, the MSCI Asia Pacific Index rose to new record highs, while Dow Jones Stoxx 600 in Europe is at its best level since February.

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FX Daily, December 15: The Bulls are Emboldened

The S&P fell for the fourth consecutive session yesterday, the longest losing streak of the quarter, and this seemed to encourage profit-taking in the Asia Pacific region today.  The MSCI Asia Pacific Index slipped for the second consecutive session, and even confirmation of the Chinese recovery failed to lift the Shanghai Composite. 

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Cool Video: CNBC-Asia–Brexit, Sterling, the Euro, and Dollar

I had the privilege to join Sri Jegarajah at CNBC Asia at the start of today’s Asia Pacific session.  We had a broad chat about the dollar, Brexit, and the euro.  He gave me the opportunity to sketch out my views:1.  The dollar’s entered a cyclical decline, and the "twin deficit" issue will likely frame the narrative. 

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FX Daily, December 11: Brexit Fears Weigh on Sterling

Overview:  The odds of a UK-EU agreement and new stimulus before year-end in the US have faded and are sapping risk appetites ahead of the weekend.  Although most Asia Pacific equity markets gained, China and Australia were notable exceptions, European shares are heavy, and the Dow Jones Stoxx 600 is near three-week lows. 

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FX Daily, December 9: Hope Burns Eternal

The market is hopeful today. The Johnson-von der Leyen dinner is seen as evidence that both sides see one more opportunity, and sterling is among the strongest currencies today. Hopes of a $900 bln+ fiscal stimulus package in the US helped stir animal spirits and lift US stocks to record highs yesterday.

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FX Daily, December 8: Consolidative Moment as Markets Wait for Fresh Developments

EUR/CHF and USD/CHF, December 8

Overview:  Three brinkmanship dramas continue to play out.  The UK-EU trade talks have reportedly made little progress and may have even moved backward, according to some reports, over the past two days.  The EU and Poland, and Hungary will be butting heads at the leaders’ summit that begins Thursday.  The US federal spending authorization is exhausted at the end of the week.

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FX Daily, December 03: Euro Rally Stalls while Brexit Concerns Trip Sterling

falling money

The selling pressure that drove the dollar lower yesterday has abated, and the greenback is paring yesterday’s loss, though the dollar-bloc currencies are showing some resilience. EC negotiator Barnier briefed ministers that the same three issues that have bedeviled the trade talks with the UK remain unresolved (fisheries, level playing field, and a conflict resolution mechanism).

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FX Daily, December 2: Euro Rally Stalls while Brexit Concerns Trip Sterling

The selling pressure that drove the dollar lower yesterday has abated, and the greenback is paring yesterday’s loss, though the dollar-bloc currencies are showing some resilience. EC negotiator Barnier briefed ministers that the same three issues that have bedeviled the trade talks with the UK remain unresolved (fisheries, level playing field, and a conflict resolution mechanism).

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FX Daily, November 19: Surging Virus Saps Risk Appetites

Overview: News that the New York City was closing the schools to contain the virus sent stocks reeling in late North American dealings yesterday and spurred some profit-taking in the Asia Pacific and Europe.  Equities in the Asia Pacific region were mostly lower, though China, South Korea, and Australia’s advanced and Tokyo markets were mixed.

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FX Daily, November 16: Risk-On Despite Surging Pandemic

EUR/CHF and USD/CHF, November 16

Despite the surging pandemic and new restriction measure, risk-appetites appear strong to start the week. Led by 2% gains in the Nikkei and Taiwan’s Taiex, all of the Asia Pacific region’s equity markets advanced. European markets have followed suit and the Dow Jones Stoxx 600 is knocking on last week’s eight-month high.

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FX Daily, November 10: Markets Remain Unsettled

Overview: Pfizer’s vaccine announcement eclipsed the US election as the key market driver. It spurred the unwinding of Covid trades in terms of sectors and yields.  Emerging market currencies and the majors that benefit from world growth outperformed the perceived safe-havens, like the yen and the Swiss franc.

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FX Daily, November 6: A Pause that Refreshens?

Investors have piled into risk assets this week, seemingly undeterred by the US elections’ lack of a clear outcome. The coronavirus is still surging, and a new complication has emerged. A mutation of the virus, originating in minks (Denmark), could pose a challenge in developing a vaccine. MSCI Asia Pacific Index rose for the fifth consecutive session today to end its best week since April.

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FX Daily, November 5: The Dollar Slides and the Yuan Jumps

Overview: The markets did not wait for the final vote count and took stocks and bonds higher while pushing the greenback lower. While it appears Biden will be the next US President, investors seemed to like the fact that his agenda will be checked by a Senate that may remain in Republican hands.  Stocks are on a tear. 

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FX Daily, October 30: Investors Scared Before Halloween

EUR/CHF and USD/CHF, October 30

Investors punished US tech giants for not delivering perfection as prices apparently had discounted, and the subsequent sell-off coupled with month-end dynamics has rocked global equities.  Asia Pacific bourses were a sea of red, led by a 2.5% decline in the tech-heavy South Korean Kospi, but most major markets were off more than 1%. 

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FX Daily. October 29: Markets Continue to Struggle

The spreading virus that is shutting down large parts of Europe, while the US is reluctant to return to lockdowns and refuses to have a nationwide requirement for masks in public hit risk assets yesterday.  The S&P posted its largest decline in four-months yesterday (~3.5%), and the selling carried into the Asia Pacific region.

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FX Daily, October 26: Troubling Start of the Important Week

The surging virus ravaging large parts of Europe and the United States is fanning concerns over the economic implications as new social restrictions and curfews are announced in several countries. US additional fiscal support remains elusive as aid for states and local governments remains a bone of contention. 

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FX Daily, October 22: Greenback Stabilizes

Two sets of talks have riveted attention, and both appeared to have made progress yesterday. After some words, the EC, recognizing the importance of UK sovereignty, UK Prime Minister Johnson signaled a resumption of trade talks.

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FX Daily, October 21: Dollar Slumps as Yields Rise

Overview:  The dollar is falling against most of the world’s currencies today, even as long-term yields rise to the most in four months and drags global yields higher.  The US 10-year yield is pushing above 0.80%, and the 30-year is above 1.60%. 

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FX Daily, October 16: Deja Vu All Over Again

It was like deja vu all over again. First, the market reacted immodestly to headlines indicating there was little chance of pre-election fiscal stimulus in the US. It was hardly new news. Then the market seemed to react with surprise that there was no last-minute breakthrough in the UK-EU trade negotiations.

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FX Daily, October 13: Markets Look for Fresh Incentives

The S&P 500 and NASDAQ gapped higher for the third consecutive session and continued to advance. The benchmarks reached their best level since early September. Hong Kong markets were closed due to a storm, but the MSCI Asia Pacific gained for the seventh consecutive session. Most markets were higher, though Taiwan and South Korea were exceptions.

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FX Daily, October 9: Animal Spirits Return

Overview:  The on-again-off-again fiscal stimulus in the US is back on as the White House now supports a broad stimulus program, but not as big as the Democrats $2.2 trillion package.  It is the narrative being cited as the rebuilding of risk appetites is the wobble earlier in the week. 

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FX Daily, October 08: Markets Catch Collective Breath

The S&P 500 and NASDAQ closed at their highest levels in around a month yesterday, recouping Tuesday’s presidential tweet-driven drop. We thought the market overreacted to the end of the fiscal talks as many had already recognized that a stimulus agreement was unlikely before the election, but the near round-trip seen in stocks and bonds was surprising.

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FX Daily, October 07: The Day After

President Trump’s tweet announced that negotiations with the House Democrat leadership had collapsed, and there will be no further talks until after the election. Many economists had been removing it from their Q4 GDP projections, but the market was caught wrongfooted. Risk came off.

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FX Daily, October 6: The Dollar Tests Key Supports and Pauses

Market moves have stalled.  The MSCI Asia Pacific Index did manage to extend Monday’s gains, but other markets are heavier.  Europe’s Dow Jones Stoxx 600 is snapping a three-day advance.  The communications sector is the sole standout, though financials and energy are little changed.

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FX Daily, October 05: Monday’s Dollar Blues

New actions to contain the virus are being taken in the US and Europe, but investors are looking past it and taking equities and risk assets, in general, higher to start the new week. MSCI Asia Pacific recouped most of last week’s 0.7% loss with gains of move than 1% in Japan, Hong Kong, South Korea, and Australia.

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October Monthly

After falling in July and August, the US dollar strengthened against most of the major currencies in September.  The dramatic pullback in equities seemed to have undergirded the yen’s resilience, which gained a net 0.25% against the dollar.

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FX Daily, October 1: Hope Springs Eternal

Speculation that a new round of fiscal stimulus from the US is possible is encouraging risk-taking today.  Many large Asian centers were closed for holidays today, and a technical problem prevented the Tokyo Stock Exchange from opening.

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FX Daily, September 30: Nervous Calm

Quarter and month-end considerations could be overwhelming other factors today.  Turnaround Tuesday saw early gains in US equities fade.  Asia Pacific shares were mixed, with the Nikkei (-1.5%) and Australia (-2.3%) bear the brunt of the selling, while China, Hong Kong, Taiwan, and India rose.

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FX Daily, September 29: Consolidation Still Featured

A consolidative tone continues across the capital markets. Equities have lost their momentum. The MSCI Asia Pacific Index was mixed, while Europe’s Dow Jones Stoxx 600 is paring yesterday’s sharp 2.2% gain. US shares are little changed but mostly softer. 

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FX Daily, September 25: Sentiment Remains Fragile Ahead of the Weekend

The dramatic week is finishing on a quieter note.  The modest gains in US equities yesterday helped the Asia Pacific performance today.  Most markets but China and Hong Kong pared the weekly losses, and easing regulations in Australia spurred a rally in financials that saw its stock market close higher on the week. 

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FX Daily, September 24: Darkest Before Dawn

The two recent market developments, push lower in stocks, and higher in the dollar is continuing. Tuesday’s gains in the S&P 500 and NASDAQ were unwound on Wednesday and this is helping drag global markets lower. The MSCI Asia Pacific Index fell for the fourth consecutive session today and many markets (India, Shenzhen, Taiwan, and Korea) fell more than 2% and most others were off more than 1%.

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FX Daily, September 23: Trying to Find Solid Ground

A more stable tone is evident in the capital markets after the S&P 500, and NASDAQ rose more than one percent yesterday.  Japan returned from a two-day holiday, and local shares slipped fractionally, while China, Hong Kong, South Korea, and Australian shares rallied.  India and Taiwan fell.

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FX Daily, September 21: Risk Appetites Join Tokyo on Vacation

Global equity markets are off to a poor start to the week, and the dollar appears to be enjoying a safe-haven bid. Tokyo markets are closed until Wednesday, while Asia-Pacific stocks tumbled, and the regional index is unwinding last week’s gains. The Dow Jones Stoxx 600  is off around 2.7% near midday in Europe.

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FX Daily, September 10: ECB and Beyond

Overview:  A strong recovery in US stocks, a softer dollar, and higher gold and oil prices may signal the end of the brief though dramatic correction, but the market is in a bit of a holding pattern ahead of the ECB meeting.  Most of the major equity markets in the Asia Pacific region stabilized, except for Hong Kong and China.

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FX Daily, September 3: Corrective Forces Maintain Grip

The US dollar is continuing to recover after hitting new lows earlier in the week. It is lower against all the major currencies and most of the emerging markets. A report in the Financial Times suggesting that there is a concern about the euro’s recent strength at the ECB has added a bit more fuel to the move, and the euro, which had pushed above $1.20 earlier in the week, briefly traded below $1.18. 

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September Monthly

The US dollar’s rally in the initial phases of the pandemic has been unwound, and sentiment appears to be the most negative since the Great Financial Crisis.  New lows for the year against the euro, Swiss franc, the British pound, Swedish krona, and the Australian dollar were recorded in recent weeks.

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FX Daily, September 1: Dollar Lurches Lower

The US dollar has been sold-off across the board. The euro approached $1.20, and sterling neared $1.3450. The greenback traded below CAD1.30 for the first time since January. Most emerging market currencies but the Turkish lira, are also advancing today.

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FX Daily, August 28: Powell and Abe Drive Markets

After a confused and volatile reaction to the Federal Reserve’s formal adoption of an average inflation target, it took Asian and European traders to embrace the signal and take the dollar lower. It is falling against nearly all the currencies and has slumped to new lows for the year against sterling and the Australian dollar.

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FX Daily, August 26: Hurricane Laura Lifts Oil Prices

A consolidative tone has emerged after US equity benchmarks reached new highs yesterday. The MSCI Asia Pacific Index had reached seven-month highs on Tuesday, but Japan, China, and Australian stocks saw modest profit-taking today. European shares are recouping yesterday’s minor loss, and US shares are flat. 

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FX Daily, August 24: Markets Prove Resilient to Start New Week

New virus outbreaks in Europe and Asia are not adversely impacting the capital markets today. Global equities are firmer. Some reports suggesting the US ban on WeChat may not be as broad as initially signaled helped lift Hong Kong shares, but nearly all the markets in the region traded higher.

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FX Daily, August 21: PMIs Shake Investor Confidence

The second disappointing Fed manufacturing survey report and an unexpected rise in weekly jobless claims helped reverse the disappointment over the FOMC minutes. Bonds and stocks rallied–not on good macroeconomic news, but the opposite, which underscores the likelihood of more support for longer.

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FX Daily, August 20: FOMC Minutes Spur Profit-Taking

Overview: The FOMC minutes depicted a Federal Reserve that appeared to be not quite ready to take fresh initiatives, whether it is yield curve control or changing the composition or quantities of its bond purchases.  This unleashed profit-taking on some of the large moves in equities, the dollar, and gold.

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Cool Video: TD Ameritrade with Ben Lichtenstein

With the dollar continuing to trend lower, it was time to check again with Ben Lichtenstein at TD Ameritrade.  It was a privilege to join him today to discuss the drivers. I sketched out my views that the greenback’s two legs, growth and interest rate differentials have been knocked from under it.

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August Survey Data and Beyond

Economists are often lampooned because of their inability to forecast changes in the business cycle. But the pandemic helped them overcome the challenge this time. A record contraction in Q2 was anticipated before in March. Similarly, economists generally expected the recovery after the March-April body blow.

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FX Daily, August 13: Dollar Remains Offered

The poor price action on Tuesday in the S&P 500 was shrugged off, and new highs for the recovery were made as the record high nears. The dollar, on the other hand, seemed to find plenty of sellers against most of the major currencies. The yen was a notable exception.

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Speculative Positioning in Selected Currency Futures

With the media playing up the US dollar’s negatives, one would think speculators are short the greenback like there is no tomorrow. Yet a review of the Commitment of Traders report that covers the week through last Tuesday, August 4, shows that this is not really the case.

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FX Daily, August 10: Monday in August

Overview: The new week has begun slowly with Singapore and Tokyo markets closed for national holidays. The MSCI Asia Pacific Index rose 2% last week and edged higher today, led by 1.5%-1.7% rallies in South Korea and Australia.  Hong Kong was a notable exception and eased around 0.6%.

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The Ant and the Grasshopper: A Window into Macro Part II

Regardless of the dollar’s role and function in the world economy and the halls of finance, in the near and intermediate terms, investors and businesses are more concerned with foreign exchange prices.  The greenback has fallen out of favor. Its main supports, like wide interest rate differentials, favorable growth differentials, and political certainty if not stability, have weakened.

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FX Daily, August 06: Markets Consolidate

EUR/BGN Currency Pair

The Australian dollar powered to marginal news highs for the year as the move against the US dollar continued yesterday. The euro stopped a few hundredths of a cent below the high seen at the end of last week. However, neither sustained the upside momentum and have come back offered today.

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August Monthly

The dollar’s losses accelerated in July, and further declines are likely even if there is short-lived bounce to correct the over-extended technical condition.  We have been arguing for a year that the third significant dollar rally since the end of Bretton Woods was over, but the disruption of the global capital markets in March gave the old bull market one more push.

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FX Daily, July 30: Greenback’s Bounce is Likely Short-Lived

A wave of profit-taking is seen through most of the capital markets today, with the exception of the bond market, where yields continue to trend lower.  The US 10-year is now yielding 55 bp, a new low since early March, and the five-year yield set a new record low near 23 bp.  European yields are 2-4 bp lower.

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FX Daily, July 29: Greenback Slips Ahead of the FOMC

Global equity markets are stabilizing today, and the dollar is once again on its back foot. Chinese markets led a mixed regional performance with a 2%-3% gain, while South Korea and Hong Kong markets also advancing. The strength of the yen appears to weigh on Japanese shares.

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FX Daily, July 27: Dollar Slide Continues, while Gold Soars

The US dollar’s dramatic sell-off continues. It is off against nearly all currencies.  Among the majors, the Swedish krona and Japanese yen are leading the money, and the euro surged through $1.17.  Emerging market currencies are fully participating, with the JP Morgan Emerging Market Currency Index posting its fifth gain in six sessions.

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Cool Video: Gold and the Dollar

I have been talking with Neils Christensen, editor at Kitco news, for several years about the dollar, gold, and my read of the capital markets more broadly.  We had a chance to discuss recent developments yesterday. I began my career at a small newswire, and Kitco reminds me of it.

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FX Daily, July 22: Pang of Uncertainty Spurs Profit-Taking

The optimism among investors appears to have evaporated in the face of new US-Chinese tensions, possible delays in the next US fiscal stimulus, and new record virus infections in Australia and Hong Kong. US stocks had pared early gains yesterday, and the high-flying NASDAQ finished lower after setting new record highs. 

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FX Daily, July 21: Europe and Tech Lift Risk Appetites

Overview: The continued domination of the tech sector and Europe’s tentative agreement are lifting equities and risk assets more generally today.  Australia and Hong Kong’s 2.3%-2.5% rally led Asia Pacific markets.  The Dow Jones Stoxx 600 is higher for a third session and above its 200-day moving average for the first time since February. 

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FX Daily, July 20: Markets Yawn, Deal or No Deal

Overview: While there are signs that Europe has reached a compromise on the grant/loan issue, the spillover into the markets is quite limited. China, with Shanghai’s 3.1% gain, led a few markets in the Asia Pacific region higher, including Japan and India. Most markets were lower, and Europe’s Dow Jones Stoxx 600 is a fractionally firmer, recovering from initial losses.

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FX Daily, July 17: Markets Limp into the Weekend

Chinese stocks stabilized after yesterday’s sharp fall and most Asia Pacific equity markets, but Tokyo rose today.  European shares are little changed, but the Dow Jones Stoxx 600 is still poised to hold on to modest gains for the third consecutive week. 

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FX Daily, July 15: The Dollar Slumps and EU Court Rules in Favor of Apple

A recovery in US stocks yesterday, coupled with optimism over Moderna’s vaccine, is providing new fodder for risk appetites today.  Equities are being driven higher, and the dollar is under pressure.  Most equity markets in Asia advanced.  China and Taiwan were exceptions, and, in fact, the Shanghai Composite fell for the second consecutive session for the first time in a month.

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FX Daily, July 14: Turn Around Tuesday Began Yesterday

Overview: Turn around Tuesday began yesterday with a key reversal in the high-flying NASDAQ. It soared to new record highs before selling off and settling below the previous low. The S&P 500 saw new four-month highs and then sold-off and ended on its lows with a loss of nearly 1% on the session. Asia Pacific shares fell, led by declines in Hong Kong and India.

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FX Daily, July 13: Risk Appetites Firm, but the Greenback is Mixed

Equities began the week on a firm note in the Asia Pacific region.  The Nikkei gained more than 2%, and the profit-taking seen in China ahead of the weekend was a one-day phenomenon.  The Shanghai Composite rose 1.8%, and the Shenzhen Composite surged 3.5%.  Taiwan and South Korea markets also rallied more than 1%.

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FX Daily, July 8: Consolidation is the Flavor of the Day

The S&P 500’s longest advance this year was stopped seemingly as concern that the flare-up in the virus will slow the recovery. The sell-off in airlines and hotels helped spur a broader bout of profit-taking.  Most Asia Pacific bourses advanced, led by the continued rally in Hong Kong and China.  Europe’s Dow Jones Stoxx 600 is posting its first back-to-back decline in nearly a month.

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FX Daily, July 07: Fade the Dollar Gains

The S&P 500 rallied 1.6% yesterday to extend the streak to a fifth consecutive session, and the longest of the year and completed the negation of a bearish technical pattern.  However, the main feature today is a wave of profit-taking on risk assets.  Most equity markets moved lower in the Asia Pacific region. Chinese markets were a notable exception.

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Cool Video: Dollar, Trade, and China on TDA Network

I began my career as a reporter on the floor of the Chicago Mercantile Exchange, covering the currency futures and short-term interest rate futures for a news wire. Among other things, I learned that often, the locals, people trading with their own money and wits, would take the opposite side of trades of the institutional players.

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FX Daily, July 6: New Record Number of Covid Cases Doesn’t Curtail Appetite for Risk

Overview: A new daily high number of contagions globally has been reported, but the risk-appetites have been stoked.  Chinese stocks have been on a tear.  The Shanghai Composite rallied 5.7% today to bring the five-day advance to 13.6%.  Most other regional markets, including Hong Kong, rallied as well (3.8%).  Australia was the main exception, and it pulled back by 0.7%.  It is still up a solid 3.4% over the past five sessions.

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FX Daily, July 2: Dollar Thumped Ahead of US Jobs Report

Market optimism over the possibility of a vaccine in early 2021 overshadowed the continued surge in US cases, where the 50k-a-day threshold of new cases has been breached.  Following the NASDAQ close yesterday at record highs, global equities have advanced.  Led by Hong Kong returning from yesterday’s holiday, Asia Pacific equities rallied.  Most local markets rose by more than 1%, though Tokyo and Taiwan lagged.

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July Monthly preview

Many major and emerging central banks took action in June, but outside of possible technical adjustments will continue with the current supportive stance in July. The policy focus will shift back to fiscal initiatives. The highlights will be the EU Summit on July 12, which is considering the EC’s 750 bln euro package of grants and loans, and the US decision regarding the $600 a week extra unemployment insurance (expiring at the end of July) and another large budget bill ostensibly for state and local governments and infrastructure.

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FX Daily, July 1: Second Verse Can’t be Worse than the First, Can it?

The resurgence of the contagion in the US has stopped or reversed an estimated 40% of the re-openings, but the appetite for risk has begun the second half on a firm note, helped by manufacturing PMIs that were above preliminary estimates or better than expected.  Except for Tokyo and Seoul, equities in the Asia Pacific region rose.  The MSCI Asia Pacific Index rose almost 15.5% in Q2. 

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FX Daily, June 30: When Primary is Secondary

The gains in US equities yesterday carried into Asia Pacific trading today, but the European investors did not get the memo. The Dow Jones Stoxx 600 is succumbing to selling pressure and giving back yesterday’s gain.  Energy and financials are the biggest drags, while real estate and information technology sectors are firm.  All the markets had rallied in the Asia Pacific region, with the Nikkei and Australian equities leading with around 1.3% gains.

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FX Daily, June 29: USD is Offered in Quiet Start to the New Week

The combination of rising virus cases and the sell-off in the US before the weekend dragged nearly all the Asia Pacific bourses lower.  The Nikkei led the way with more than a 2% drop, but most bourses were off more than 1%.  China and Taiwan were also greeted with selling as markets re-opened from a two-day holiday at the end of last week. 

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FX Daily, June 26: Investors Wrestle with Notion that More Covid Cases mean More Stimulus

It may be that a new surge in virus cases will elicit more policy support from officials, but the immediate focus may be on the economic disruption. The number of US cases is reaching records, and at least a couple of states are stopping their re-opening efforts. Several other countries, including parts of Australia, Japan, and Germany, are wrestling with the same thing, And some emerging markets, like Brazil and Mexico, have not experienced a lull.

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FX Daily, June 25: Contagion Growth and Calendar-Effect Saps Investor Enthusiasm

Given the huge run-up in risk assets this quarter, and the technical indicators warning of corrective forces, concerns over the new infections is pushing on an open door. The S&P 500 gapped lower yesterday and fell 2.6%, led by energy and airlines. The NASDAQ snapped an eight-day rally. Follow-through selling in the Asia Pacific region saw most markets fall at least 1%, with Korea and Australia seeing losses in excess of 2%.

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FX Daily, June 24: Risk Appetites Satiated for the Moment

Overview: The rally in risk assets in North America yesterday is failing to carry over into today’s activity. Asia Pacific equities were mixed. Korea and Indonesia led the advances with more than 1% gain. China and Taiwan also gained. Japan and Hong Kong. Europe’s Dow Jone’s Stoxx 600 is giving back yesterday’s gains (~1.3%) plus some and US stocks are heavy.

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FX Daily, June 23: Weebles Wobble but they Don’t Fall Down

Overview: After early indecision, investors ramped the demand for risk assets, encouraged perhaps by indications that the Trump Administration going to support at least another trillion-stimulus package. The NASDAQ rallied to new record highs, and the dollar got thumped across the board. However, in early Asia activity, Trump adviser Navarro seemed to have told Fox News that the US-China trade deal was over. 

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FX Daily, June 22: Dollar Begins Week on Back Foot

Overview: Investors begin the new week, perhaps slowed a bit by the weekend developments and the growth of new infections. Equities are mixed. The MSCI Asia Pacific Index snapped a four-day advance, though India bucked the regional trend and gained 1%. Europe’s Dow Jones Stoxx 600 is recovering from an early dip to four-day lows. US shares are trading higher after the S&P 500 closed below 3100 ahead of the weekend after reaching 3155.

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FX Daily, June 17: Correction Phase does not Appear Over

Overview:  Investors have not yet completely shaken off the angst that saw equities slide last week.  All equity markets in the Asia Pacific region, but Japan, edged higher today, including China, India, and South Korea, where political/military tensions are elevated.  Europe followed suit, and the Dow Jones Stoxx 600 is firm near yesterday’s highs. It has entered but not yet filled the gap created by the sharply lower opening on June 11.

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FX Daily, June 16: Correction Scenario Tested

Overview: Shortly after the US stock market opened sharply lower, the Federal Reserve announced that it’s Main Street facility was up and running. US stocks never looked back. After the S&P 500 recouped its full decline, the Fed announced it would begin buying corporate bonds. Up until now, it had been buying representative ETFs. Stocks rallied further on the news before pulling back into the close. The rally in risk assets carried into Asia.

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FX Daily, June 15: Unwind Continues

Overview: The swing in the pendulum of market sentiment toward fear from greed began last week and has carried over into today’s activity.  Global equities are getting mauled.  In the Asia Pacific region, no market was spared as the Nikkei’s 3.5% drop, and South Korea’s 4.7% fall led the way.  In Europe, the Dow Jones Stoxx  600 is recovering from a more than two percent early loss,  as it drops for the fifth time in the past six sessions.

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FX Daily, June 12: Licking Yesterday’s Wounds Today

Overview:  The nearly three-month rally in risk assets ended with high drama with a stomach-churning almost 6% slide in the S&P 500 yesterday. Follow-through selling was seen in the Asia Pacific region, but most markets recovered from their lows, and although losses were still recorded, the downside momentum seemed broken. The same holds true for Europe. Bourses opened lower but by mid-morning had moved higher (~1.4%) and US shares are trading firmer (~2%).

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FX Daily, June 9: Profit-Taking Gives Turn Around Tuesday Its Name

Overview: The S&P 500 turning higher on the year was the last straw before an arguably overdue bout of profit-taking kicked-in and is the dominant feature today in the capital markets.  It began slowly in the Asia Pacific region. Equities were mixed, and Australia’s 2.4% rally and the 1.6% gain in Hong Kong stood out.  Europe’s Dow Jones Stoxx 600 was off for a second day (~1.3%), and US stocks are trading heavily, warning that the S&P 500 may give back most of yesterday’s gains.

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FX Daily, June 8: Monday Blues: Consolidation Threatened

Overview: The MSCI Asia Pacific Index rose for a sixth consecutive session. Japan, Taiwan, Singapore, and Indonesian markets advanced more than 1%. European bourses are mixed, with the peripheral shares doing better than the core, leaving the Dow Jones Stoxx 600 about 0.5% lower near midday after surging 2.5% ahead the weekend. US shares are firm, as is the 10-year yields, hovering near 92 bp.

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Cool Video: The Liquidity Hypothesis

Jackie Pang from Meigu TV called and wanted to talk about the seeming disconnect between Wall Street and Main Street. In this nearly 4.5 minute clip that she posted here, she gave me plenty of time to explain what I make of it. 

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FX Daily, June 5: Greenback Remains Soft Ahead of Employment Report, but Reversal Possible

The modest loss in the S&P 500 and NASDAQ yesterday did not signal the end of the bull run. All the markets in the Asia Pacific region rallied, with the Hang Seng among the strongest with a 1.6% advance that brought the week’s gain to around 7.8%. South Korea’s Kospi was not far behind with a weekly gain of 7.5%.  In the past two weeks, the MSCI Asia Pacific Index is up nearly 10%. 

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FX Daily, June 4: Risk Taking Pauses Ahead of the ECB

Overview: After several days of aggressive risk-taking, investors are pausing ahead of the ECB meeting.  Equities were mostly higher in the Asia Pacific region, though China was mixed, and Indian shares slipped.  Europe’s Dow Jones Stoxx 600 is snapping a five-day advance, and US shares are trading with a heavier bias. The S&P 500 gapped higher yesterday, and that gap (~3081-3099) offers technical support.

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FX Daily, June 3: Dollar is Sold and ROW is bought

Overview: Two recent trends continue.  Equities are moving higher, and the dollar remains heavy.  Equity markets in the Asia Pacific region rose at least one percent, and South Korea, Singapore, and Malaysia rallied 2-3%.  Europe’s Dow Jones Stoxx 600 is up more than 1% for the third consecutive session.  US shares are trading higher and are poised to extend their recent run.

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FX Daily, June 2: Greenback’s Slide Continues

Overview: Liquidity trumps everything else.  US equities shrugged off the national guard being called into action in nearly a third of US states, and the S&P 500 closed yesterday at nearly three-month highs. Asia Pacific markets followed suit.  Most markets in the region rose by more than 1%. The notable exceptions were Australia and China, where benchmarks rose by 0.2%-0.3%. The Dow Jones Stoxx 600 is up more than 1% in the European morning.

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June Monthly

The investment climate in June will be shaped by forces that emerged in May.  Many countries began relaxing lockdowns and various activity-based alternative data, like traffic pattern, Open Table Reservations showed improvement on the margins.  Sentiment surveys, while mostly still depressed, were better than April readings.  The long slog back has begun. 

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FX Daily, June 1: US Dollar Losses are Extended, but Momentum Stalls in the European Morning

Overview: US stocks extended their gains ahead of the weekend after President Trump shied away from specific actions against China-Hong Kong, and today Hong Kong shares recovered smartly from last week’s 3.6% slide. The Hang Seng rose 3.3% today, and the Shanghai Composite gained over 2%. All the markets in the region advanced. Europea’s Dow Jones Stoxx 600 was up about 0.5% in late morning turnover, which would be the fifth gain in six sessions. 

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FX Daily, May 29: Month-End Profit-Taking Weighs on Equities as the Euro Pops Above $1.11

Overview:  The announcement that President Trump will hold a press conference on China later today rattled investors yesterday after they had earlier shrugged off the escalation of tension between the US and China to take the S&P 500 up to its highest level in nearly three months.  The S&P 500 reversed and settled on its lows, and this carried over into today’s activity, which also may be reflecting month-end adjustments.

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FX Daily, May 28: Escalating Tensions, Calm Markets

Overview: The US Secretary of State’s announcement that the autonomy of Hong Kong could no longer be affirmed did not derail the rally in US equities. However, the threat of an executive order against social media companies may be discouraging follow-through buying, leaving US equities little changed ahead of the open. In contrast, Asia Pacific and European equities are mostly higher.

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FX Daily, May 27: China and Hong Kong Pressures are Having Limited Knock-on Effects

Overview: The S&P 500 gapped higher yesterday, above the recent ceiling and above the 200-day moving average for the first time since early March. The momentum faltered, and it finished below the opening level and near session lows. The spill-over into today’s activity has been minor. The heightened tensions weighed on China and Hong Kong markets, but Japan, South Korea, Taiwan, and Indian equity markets rose.

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FX Daily, May 26: Fear is Still on Holiday

Overview: The heightened tensions between the US and China sapped risk-appetites before the weekend, but appear to be missing in action today.  Equity markets have rebounded strongly. Nearly all the equity markets in the Asia Pacific region rose (India was a laggard) led by an almost 3% rally in Australia, which was seen as particularly vulnerable to the Sino-American fissure. 

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FX Daily, May 22: US-China Escalation Sinks Hong Kong and Hits Risk Appetites

Overview: The US has ratcheted up pressure on China on several fronts and has sapped risk appetites ahead of the weekend.  Equity markets are lower across the world.  Even in India, where the central bank unexpectedly cut the repo rate 40 bp, shares fell 0.7%.  It was Hong Kong’s 5.5% that led the region lower.  Europe’s Dow Jones Stoxx 600 is off around 1% in late morning turnover to pare this week’s gain to about 2.5%. 

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FX Daily, May 21: Markets Pull Back after Flirting with Breakouts

Overview: New two and a half month highs in the S&P 500 yesterday failed to have much sway in the Asia Pacific region and Europe today as US-China tensions escalate and profit-taking set in. Perhaps it is a bit of “buy the rumor sell the fact” type of activity on the back of upticks in the preliminary PMI reading and hesitancy about pushing for what appeared to be breakouts.

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FX Daily, May 20: Fed Funds Futures No Longer Imply Negative Rates

Overview: Another late sell-off of US equities, ostensibly on questions over Moderna’s progress on a vaccine, failed to deter equity gains in the Asia Pacific region. China was a notable exception, but the MSCI Asia Pacific Index rose for the fourth consecutive session. European shares are little changed, but reflects a split.

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FX Daily, May 19: Optimism Burns Eternal

Overview: Hopes for a vaccine and a German-French proposal to break the logjam at the EU for a joint recovery effort helped propel equities higher yesterday. There was strong follow-through in the Asia Pacific region, where most markets advanced by more than 1% today. However,  the bloom came off the rose, so to speak, in Europe. After a higher opening, markets reversed lower, and the Dow Jones Stoxx 600 is off about 0.75% in late morning turnover.

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FX Daily, May 18: Yuan Slumps as US-Chinese Tensions Rise

Overview: Despite somber warnings that the US economic recovery can stretch to the end of next year, investors have begun the new week by taking on new risks. Most equity markets in the Asia Pacific region rose, with Australia leading the large bourses with a 1% gain. India was an outlier, suffering a 2.4% loss, and Taiwan’s semiconductor sector was hit, and the Taiex fell 0.6%.

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FX Daily, May 15: Much Talk but Little Action

Overview: The S&P 500 staged an impressive recovery yesterday, a sell-off that took it to its lowest level since April 21, to close more than 1% higher on the day, helped set the tone in the Far East and Europe today. Gains in most Asia Pacific markets, but Hong Kong, Shanghai, and India, trimmed this week’s losses. Australia’s 1.4% rally today managed to turn ASX positive for the week, extending leg up for a third consecutive week.

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FX Daily, May 14: Risk Appetites Wane

Overview: Risk appetites have been gradually waning this week. US equity losses mounted yesterday after Tuesday’s late sell-off. Asia Pacific equities were off, with many seeing at least 1.5% drops. Europe’s Dow Jones Stoxx 600 is off a little more to double this week’s decline and leaves it in a position to be the biggest drop since panicked days in mid-March.

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FX Daily, May 13: Will Powell have any more Luck Pushing against Negative Rate Expectations in the US?

Overview: Another late sell-off in US shares, this one perhaps related to the sobering assessment by the leading medical adviser for the Trump Administration about the risks of opening too early, failed to deter investors in the Asia Pacific region. Although Japanese shares slipped, most other markets rose. India led the way (~2%) after a fiscal stimulus program was announced.

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FX Daily, May 12: Markets Tread Water, Looking for New Focus

Overview: Investors seem to be in want of new drivers, leaving the capital markets with little fresh direction. While Japanese and China equities were little changed, several markets in the region, including Australia, Hong Kong, Taiwan, and India, were off more than 1%. European bourses are mostly higher after the Dow Jones Stoxx 600 slipped 0.4% yesterday.

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FX Daily, May 11: Quiet Start to New Week

Overview: The new week begins slowly in the capital markets. Many markets in the Asia Pacific region, including Japan, Hong Kong, and Australia, gained over 1%, but European and US shares are heavier. Benchmarks off all three regions rallied by 3.4%-3.5% over the past two weeks. Bond markets are also little changed, with the US 10-year benchmark just below 70 bp ahead of this week’s record refunding.

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FX Daily, May 8: Jobs and Negative Fed Funds Futures

Overview: The S&P 500 closed near its session lows for the third day running yesterday but failed to deter the bulls in Asia-Pacific, where most markets rose by more than 1%.  Taiwan, Korea, and Australia lagged a bit though closed higher. Europe’s Dow Jones Stoxx 600 is firm, and the modest gains (~0.5%) would be enough to ensure a higher weekly close if it can be maintained. 

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FX Daily, May 7: China Reports an Unexpected Jump in Exports, While Norway Surprises with a Rate Cut

Overview: There is a sense of indecision in the air today.  There have been several developments, but investors seem mostly reluctant to extend positions. China reported a surge in exports in April and an increase in the value of reserves.  Australia reported a rise in exports in March.  The Bank of England left policy steady, but clearly signaled it was prepared to boost its asset purchases. 

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Cool Video: TD Ameritrade-Stocks, the Dollar and the Trap Laid by the German Court

Here is a nine-minute clip of a chat I had with Ben Lichtenstein at TD Ameritrade. Ben captures futures traders’ energy and breadth of vision.  Often in institutional settings, one develops a specialization, but in my experience, futures traders are more likely to look across the markets and asset classes.  It is one of the lasting lessons learned early in my career on the floor of the CME. 

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FX Daily, May 6: The Euro is Knocked Back Further

Overview:  The late sell-off in US stocks yesterday has not prevented gains in Asia and Europe.   Most of the equity markets, including the re-opening of China, gain more than 1%.  Australia was a notable exception, falling about 0.4%, and Taiwan was virtually flat.  European bourses opened higher but made little headway before some profit-taking set in, while US shares are trading higher. 

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FX Daily, May 5: German Court Adds to the Euro’s Woes

Overview: The S&P 500 recovered yesterday after dipping trading below the 20-day moving average for the first time in a month.  The key area is the gap between the April 30 low (~2892.5) and the May 1 high (~2869). Oil reversed higher as well. June crude was off nearly 9% in the US morning and closed 7% higher on the day and above $21 for the first time since April 21, the day of negative oil prices.

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New Month, New Trends?

The dollar fell against all the major currencies and most of the emerging market currencies last week. The Dollar Index fell by 1.3%, the biggest loss since the last week of March, and posted its lowest close in nearly three weeks ahead of the weekend. There seemed to be a change in the market after key equity benchmarks, like the MSCI ACWI Index of both emerging and developed markets put in a recovery high in the middle of last week.

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FX Daily, May 4: Monday Blues

Overview:  The constructive mood among investors in April has given way to new concerns as May gets underway.  Japan and China are still on holiday, but most of the other markets in Asia fell, led by 4.5%-5.5% declines in Hong Kong and India, and more than 2% in most other local markets.  Australia bucked the trend a gained 1.4% after shedding 5% before the weekend. 

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FX Daily, April 30: ECB Takes Center Stage

Overview: Equities continue to recover even as deep economic contractions are reported. Yesterday, the US said Q1 GDP contracted at an annualized pace of 4.8%, while the eurozone reported today that output fell 3.8% quarter-over-quarter in Q1.  Hong Kong and South Korea were closed, but the rest of the Asia Pacific bourses rallied strongly with several, including Australia and India, rising more than 2%.

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FX Daily, April 29: Heavy Dollar amid Month-End Pressure

Overview: The dollar is lower across the board as dealers attribute the selling to month-end pressures ahead of the FOMC today and ECB tomorrow and long-holiday weekend for many. Japan’s Golden Week holiday has already begun. Despite the loss in US equities yesterday, despite the higher opening, it has not spilled over, as Alphabet earnings helped lift sentiment.

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FX Daily, April 24: Markets Limp into the Weekend

Overview:  The reversal in US equities yesterday set the stage for today’s losses.  All the Asia Pacific bourses fell today but Australia.  For the week, the regional index is off more than 2%.  Europe’s Dow Jones Stoxx 600 was flat for the week coming into today’s sessions.  It is off around 0.5% in late morning activity. 

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FX Daily, April 23: Investors Take PMI Crash in Stride

Overview: Investors have remained fairly calm in the face of flash April PMI crashes and an increase of virus cases in several European countries. Most equity markets in the Asia Pacific region rose, with the notable exceptions of China and Australia.  The Nikkei rose for the first time this week, and its 1.5% gain led the region.

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FX Daily, April 16: Markets Brace for another Jump in US Weekly Jobless Claims

Overview:  Equity losses in the US appeared to drag most Asia Pacific markets lower today, with China and India the notable exceptions.  European bourses are higher, and the only energy sector is a drag on the Dow Jones Stoxx 600,  which is around 1% higher in late morning turnover, while US shares are also trading firmer.  Asia Pacific 10-year benchmark yields eased. 

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FX Daily, April 15: Dollar Rises as Equities Slump

Overview:  The recovery in equities stalled, and the risk-off mood has helped lift the US dollar, which had been trending lower. Taiwan and Malaysia were notable exceptions in the Asia Pacific regions to the heavier equity tone. The Nikkei gave back almost 0.5% after surging more than 3% on Tuesday. Europe’s Dow Jones Stoxx 600 is ending a five-day rally. 

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What to Expect from the World Bank and IMF

The spring meetings of the World Bank and IMF will be held virtually this week amid a profound economic crisis spurred by a novel coronavirus.  Unlike previous such viruses, this went global in such a destructive way that many countries have responded the same way.  Encouraging social distancing, closing non-essential businesses, and enforcing lockdowns. 

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Cool Video: CNBC Asia

As the markets were re-opening in Asia earlier today, I joined Martin Soong and Sir Jegarajah on CNBC Asia.  I had returned from a business trip and visited our summer house on the Jersey shore for what I thought was going to be a weekend more than a month ago.  

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FX Daily, April 9: Three Deals Needed ahead of Holiday Weekend

Overview: Three deals need to be struck. First, the Eurogroup of finance ministers needs to reach an agreement of proposals for joint action to the heads of state. Second, oil producers need to cut output if prices are to stabilize. Third, the US Congress needs to strike a deal to provide more funding. Investor seems hopeful, and risk appetites are have lifted equities.

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Cool Video: OIl, ECB, and Animal Spirits

I had the privilege to join Ben Lichtenstein at TD Ameritrade (from a remote location) this morning to talk about the global markets.  I make four points.  First, the reversal of the S&P 500 yesterday set the tone for Asia and Europe.  Volatility throughout the capital markets remains elevated, even if off the peaks.  

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FX Daily, April 8: Flavor of the Day: Consolidation

Overview: Global equities are struggling after the S&P 500 staged a dramatic reversal yesterday. The early 3.5% gain was completely unwound and closed slightly lower.  With few exceptions (e.g., Japan and the Philippines), most equity markets in the Asia Pacific region and Europe are lower.

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FX Daily, April 6: Glimmer of Hope Lifts Markets

Overview:  Reports suggesting that some of the hot spots for the virus contagion appear to be leveling off, and this is helping underpin risk appetites today.  The curve seems to be flattening in Italy, Spain, and France.  In the US, there are some early signs of leveling off in NY, and now, the number of states with infection rates above 20% is less than 10 from over 40 last week.

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FX Daily, April 03: Oil Firm, Greenback Extends Gains

Overview:  Global equities are finishing the week on a soggy tone despite the 2%+ gains seen in the US yesterday. The extension of shutdowns, rising contagion and fatality rate, and imploding economies weigh on prices. In Asia, Korea and Indonesia bucked the trend to most minor gains.  Europe is giving back yesterday’s gains, and the Dow Jones Stoxx 600 is nearly flat on the week.

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April Monthly

In March,  the G10 and many emerging market countries, governments, and central banks unveiled large emergency measures.  The motivation is to blunt the economic impact of the novel coronavirus that has seen more than two billion people around the world have their movement restricted. Large swathes of the world’s economy have shut down. 

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FX Daily, April 1: Hemorrhaging Resumes

Overview: There is no reprieve for investors. Equities are falling sharply. Nearly all the Asia Pacific markets slumped but Australia. Chinese markets fared better than most, but the Nikkei was off 4.5%, and India was down almost as much in late dealings. Europe’s Dow Jones Stoxx 600 is off more than 3% near midday, led by a sell-off in banks that are suspending dividends and share buybacks.

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FX Daily, March 31: March Ends like a Lion, No Lamb in Sight

Overview: The coronavirus plague upended the world in March. Equities are finishing the month on a firm note. Strong gains in the US yesterday and an unexpectedly strong Chinese PMI (yes, to be taken with the proverbial grain of salt) helped lift most Asia Pacific and European markets today. Japan and Australia are exceptions to the generalization.

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FX Daily, March 30: Monday Blues

Overview: Risk appetites remain in check as the spread of the coronavirus is leading to more and longer shutdowns.  Asia Pacific equities fell with Australia, the notable exception.  Its benchmark rallied a record 7%, encouraged by additional stimulus measures.

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FX Daily, March 27: Nervousness Ahead of the Weekend

Overview: Officials appear to have persuaded investors that they have put into place measures that will cushion the economic blow and ensure that the financial system continues to function. After seemingly goading officials into action, investors are choosing not to resist. Moreover, there is a recognition that many programs are scalable.

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FX Daily, March 26: Rumor Bought, Fact Sold

Overview: Speculation that the US Senate would pass the large stimulus bill worth around 10% of US GDP is thought to have fueled a bounce in equities in recent days. The bill was approved and will now go to the House, where a vote is expected tomorrow. If the rumor was bought, the fact has been sold. The first to crack was the Asia Pacific region.

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FX Daily, March 25: Relief, but…

Overview: Global equities are marching higher. While the Dow Jones Industrials posted its biggest advance since 1933, the US is lagging behind other leading benchmarks. The MSCI Asia Pacific advanced, led by Japan’s Nikkei’s 8% gain. It was third consecutive gain, during which time the Nikkei has rallied 17%. Europe’s Dow Jones Stoxx 600 is up about 3.5% after bouncing 8.4% yesterday.

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FX Daily, March 24: Relief Bounce On Tuesday, but Turn Around not Secure

Overview: Bottom-picking, after officials step up efforts and some optimism creeps in, is helping lift spirits today. As one looks at the equity bounces, it is important to remember that among the biggest rallies take place in bear markets. Nearly all the bourses in Asia-Pacific rallied, led by a 7% advance by Japan’s Nikkei and an 8%+ surge in South Korea’s Kospi. Most other markets were up 2%-5%.

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Conference Call Replay

Here is the link for the replay of the conference call I hosted earlier today.  I shared two ways in which this crisis is different from what we have seen in the last generation.  Unlike the Great Financial Crisis, the tech bubble, and the S&L Crisis, the current crisis did not begin in the financial sector, but the real economy.   

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FX Daily, March 23: Greenback Demand Not Satisfied by Swap Lines

Overview: In HG Wells’ “War of the Worlds,” the common cold repelled a Martian invasion. Now, a novel coronavirus is disrupting everything and everywhere. Global equities continue to get hammered, though the apparent relative resilience of Japan may have spurred some buying of Japanese equities.

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FX Daily, March 20: Markets Ending the Week on Better Note

Overview: Dramatic price action continues but in the other direction. Stocks and bonds have rallied strongly, and the US dollar is snapping a strong advance with a sharp and broad setback. The immediate trigger is hard to identify. Some accounts linking it to fears that the California shutdown will be repeated throughout the country, deepening the coming downturn.

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FX Daily, March 19: ECB’s Bazooka Support Bonds but not the Euro

Overview: It is not just that the dollar soared while stocks and bonds continued to plunge. The dollar’s strength is, in effect, a powerful short-covering rally. It was used to fund a great part of the global circuit of capital. The circuit of capital is in reverse now, and the funding currency is being bought back. The dollar’s strength is a function of the sell-off of other assets.

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FX Daily, March 18: Bonds Join Equities in the Carnage

Overview: A new phase of the market turmoil is at hand. Bonds are no longer proving to be the safe haven for investors fleeing stocks. The tremendous fiscal and monetary efforts, with more likely to come, have sparked a dramatic rise in yields. Meanwhile, equities are getting crushed again.

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FX Daily, March 17: Even Turn Around Tuesday is Flat

Overview:  While the markets are not as disorderly as they have been, the tone is fragile, and the animal spirits have been crushed.  Australian stocks fell more than 10% last week and dropped another 9.7% yesterday before rebounding by almost 6% today to be one of the few Asia Pacific equity markets to rise.  The Nikkei eked out a small gain, but the broader Topix rose 2.6%.

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FX Daily, March 16: Monday Blues: Fed Moves Bigly and Stocks Slump

Overview: The Federal Reserve and central banks in the Asia Pacific region acted forcefully, but were unable to ease the consternation of investors. The Reserve Bank of New Zealand cut key rates by 75 bp. The Bank of Japan appears to have doubled its ETF purchase target to JPY12 trillion, and the Reserve Bank of Australia is preparing for new measures that will be announced Thursday.

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FX Daily, March 12: Trump Dump as Market Turns to ECB

Overview: After the Bank of England and the UK Treasury announced both monetary and fiscal support, the focus turns to the ECB, but the proximity of the US Congressional recess (next week) without strong fiscal measures being in place sucked the oxygen away from other issues. President Trump’s national address in the Asian session failed to reassure investors.

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FX Daily, March 11: US Over-Promises and Under-Delivers, while BOE Steps Up with 50 bp Rate Cut

Overview: The S&P 500 and Dow Jones Industrials sold off after the higher open and briefly traded below yesterday’s lows. Investors seemed disappointed that the Trump Administration was not ready with specific policies after Monday’s tease that had initially helped lift Asia Pacific and European markets earlier on Tuesday. This sparked a sharp decline in Europe into the close.

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FX Daily, March 10: Markets Stabilize after Body Blow

Overview:  It appears after a few days of miscues, US officials struck the right chord, and the global capital markets seemed to stabilize shortly after the US session ended.  President Trump’s press conference today is expected to spell out in greater detail relief for households and businesses.  Asia Pacific equities rallied, led by a 3% surge in Australia.

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FX Daily, March 9: Monday Meltdown

Overview: Equities plunged, and yields sank as the coronavirus threatens a global recession. The oil price war signaled by Saudi Arabia and Russia aggravates the desperate situation. Equities markets in the Asia Pacific region slumped 3-7%. The Shanghai Composite was fell 3%. The Nikkei was off by 5%, and Australia was hit among the hardest with a 7.3% loss.

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FX Daily, March 06: Panic Deepens, US Employment Data Means Little

The sharp sell-off in US equities and yields yesterday is spurring a mini-meltdown globally today. Many of the Asia Pacific markets, including Japan, Australia, Taiwan, and India, saw more than 2% drops, while most others fell more than 1%. The MSCI Asia Pacific Index snapped the four-day advance had lifted it about 2.8% coming into today.

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FX Daily, March 5: The Capital Markets YoYo Continues

Overview: The 4.2% rally in the S&P 500 yesterday helped lift Asia Pacific markets earlier today, and the five basis point backing up of the US 10-year yield pushed regional yields higher. However, the coattails proved short, and Europe’s Dow Jones Stoxx 600 is snapping a three-day advance and is off about 1.3% in late morning turnover to give back yesterday’s gains.

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FX Daily, March 4: Equities Trade Higher, While Yields Continue to Fall

Overview:  The G7 delivered up a nothing burger than was shortly followed by a 50 bp Fed cut.  The equity market seemed to enjoy it briefly and extended Monday’s dramatic gains, before falling out of bed.  The S&P 500 lost about 2.2%, while the Dow Industrial slumped 3%, but shortly after the markets closed, equities began recovering, and the recovery carried over to the Asia Pacific region and Europe.

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March Monthly

The new coronavirus that originated in China, apparently first detected in December, emerged on the world’s stage in January and continues to dominate the investment climate. There are two critical questions for investors and businesses whose answers will likely be clearer in the first part of March. First, will Covid-19 be contained for the most part by the end of Q1? 

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FX Daily, March 2: Central Banks’ Words of Assurance have Short Life

Overview: Comments beginning with Powell before the weekend, and BOJ and BOE earlier today promising support have saw equity markets briefly stabilize after last week’s dramatic moves. The G7 will hold a teleconference this week, but speculation of a coordinated rate move does not seem particularly likely. Most of the large stock markets in the Asia Pacific region rallied, led by a 3%+ advance in China.

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FX Daily, February 28: Fallout Accelerates

Overview: The dramatic response by investors to Covid-19 continues unabated and worse. The slide is accelerating. The S&P 500 posted a 4.4% loss yesterday, its worst session since 2011, and the sell-off is continuing. Many markets in Asia Pacific, including Japan, China, Korea, Australia, India, Singapore, and Thailand, fell by more than 3%.

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FX Daily, February 26: Dramatic Investor Adjustment Continues

Overview: The warning by the US Center for Disease Control and Prevention that Americans should prepare for an outbreak of Covid-19 sent the S&P 500 tumbling to an 11-week low and the 10-year Treasury yield to a record low near 1.30%. The volatility of the S&P (VIX) jumped to its highest level since 2018. The sell-off in global equities continues unabated.

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FX Daily, February 24: Stocks Slammed and Yields Drop as Virus Containment Fails

Overview: The ring of containment of Covid-19 has grown from China. The new frontline is Japan, South Korea, Italy, and Iran. A lockdown of around 50k people near Milan and Austria blocking trains from Italy is scaring investors. Asian markets fell, but South Korea bore the brunt with a nearly 4% decline. The national holiday in Japan spared local equities.

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FX Weekly Preview: Sources of Imbalance and the Pushback Against New Divergence

The US dollar’s surge alongside gold has eclipsed the equity market rally as the key development in the capital markets. Even the traditional seemingly safe-haven
yen was no match for the greenback.  The dollar appeared to have been rolling over in Q4 19, as the sentiment surveys in Europe improved, Japanese officials seemingly thought the economy could withstand a sales tax increase, and data suggested the Chinese economy was gaining some traction.  

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FX Daily, February 21: Covid-19 Contagion Outside China Keeps Investors on the Defensive

Overview:  The spread of Covid-19 outside of China and early signs of the economic consequences again emerged to weigh on investor sentiment.  Poor Japanese and Australian preliminary February PMI reports and some trade indications from South Korea saw most Asia Pacific equities sell-off.  China was an exception.  The small gain (0.3%), lifted the Shanghai Composite 4.2% on the week.

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FX Daily, February 20: Covid-19 Hits Yen and Korean Won

The increase of Covid-19 cases in South Korea and Japan, coupled with China’s changing reverting back to its previous methodology of calculation, dropping clinically-diagnosed cases have again weakened risk appetites and sent the dollar broadly higher. Fears of a Japanese recession are sapping the yen’s role as a safe haven, and this helps explain why Japanese equities did react as positively to the weaker yen than is often the case.

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FX Daily, February 19: Investors’ Confidence Snaps Back

Overview: After shunning risk yesterday, investors re-entered the fray today, and the animal spirits returned. The MSCI Asia Pacific Index snapped a four-day slide, and China’s markets were among the few losers in the region today. Europe’s Dow Jones Stoxx 600 recovered yesterday’s losses in full and is again at record highs. US shares are also trading firmer and are poised to recoup yesterday’s decline.

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FX Daily, February 18: Apple’s Warning Weighs on Sentiment

Overview: Apple’s warning that it will miss Q1 revenue due to the knock-on effects of the coronavirus seemed to be a modest wake-up call to investors, who, judging from the equity market, were looking beyond. Equities have fallen, and bonds have rallied. Japan, Hong Kong, and South Korean stocks fell by more than 1%, and only China and Indonesia were able to post gains.

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FX Daily, February 17: Dismal Q4 Japanese GDP Fails to Spur Yen Movement

Overview: It is only a US holiday today, but the global capital markets are subdued. In the Asia-Pacific region, equities traded lower with China and Hong Kong, the main advancers. The MSCI Asia Pacific Index has fallen in only two weeks since the end of last November, and that was during the last two weeks of January. Europe’s Dow Jones Stoxx 600 slipped in the previous two sessions but is recouping the losses fully today.

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FX Daily, February 14: Investors Continue to Look Past the Coronavirus

Overview: The capital markets are heading into the weekend, still trying to look past the coronavirus despite the new cases in Hubei. Tokyo was a notable exception in the Asia Pacific region, as the other major equity markets, like in Hong Kong, China, Taiwan, South Korea, and Australia, advanced. The MSCI Asia Pacific Index rose for the second week.

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FX Daily, February 12: The Greenback Slips in Subdued Activity

Investors appear to be increasingly looking past the latest coronavirus from China as new afflictions slow. Despite the soggy close of US equities yesterday, Asia Pacific bourses are nearly all higher, led by more than 1% gains in Singapore and Thailand. The Dow Jones Stoxx 600 is at new record highs, led by consumer discretionary and materials sectors.

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FX Weekly Preview: US Soars while Rivals are Hobbled

We are approaching the mid-point of the first quarter, and the coronavirus from China is the new key development for businesses and investors.  The economic impact appears to be still growing as the disruption to supply chains, production, and demand continues.  The re-opening of China from the extended Lunar New Year holiday brought some relief to the markets as officials ensured ample liquidity, leaned against short selling, and offered concessions to businesses and encouraged forbearance by lenders.

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FX Daily, February 6: Stocks Push Higher but more Cautious Tone may be Emerging

Overview:  The bullish enthusiasm that carried the S&P 500 to new closing highs yesterday is helping Asia Pacific and European shares today.  The MSCI Asia Pacific Index rose for the third session with Tokyo, Hong Kong, and Korea jumping two percent.  Europe’s Dow Jones Stoxx 600 gapped to new record highs before stabilizing in mid-morning turnover.  US shares are mostly firmer. 

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FX Daily, February 5: Markets Extend Recovery, but Look for a Pause

Overview: The S&P 500 gapped higher and surged 1.5% yesterday, the most since in six months, helping set the stage for a continued recovery in global equities, and stoked risk appetites more broadly. An experimental antiviral treatment is to begin clinical testing. All of the markets in the Asia Pacific region advanced, with Japan, China, and Singapore gaining more than 1%.

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FX Daily, February 4: Relief Rally Fueled by Liquidity not Peak in Coronavirus

Overview: The combination of the rally in US shares yesterday and the continued efforts of China to inject liquidity helped lift sentiment today. The MSCI Asia Pacific Index snapped an eight-day slide, and many markets jumped more than 1%. Led by energy and materials, Europe’s Dow Jones Stoxx 600 is posting broad gains and is up over 1% in late morning turnover.

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February Monthly

The global capital markets were roiled in recent weeks by the new virus that jumped species in China.  It is contagious during the incubation periods and appears similar though more aggressive than  SARS in 2003-2004.  And China is larger and significantly more integrated into the global political economy.    

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FX Daily, February 3: Inauspicious Start to the Year of the (Flying) Rat

Overview: The Year of the Rat is off to an inauspicious start as apparently a fly rat (a bat) virus has jumped to humans. China’s markets re-opening amid much fanfare, and the Shanghai Composite dropped 7.7%, which is about what the futures in Singapore had anticipated. Several other markets in the region (Japan’s Nikkei, Australia, Singapore, Taiwan, and Thailand) fell by more than 1%.

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FX Daily, January 29: Escaped from a Crocodile’s Mouth, Entered a Tiger’s Mouth

Overview: This colorful Malay saying captures the spirit of the animal spirits. Narrowly escaping an escalation of a trade war between the world’s two largest economies, the outbreak of a deadly virus has spurred moves, especially the sell-off in stocks and rally in bonds, for which many investors seemed ill-prepared. Even though the virus contagion has not peaked, the recovery in US equities yesterday points to a break the fear and anxiety.

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FX Weekly Preview: The Week Ahead and Why the FOMC Meeting may not be the Most Interesting

The week ahead is arguably the most important here at the start of 2020.  The Federal Reserve and the Bank of England meet. The US and the eurozone report initial estimates of Q4 19 GDP.  The eurozone also reports its preliminary estimate of January CPI.  China returns from the extended Lunar New Year celebration and reports its official PMI.  Japan will report December retail sales and industrial production. 

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FX Daily, January 24: Coronavirus Hits Asia Hardest, Europe and the US Resilient

Overview: The new coronavirus in China has moved into the vacuum left by the US-China trade agreement and clear indications that the Bank of Japan, the European Central Bank, and the Federal Reserve are on hold as investors searched for new drivers. The World Health Organization refrained from calling it a public health emergency even though China has dramatically stepped up its efforts to contain the new virus.

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FX Daily, January 23: ECB’s Strategic Review and the Coronavirus Command Investors’ Attention

The spread of the coronavirus and the lockdown in the epicenter in China has again sapped the risk-taking appetite in the capital markets. Asia is bearing the brunt of the adjustment. Tomorrow starts China’s week-long Lunar New Year celebration when markets will be closed, which may have also spurred today’s drama that aw the Shanghai Composite tumbled 2.75%, bringing the week’s loss to 3.2%, the most in five months.

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FX Daily, January 21: New Respiratory Illness Saps Risk-Taking Appetites

The spread of a new respiratory illness in China has spurred a wave of profit-taking in equities and risk assets more generally. All of the markets in the Asia Pacific region tumbled, with Hong Kong hit the hardest (-2.8%) after posting a key reversal yesterday. The sell-off continued in Europe. The Dow Jones Stoxx 600 is off about 0.8% in late morning turnover, led by consumer discretionary, materials, and energy. 

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FX Daily, January 20: Stocks Stall while the Dollar Remains Bid

Overview: The new week is off to a quiet start as the US celebrates Martin Luther King’s birthday, and investors look for a fresh focus. Hong Kong and Indian markets were suffered modest declines while most of the other large Asia Pacific markets edged higher. European stocks are trading a little lower, and the Dow Jones Stoxx 600 is threatening to end a four-session advance. Most benchmark bond yields around half a basis point in one direction or the other.

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FX Weekly Preview: Central Bank Meetings Featured

The US dominated the news stream at the start of 2020. The spasm in the US-Iran confrontation has quickly subsided. The much-heralded US-China Phase 1 trade deal has been signed. The US has completed the ratification process of the US Mexico Canada Free-Trade Agreement. The early signs from the economic entrails suggest the world’s largest economy continue to enjoy a record-long, even if not robust, expansion. 

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FX Daily, January 17: China and the UK Surprise in Opposite Directions

Overview:  Helped by new record highs in the US, global stocks are moving higher today. Nearly all the markets in the Asia Pacific region advanced and the seventh consecutive weekly rally is the longest in a couple of years. Europe’s Dow Jones Stoxx 600 is at new record highs and appears set to take a four-day streak into next week. US shares are trading firmly.

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FX Daily, January 16: Markets Look for New Cues with US-China Trade Pact Signed

Overview: The global capital markets are calm today as investors await fresh trading incentives. New record highs in the US equity indices gave Asia Pacific stocks a lift, though China and Taiwan were notable exceptions. Europe’s Dow Jones Stoxx 600 is firm new record highs set last week.  US equities are edging higher in Europe. Benchmark bond yields are little changed.

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FX Daily, January 15: Phase 1 Trade Deal Shifts Terrain of US-China Rivalry

News that US tariffs on China will remain until through at least the November US election and continued US attempts to stymie China (e.g., more curbs on Huawei under consideration and stepped up efforts to force it to cut subsidies to business) have taken some momentum from the push into risk assets. The MSCI Asia Pacific Index snapped a four-day advance today, with only Australian equities among the large regional markets able to sustain upticks. 

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FX Daily, January 14: China was a Currency Manipulator for a Few Months

Overview: The leaked US decision to lift the currency manipulator designation on China was the latest fodder fueling the new record highs in the S&P 500. The risk-taking appetite helped extend the rally in the MSCI Asia Pacific Index for the fourth consecutive session. Europe’s Dow Jones Stoxx 600 is little changed and trying to snap a two-day decline.

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FX Daily, January 13: Dismal Data Undercuts Sterling and Boosts Chances of a Rate Cut

Overview: There are two big stories today. The first is the large scale protests in Iran after the government admits to accidentally shooting down the commercial airliner amid the fog of war. The market impact seems minimal but fueling speculation that this, coupled with the economic hardship related to the US embargo, could topple the regime. Second, the UK reported that the economy unexpectedly contracted in November.

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FX Weekly Preview: Back to Macro?

The US-China trade conflict and then US-Iran confrontation distracted investors from the macroeconomic drivers of the capital markets. It is not that there is really much
closure with the exogenous issues, but they are in a less challenging place, at least on the surface. 

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FX Daily, January 10: Jobs Friday: Asymmetrical Risks?

Overview:  The first full week of 2020 is ending on a quiet note, pending the often volatile US jobs report.  New record highs US equities on the back of easing geopolitical anxiety is a reflection of greater risk appetite that is evident across the capital markets.  Asia Pacific equities mostly rose today, though Chinese shares and a few of the smaller markets saw small losses. 

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FX Daily, January 9: Animal Spirits Roar Back

Overview:  The S&P 500 recovered from a 10-day low to reach a new record high, which set the tone for the Asia Pacific and European markets today.   The MSCI Asia Pacific Index jumped by the most in a month with the Nikkei’s 2% advance leading the way.  More broadly, the markets in Taiwan, South Korea, Hong Kong, India, and Thailand all rose more than 1%.

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FX Daily, January 8: Hopes of De-Escalation Help Markets Stabilize

The Iranian retaliatory missile strike on Iraqi-bases housing US forces initially sparked a dramatic risk-off response throughout the capital markets. The muted response by the US coupled with signals from Tehran that it had “concluded” its proportionate measures saw the markets retrace the initial reaction. It was too late for equities in the Asia Pacific region, and several markets (Japan, China, Korea, Malaysia, and Thailand) fell more than 1%.

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FX Daily, January 6: Markets Struggling to Stabilize to Start the New Week

Overview: The global capital markets have yet to stabilize amid heightened geopolitical tension. Even though the US stock market finished last week off its lows, the sell-off continued in the Asia Pacific region. Japan’s markets re-opened after an extended holiday, and the yen, at three-month highs, saw the Nikkei sell-off nearly 2%. Several markets in the region lost over 1%, including Taiwan, India, Thailand, and Indonesia. Europe’s Dow Jones Stoxx 600 is off about 1.3% in late morning turnover.  US stocks are trading heavily, and the S&P 500 is poised to gap lower.

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FX Daily, January 03: Geopolitics Saps Risk Appetite

Iran’s Ayatollah Ali Khamenei has threatened “severe retaliation” for the US attacked that killed an important head of a force within the Islamic Revolutionary Guard. At the same time, reports indicate that North Korea’s Kim Jong Un is no longer pledging to halt its nuclear weapons testing and has threatened to unveil a new weapon. Meanwhile, Turkish forces have reportedly entered Libya.

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FX Daily, January 02: Equities Start New Year with a Pop

Overview:  Equities have begun New Year like, well, last year, with most Asia Pacific markets advancing, led by more than 1% gains in China, Hong Kong, and Thailand.  Only South Korea and Indonesian markets fell.  In Europe, the Dow Jones Stoxx 600 is up almost 1% in late morning turnover.  US shares are trading higher as well, and the S&P 500 is up nearly 0.6%.

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The Turn

The year is winding down quietly, and the last week of 2019 is likely to be more of the same.  The general mood of the market is quite different than a year ago.  Then investors had marked down equities dramatically amid fears of what was perceived as a synchronized downturn.  Now with additional monetary easing in the pipeline and renewed expansion of the Federal Reserve and European Central Bank’s balance sheets, risk appetites have been stoked.

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FX Daily, December 27: Equities Rally While the Dollar Slumps into the Weekend

Overview:  Equities are finishing the holiday-shortened week on a firm note, encouraged by strong holiday internet sales in the US.  Most markets in the Asia Pacific region advanced except China and Thailand, while Japanese markets were mixed after weak industrial output and retail sales.  The MSCI Asia Pacific Index rose for the fourth consecutive week.

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FX Weekly Preview: Economic Data in the Holiday-Shortened Week

The capital markets will turn increasingly quiet in the week ahead as the Christmas holiday thins participation. If this is the season of goodwill, investors are lapping it up.  Global equity markets are finishing a strong year on a high note.  Record highs were recorded in the S&P 500 and the Dow Jones Stoxx 600.  The MSCI Emerging Markets equity index is at its best level since August 2018. 

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FX Daily, December 19: Whiff of Inflation in the Air

It is risky to read too much into the price action in holiday-thin markets, but inflation fears are beginning to surface. The price of January WTI is around $61, having tested $50 a barrel in Q3. The CRB Index made new highs for the year yesterday and is up almost 9% for the year. The US yield curve (2-10 year) has been steepening after being inverted for a few days in August, and now at nearly 29 bp, also is new highs for the year.

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FX Daily, December 18: Markets Turn Quiet Ahead of Central Bank Meetings

Overview: The capital markets have turned quiet as the year-end positioning drives prices in lieu of fresh developments. Equities in the Asia Pacific region were narrowly mixed. The smaller markets in Asia performed better than the large bourses of Japan, China, and Korea, which eased. European equities are off to a firm start, and the Dow Jones Stoxx 600 is consolidating near the record high set Monday.

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FX Daily, December 17: Sterling Drops as New Brinkmanship Begins

Overview: Efforts by a UK Prime Minister emboldened by a strong electoral victory to ensure that trade negotiations with the EU are not extended as the divorce has encouraged further profit-taking on sterling. After testing the $1.35 area on the exit polls last week, sterling had returned to where it closed before the results were known near $1.3160.

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FX Weekly Preview: Central Bank Meetings and Flash PMI Reports, but its Over except for the Shouting

After last week’s flurry of events, market activity is set to slow over the next three weeks. But what a flurry of events it was. A new NAFTA apparently has been agreed, and it is set to be approved by the US House of Representatives next week and the Senate early next year.  The US and China struck an agreement that will get rid of the immediate tariff threat and unwind half of the punitive tariffs in exchange for a commitment to buy twice the amount of agriculture good next year than it at its peak a couple years ago. 

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FX Daily, December 12: Enguard Lagarde

With the FOMC meeting delivered no surprises, attention turns to the ECB meeting as the UK go to the polls. Lagarde will hold her first press conference as ECB president today, and it will naturally command attention. Equities are advancing today, and tech appears to be leading the way. In Asia Pacific, Taiwan and South Korea rallied more than 1%, while the Hang Seng gapped higher to almost its best level in three weeks.

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FX Daily, December 11: Sterling Holds Firm Despite Tighter Poll

Overview: The capital markets continue to tread water as investors await this week’s key events. The first, the FOMC meeting concludes later today. Tomorrow features the UK election, where the race appears to have tightened, and Lagarde’s first ECB meeting at the helm. Global equities continue consolidating the recent gains. Asia Pacific equity markets were mostly higher.

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FX Weekly Preview: An Eventful Week Ahead

The US employment report on the first Friday of December usually marks the unofficial end of the year. The desks are often lighter and dealers are loath to jeopardize the year’s bonuses in thin and often erratic markets.  This year is an exception.  Next week features the first ECB meeting with Lagarde at the helm and the final FOMC meeting of the year. 

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FX Daily, December 6: And Now for the Employment Report

Overview:  Asia Pacific equities closed higher today, with India being a notable exception.  Hong Kong and South Korea led with 1% rallies.  For the week, the MSCI index for the region advanced to snap a three-week decline.  European and US bourses have not fared as well.  The Dow Jones Stoxx 600 is paring this week’s losses, but it is still off around 0.9% through the European morning session. 

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FX Daily, December 5: Sterling Sent Higher as Market Discounts Next Week’s Election

Overview: Global equity markets have resumed their climb after a wobble at the end of last week and earlier this week. A strong recovery in the S&P 500 on Tuesday signaled yesterday’s strong advance that left a bullish one-day island low in its wake. MSCI Asia Pacific Index snapped a two-day decline today with nearly all the market with the notable exception of South Korea advanced.

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FX Daily, December 4: Hope Springs Eternal

Overview: The prospect of not just the failure of the US and China to resolve its trade dispute but a new escalation has sapped the confidence that had lifted equity benchmarks and the greenback. Led by more than a 1% decline in Tokyo (Nikkei), Hong Kong, and Australia, all the major markets in the Asia Pacific region fell. European shares, perhaps encouraged by an upward revision to the flash composite PMI, are snapping a four-day 2.75% slide.

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FX Daily, December 3: US Brandishes Tariff Weapon and Weakens Animal Spirits

Asia Pacific equities mostly declined in sympathy with yesterday’s large sell-off in the US and Europe. China and Taiwan were the notable exceptions, while Australia’s 2.2% decline, following the central bank meeting that resulted in what many are seeing as a hawkish hold, led the move lower. Europe’s Dow Jones Stoxx 600 fell 1.6% yesterday, the largest loss in two months, and is extending the losses for a third session today.

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FX Daily, December 2: PMIs Provide Latest Fuel for Equity Markets

Mostly better than expected manufacturing PMI readings for December, including in China, is providing the latest incentive for equity market bulls. Led by the Nikkei, which was aided by a weaker yen major equity markets in Asia Pacific rallied and recouped most of the nearly 1% loss before the weekend. Europe’s Dow Jones Stoxx 600 is also shrugging off the pre-weekend loss and to challenge the multiyear high recorded last week.

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FX Daily, November 29: Equities Slip While Investors Mark Time

Overview: Global equities are trading heavily. Both the MSCI Asia Pacific and the Dow Jones Stoxx 600 snapped four-day advancing streaks yesterday and have seen some follow-through selling today. In the Asia Pacific region, all the markets fell but Jakarta. Hong Kong’s Hang Seng slipped a little more than 0.2% yesterday but dropped 2% earlier today to record its biggest decline in three weeks.

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FX Daily, November 27: In Search of New Incentives

Overview: The global capital markets are subdued. There have been few developments to induce activity. Even President Trump’s claims that the talks with China are in the “final throes” failed to excite. Equities are extending their advance. Bonds are little changed, and the dollar is mostly firmer. The MSCI Asia Pacific Index and Europe’s Dow Jones Stoxx 600 advanced for the fourth consecutive session.

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FX Daily, November 26: Some Are More Equal Than Others

Overview: Neither optimistic comments from Federal Reserve Chairman, that the economic glass is more than half full, nor a seemingly positive spin on the weekend fall calendar between Chinese and US officials have succeeded in deterring some profit-taking today.

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FX Daily, November 25: Hong Kong, China, and UK Election Hopes Fan Modest Risk-Taking

Overview: The combination of the victory of the pro-democracy movement in Hong Kong and an apparent concession by China on intellectual property rights is helping bolster risk appetites to start the week. Equities are higher. Hong Kong’s Hang Seng led Asia Pacific equities with a 1.5% gain, the second biggest this month. Korea and India’s bourses also gained more than 1%.

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FX Weekly Preview: Is Conventional Wisdom Too Optimistic?

There have been three general issues that the macro-fundamental picture has revolved around this year: trade, growth, and Brexit. On all three counts, conventional wisdom seems unduly optimistic, and this may have helped dampen volatility. A series of signals suggest that the US and China remain far apart in trade negotiations.

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FX Daily, November 22: Europe’s Flash PMI Disappoints and Hong Kong Shares Advance Ahead of Sunday’s Election

Overview: Equities in the Asia Pacific managed to mostly shrug off the drag of the losses in US equities yesterday. China and India could not escape the pull, but most other bourses were higher, led by Singapore and Hong Kong. It was the second consecutive week that the MSCI Asia Pacific Index fell. The US and European benchmarks are paring this week’s small losses.

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FX Daily, November 20: Dollar Snaps Back

Overview: The idea that a US-China trade deal is proving more elusive than the agreement in principle on October 11 implied is being seized upon to spur what we suspect is an overdue round of profit-taking in global equities. The MSCI Asia Pacific Index snapped a three-advance, with over 1% declines in South Korea and Australia.

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FX Daily, November 19: Hong Kong Stocks Rally as Stand-Off Continues

Overview: The run-up in equities continues to be the dominant development in the capital markets. Although the Japanese and South Korean bourses fell, the rise in Australia, China, Hong Kong, and Taiwan underpin the MSCI Asia Pacific Index. The Hang Seng’s gains  (1.5% on top of yesterday’s 1.3% rise) is notable as the situation on the ground remains intense and unresolved.

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FX Daily, November 18: Sterling Shines in Subdued Start to the New Week

Overview: Equities in Europe and the US look to extend their six-week rally, while the MSCI Asia Pacific Index gets back on the winning way after stumbling last week. Despite the escalation of the conflict in Hong Kong, the Hang Seng rose 1.35% to lead the region and recoup a chunk of last week’s 4.8% slump. The Dow Jones Stoxx 600 puts the European benchmark within spitting distance of the four-year high set recently.

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FX Daily, November 15: Market Runs with US Line that US-China Deal is Close

Comments by US presidential adviser Kudlow playing up the prospects of a trade agreement between the US and China, with other reports suggesting a key call be held today, is helping to underpin sentiment into the weekend. The MSCI Asia Pacific Index pared this week’s loss today, with China the only main market not participating, despite the PBOC’s unexpected injection of CNY200 bln of the Medium-Term Lending Facility.

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FX Daily, November 14: Unexpected German Growth Fails to Buoy the Euro

Overview: Rising trade anxiety and disappointing economic reports from the Asia Pacific region helped unpin the profit-taking mood in equities, while bond yields continued to pullback. The MSCI Asia Pacific Index and the Dow Jones Stoxx 600 are in the red for the fourth time in the last five sessions. Germany reported a surprise 0.1% expansion in Q3, but it has done little for the DAX or the euro.

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FX Daily, November 13: Investors Temper Euphoria

Overview: The recent rise in equity markets and backing up in yields spurred many observers to upgrade their macroeconomic outlooks rather than the other way around. Yet we continue to see may worrisome signs. It is not just trade, though, of course, that is part of it. Sentiment itself is fragile and will likely follow prices.

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FX Daily, November 12: Farage Declares Truce with Tories after being Offered a Peerage, Underpins Sterling

Global capital markets are calm as investors look for a new catalyst. The MSCI Asia Pacific Index snapped back after posting its first back-to-back decline in a month. All the equity markets were higher, but Australia. The Nikkei, Kospi, and Taiex led the advance with about a 0.8% gain. European shares closed firmly near session highs yesterday, even if still lower on the day, and there has been some follow-through buying today.

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FX Daily, November 11: Dollar Consolidates and Equities Follow Asia Lower

Overview: Escalating violence in Hong Kong and the continued fall in Chinese producer prices weighed on equities in Asia Pacific trading. The MSCI Asia Pacific Index has risen nearly 7% during the five-week rally and is off to a weak start this week. Hong Kong’s Hang Seng fell around 2.6%, its biggest loss in three months, and China’s CSI 300 was off 1.75%. Nearly all the local markets fell but Australia.

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FX Weekly Preview: Caution: Prices Diverging from Macro Drivers

Sometimes the news drives the markets and but now it seems that the markets are driving the news.  The dramatic swing in market sentiment from fearing a repeat of Q4 18 and the pessimism of World Bank/IMF forecasts have been cast aside for a few data points and a tease from the world’s two largest economies that an agreement to begin a de-escalation process not just extending the third tariff truce.

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FX Daily, November 8: Risk Appetites Satiated Ahead of the Weekend

The capital markets are consolidating the recent moves ahead of the weekend. Equities are paring this week’s gains, though the Nikkei, which was closed on Monday, extended its advance for the fourth consecutive session. Despite the profit-taking today, the MSCI Asia Pacific Index rose for the fifth week. Europe’s Dow Jones Stoxx 600 is snapping a five-day rally, but it is closing in on the fifth consecutive weekly advance.

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FX Daily, November 7: Trade Optimism Boosts Sentiment but Weighs on the Dollar

Indications that a phase one agreement between the US and China would include rolling back some existing tariffs is boosting risking appetites, sending stocks higher, and pushing up yields. However, this appears to be simply a restating of China’s views rather than a new breakthrough. The dollar is paring its recent gains. The MSCI Asia Pacific Index rose for the fifth time in six sessions to reach its best level since August 2018.

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FX Daily, November 5: Animal Spirits Remain Animated

The prospects that the US-China deal could include some rolling back of existing US tariffs helped underpin risk appetites. After new record highs in the US S&P 500 and NASDAQ, Asia Pacific markets marched higher, and the MSCI Asia Pacific reached its highest level since August 2018. A small rate cut by China and catch-up by Tokyo, which was on holiday on Monday, helped extended the regional rally for the 14th session in the past 17.

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November Monthly

Two main developments drove the foreign exchange market in October.  First, the market grew more confident that a hard Brexit could be avoided.  This drove sterling sharply higher.  It rallied from $1.22 on October 10 to a little above $1.30 on October 21 before doubts grew about the likelihood that Parliament will approve the new agreement.

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FX Daily, November 4: Investor Optimism Carries into the New Week

Overview: Investor optimism is reflected by the risk-taking appetite that is lifting equity markets and bond yields. With Japanese markets closed for a national holiday, the MSCI Asia Pacific Index was led higher by more than 1% gains in Hong Kong, Taiwan, South Korea, and Thailand. The regional benchmark advanced for the seventh session in the past eight and is approaching the year’s high.

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FX Weekly Preview: Synchonized Emergence from Soft Patch?

There have been plenty of developments warning of a global economic slowdown. Yet, seemingly to justify the continued advance in equity prices, there has begun to be talk of possible cyclical and global rebound. That is the new constellation, connecting the better than expected Japanese, South Korean, and Chinese September industrial output figures,  a slightly stronger than expected Q3  GDP reports from the US and the eurozone. 

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FX Daily, November 1: Dollar Remains on the Defensive Ahead of Jobs Report

Overview: An unexpected increase in China’s Caixin manufacturing PMI helped lift Asia Pacific equities after the S&P 500 stumbled yesterday amid concerns that there will not be a phase 2 in US-China trade negotiations. The MSCI Asia Pacific Index rose 4.3% in October, and with the help of gains in China, Hong Kong, Korea, and Taiwan began November with a gain.

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FX Daily, October 31: No Good Deed Goes Unpunished

Overview: The equity and bond rally in North America yesterday carried over into today’s session. With some notable exceptions, like China, Taiwan, Australia, and Indonesia, most bourses in Asia Pacific and Europe traded higher. US shares are little changed in early Europe after the S&P 500 rose to new record highs.

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FX Daily, October 30: All About Perspective

Overview: The global capital markets are mostly treading water ahead of the Federal Reserve meeting. Asia Pacific and European equities drifted lower. The MSCI Asia Pacific Index appears to have snapped a four-day advance, while the Dow Jones Stoxx 600 was trading slightly lower for the second consecutive session following a six-day rally.

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FX Daily, October 29: Calm before the Storm

The more prominent events this week still lie ahead, and the capital markets are trading accordingly. The rally that lifted the S&P 500 to new record highs yesterday carried over into Asia, where most equity markets rose, though China, Hong Kong, and South Korea were notable exceptions. European shares are struggling in the early going after the Dow Jones Stoxx 600 set new highs for the year yesterday.

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Cool Video: Dollar and Fed

I joined Tom Keene and Marty Schenker (chief content officer) on the set of Bloomberg TV this morning. Schenker discussed some of the geopolitical issues in the Middle East, and Keene asked about the impact on the dollar. I expressed my concern that the chief threat to the dollar’s role in the world economy is the several administrations have increasing weaponized access to the dollar and the dollar funding market.

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FX Daily, October 28: Politics Dominates Start of the Week before Yielding to Policy and Economics

Overview:  The pre-weekend rally in US shares, with the S&P 500 flirting with record highs and the back-up in US yields, set the tone for Asia Pacific trading earlier today.  Nearly all the equity markets advanced, and bond yields rose.  Europe’s Dow Jones Stoxx 600 took a five-day advancing streak into this week, but shares are struggling to sustain the upside momentum.

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FX Weekly Preview: Fed’s Mid-Course Correction to be Challenged while ECB Resumes Bond Purchases

The week ahead will help shape the investment climate for the remainder of the year.  The highlights include three central bank meetings (Federal Reserve, Bank of Japan, and the Bank of Canada).  Among the high-frequency data, the US and the eurozone report the first estimates of Q3 GDP, and the US October jobs data and auto sales will be released.  Investors will also get the preliminary Oct CPI for EMU.

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FX Daily, October 25: Limping into the Weekend both Fighting and Talking

Overview: Amazon and Intel earnings offered conflicting impulses for Asia Pacific equities, but Japanese, Chinese, Australian, and South Korean shares advanced. This will allow the regional MSCI benchmark to solidify its third consecutive weekly gain. Europe’s Dow Jones Stoxx 600 is little changed, and it too is closing in on its third weekly advance.

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FX Daily, October 24: Flash PMIs Disappoint Despite Negative Interest Rates

Overview: As the UK awaits the EU’s decision on its request, disappointing flash PMI readings Japan, Australia, and Germany have filled the news vacuum. Sweden’s Riksbank retained a hawkish tone while keeping rates on hold, and Norway’s Norges Bank also stood pat. The market expects Turkey to deliver a rate cut, while the ECB meeting is Draghi’s last at the helm.

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Cool Video: China Still Needs to Provide more Stimulus

The IMF projects that China will expand by less than 6% in 2020, but unless China provides more stimulus, it may be difficult to achieve.  This is not only my view but also the view of Helen Qiao, the chief economist for Greater China at Bank of America.  I was on the Bloomberg set with Alix Steele and Ms. Qiao earlier today.

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FX Daily, October 23: Markets Lack Much Conviction, Await Fresh Developments

Overview: UK Prime Minister Johnson is neither dead in a ditch as he said he would prefer to be than request an extension of Brexit, nor will the UK leave the EU at the end of the month. Yesterday’s vote rejected the attempt to fast-track the legislation needed to support the divorce agreement. It all but ensures that such a delay will be forthcoming.

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FX Daily, October 21: Dollar Soft, but Stage is being Set for Turn Around Tuesday

Overview: The UK’s departure from the EU remains up in the air as a new attempt to pass the necessary legislation through Parliament continues today. Many market participants seem to remain optimistic that Prime Minister Johnson’s plan will ultimately succeed. After slipping to $1.2875 initially, sterling briefly pushed through $1.30, which had held it back last week.

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FX Weekly Preview: The Week Ahead Excluding Brexit

I feel a bit like the proverbial guy that asks, “Besides that, Mrs. Lincoln, how did you like the play?” in trying to discuss the week ahead without knowing the results of the UK Parliament’s decision on the new deal negotiated between Prime Minister Johnson and the EU.   I will write a separate note about Brexit before the Asian open. However, there are several other developments next week that will help shape the investment climate.

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FX Daily, October 18: Markets Becalmed Ahead of the Week

Overview: The global capital markets are ending the week on a subdued note as the UK Parliament decision on Saturday is awaited. The weaker Chinese Q3 GDP had little impact outside of China, where stocks fell over 1%. A brief suspension of hostilities by Turkey was sufficient for the US to lift its threatened sanctions.

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Cool Video: With Rick Santelli on CNBC

I was invited to Rick Santelli’s Exchange on CNBC earlier today. There is a 3.5-minute clip of the interview that can be found here. Despite being a dollar bull for nearly a decade (since around the time of my first book–Making Sense of the Dollar–), I do not think a strong or weak dollar is desirable. It is about the level that is appropriate depending on business conditions and the economic cycle.

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FX Daily, October 17: EU-UK Deal Sends Sterling and the Euro Higher

Overview: A Brexit deal between the UK and the EU has been struck. Whether it can win Parliament’s approval is a horse of a different color. Meanwhile, US-Chinese relations continue to sour. The capital markets are narrowly mixed as investors await further developments. The MSCI Asia Pacific is consolidated after gaining for the past four sessions.

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FX Daily, October 16: Fickle Market Tempers Enthusiasm

Overview: Fading hopes that a Brexit agreement can be struck is seeing sterling trade broadly lower, while China’s demand that US tariffs be rescinded in exchange for a commitment to buy $40-$50 bln of US agriculture goods over two years, makes the handshake agreement less secure. At the same time, Hong Kong is becoming another front in the US-Sino confrontation.

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FX Daily, October 15: Non-Disruptive Brexit Hopes Remain Elevated

Overview: Ideas that a Brexit deal may be close is helping to firm sterling, while soft Chinese PPI offset the spike in food prices to show the weakness of the world’s second-largest economy. Minutes from the meeting of the Reserve Bank of Australia earlier this month kept a door open to a rate cut before the end of the year.  Japan returned from holiday, and the Nikkei gapped higher, and its nearly 1.9% advance led the MSCI Asia Pacific Index higher. Europe’s Dow Jones Stoxx 600 is recouping yesterday’s 0.5% loss, while US shares are also trading firmer after yesterday’s slippage.

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FX Daily, October 14: Optimism Took the Weekend Off

Overview: Japanese and Canadian markets are on holiday today. While the US bond market is closed, equities maintain their regular hours today. Asia Pacific equities rallied, led by 1% of more gains in China, Taiwan, South Korea, and Thailand. The buying did not continue in Europe, and after a 2.3% rally before the weekend, the Dow Jones Stoxx 600 is about 0.75% lower in the European morning.

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FX Daily, October 11: Nothing Like Approaching the Edge to Focus the Minds

Overview: As the edge of the abyss is approached in three distinct areas, there is hope that victory can be snatched from the jaws of defeat. US-China trade talks continue today, and there is hope of a small deal that could lead to the US not hiking tariffs next week. A shift in the UK toward a free-trade agreement with the EU seems to have opened fertile ground in negotiations that could still avoid a no-deal Brexit.

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FX Daily, October 10: Setback for the Greenback

Conflicting headlines about US-China trade whipsawed the markets in Asia, but when things settled down, perhaps, like the partial deal that has been hinted, net-net little has changed. Asian equities were mixed, with the Nikkei, China’s indices, and HK gaining, while most of the others slipped lower. The 0.9% gain in the S&P 500 yesterday failed to lift European stocks, and the Dow Jones Stoxx 600 is near the week’s lows.

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FX Daily, October 9: Hope is Trying to Supplant Pessimism Today

Overview: The 1.5% drop in the S&P 500 and the deterioration of US-China relations and the prospects of a no-deal Brexit failed did not carry over much into today’s activity. Asia Pacific equities were mostly a little lower, though China and India bucked the regional trend, while Korea was closed for a national holiday. Taiwan led the losses amid a sell-off in semiconductor stocks.

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FX Daily, October 8: Not a Good Day for Negotiators

The re-opening of Chinese markets after a long holiday did not produce the volatility that many expected. Chinese stocks alongside most Asia markets traded higher today, and the yuan advanced. After opening higher and extending its recent rally, Europe’s Dow Jones Stoxx 600 turned down, even though Germany announced an unexpected gain in August industrial output. US shares are trading a bit lower.

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FX Daily, October 7: Markets Unsettled to Start the Week

Overview: The global capital markets are uneasy as the risks that have dominated investors’ concerns–trade and Brexit–remain front and center today. Expectations are low that this week’s talks between the US and China will lead to a breakthrough or will be sufficient to postpone further the next round of tariff increases set for next week. 

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FX Weekly Preview: China Returns, ECB Record, Fed Minutes and the Week Ahead

Many high-income countries experienced little growth but strong price pressures in the 1970s. Since the mainstream economics said the two were mutually exclusive, a new term had to be created, hence stagflation.  Fast forward almost half a century later, and mainstream economists are still having a problem deciphering the linkages between prices and economic activity, such as inflation and employment.

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FX Daily, October 4: The US Jobs Data to Close a Sobering Week

Overview: The recovery of US shares yesterday signaled today’s fragile stability. Gains in Japan, Australia, and Taiwan blunted the losses elsewhere in the region, including a 1% slide in Hong Kong.  The MSCI Asia Pacific Index fell for the third week. China’s markets have been closed since Monday and will re-open Monday and may play some catch-up.

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FX Daily, October 3: Shades of Q4 18?

Overview:  Disappointing economic data again drove US equities lower, which in turn carried into Asia Pacific activity. Losses were recorded throughout the region, with the notable exception of Hong Kong. The Nikkei and Australia’s ASX were off by 2%. After its largest losing session of the year (-2.7%) yesterday, Europe’s Dow Jones Stoxx 600 continues to trade heavily.

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FX Daily, October 2: Greenback Shows Resiliency, Stocks Don’t

Shockingly poor ISM data sent shivers through the market on Tuesday and hand the S&P 500 its biggest loss in five weeks and took the shine off the greenback. The S&P 500 reached a five-day high before reversing course and cast a pall over today’s activity.  All the markets were lower in Asia Pacific, with China and India closed for holidays.

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FX Daily, October 1: Dollar Jumps to Start New Quarter

Overview: The US dollar is rising against nearly every currency today as global growth concerns deepen. Japan’s Tankan Survey showed large manufacturers confidence is a six-year low. The Reserve Bank of Australia cut 25 bp as widely expected and kept the door open for more. The final EMU PMI ticked up from the flash, but it is still at a seven-year low.

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FX Daily, September 30: A Busy Week Begins Quietly

Overview: As the quarter ends, the capital markets are mixed. Equities in Asia Pacific were heavier, except in Hong Kong and Australia, while shares were mixed, leaving the Dow Jones Stoxx 600 little changed through the European morning. US shares are trading firmer. Benchmark 10-year bond yields are 2-3 basis points higher, though Australia’s bond yield was up seven basis points.

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FX Weekly Preview: Forces of Movement at the Start of Q4 19

The world’s largest economy appears to have grown by about 2% in Q3 at an annualized pace, the same as in Q2, and in line with what many Fed officials understand to be trend growth.  The strength of the US labor market underpins consumption, the powerful engine of the US economy.  The latest readings of both the labor market and consumption will highlight the economic data in the week ahead. 

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FX Daily, September 26: Greenback Remains Firm

Overview: A compelling narrative for yesterday’s disparate price action is lacking. A flight to safety, which is a leading interpretation, does not explain the weakness in the yen, gold, or US Treasuries. Month- and quarter-end portfolio and hedge adjustments may be at work, but the risk is that it is a black box: is difficult to verify and lends itself to misuse as a catch-all explanation.  Nevertheless, the rise in US equities yesterday helped lift most Asia Pacific shares today, with China, Taiwan, and Australia the notable exceptions.

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FX Daily, September 25: Risk Appetite Stymied: Dollar Recovers while Stocks Slide

Overview:  Global equities and fixed income reacted to the large moves yesterday in the US when the 10-year note yield fell eight basis points, and the S&P 500 fell by 0.85%.  Investors have focused on three separate developments and two of which came from President Trump’s speech at the UN.  He dismissed the likelihood of a short-term trade deal with China and was critical of the large social media platforms.

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FX Daily, September 24: UK Supreme Court Deals another Defeat to Johnson

Overview: A fragile calm hangs over the capital markets today.  Equities in Asia Pacific were narrowly mixed.  Japan, China, and HK advanced. India saw some profit-taking after a two-day surge in response to the unexpected corporate tax cuts but recovered in late dealings. European shares are recovering after posting its largest loss in a month yesterday (-0.8%). US shares are trading firmer in Europe.

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Great Graphic: Views Distill to Short Sterling Long Yen Opportunity

GBP/JPY, March-September 2019

We have argued that the road to an orderly Brexit remains arduous and that sterling had entered an important technical area ($1.2500-$1.2530).  At the same time, see the dollar as having approached the upper end of its broad trading range against the yen.  One of the important drivers lifting the dollar was the dramatic rise in US yields. 

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FX Daily, September 23: Dreadful European Flash PMI Drags the Euro Lower

Overview: The critics who claim the ECB’s policy response was disproportionate got a rude shock today with the unexpected weakness revealed by the flash PMI. The euro looks to re-visit the lows set recently near $1.0925. Sentiment has also been eroded by the poor South Korean export figures. Asia Pacific equities moved lower, though Tokyo markets were closed. Indian equities, however, continue their pre-weekend surge.

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FX Daily, September 20: UK and India Provide Excitement Ahead of the Weekend

Overview: A word of optimism on a Brexit deal has sent sterling to its best level in two months. Corporate tax cuts sparked a more than 5% rally in Indian stocks as the week draws to a close. The MSCI Asia Pacific Index snapped a four-day losing streak to pare this week’s decline.  Europe’s Dow Jones Stoxx 600 was flat for the week coming into today, and its four-week advance is at stake.

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FX Daily, September 19: Investors Looking for New Focus

Overview:  Central bank activity is still very much the flavor of the day, but investors are looking for the next focus.  The Bank of Japan and the Swiss National Bank stood pat, while Indonesia cut for the third consecutive time and the Hong Kong Monetary Authority and Saudi Arabia quickly followed the Fed. Brazil cut its Selic rate yesterday by 50 bp as widely expected.

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FX Daily, September 18: FOMC Meets Amid Money Market Pressures

Overview:  News that Saudi Arabia was able to restore 40%-50% of the oil capacity lost by the weekend strike coupled with the Fed’s efforts to offset the squeeze in the money markets are allowing the global capital markets to trade quietly ahead of the conclusion of the FOMC meeting.  Equities are little changed with a lower bias that has been seen in the first few sessions this week.

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FX Daily, September 17: Markets Calm(er)

Overview: Oil prices have stabilized after yesterday’s surge. Both Brent and WTI are holding on to around $7-$8 a barrel gain. Equity markets are mixed. Some are attributing the losses in Asia Pacific outside of Japan (Nikkei rose its highest level since late April), Korea and Australia to the rise in oil prices. European shares opened lower are straddling unchanged levels.

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FX Daily, September 16: Oil Surge Pared, Markets Remain on Edge

Overview: Oil prices surged in the initial reaction to the unprecedented drone attack on Saudi Arabia facilities. Saudi Arabia may be able to restore around half of the lost production in a few days. Saudi Arabia and other countries, including the US, prepared to tap strategic reserves, oil prices have seen the initial gains halved. Brent is trading near $65 after finishing last week near $60.

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FX Weekly Preview: Six Things to Watch in the Week Ahead

The prospect of a third trade truce between the US and China helped underpin the optimism that extended the rally in equities.  Bond yields continued to back-up after dropping precipitously in August, led by a more than  30 bp increase in the US yield benchmark.  The Dollar Index fell for the second consecutive week, something it had not done this quarter.

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Cool Video: Thoughts on ECB

A few hours after the ECB announced a new package of monetary accommodation, I joined a discussion on CNBC Asia with Nancy Hungerford and Sir Jegarajah.  Here is a clip of part of our discussion. I make two points.  The first is about the euro’s price action.  What impressed me about it was that the euro posted an outside up day, trading on both sides of the previous day’s range and closing above its high.

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FX Daily, September 13: Bonds and the Dollar Remain Heavy Ahead of the Weekend

Overview: The markets are digesting ECB’s actions and an easing in US-Chinese rhetoric. Next week features the FOMC meeting and three other major central banks (Japan, Switzerland, and Norway). The US equity rally that saw the S&P 500 edge closer to the record high set in late July spilled over to lift Asian markets. Chinese and Korean markets were closed for a mid-autumn holiday.

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FX Daily, September 11: Dollar is Firm as ECB is Awaited

Overview: Global equities are extending their recent gains while bonds remain on the defensive.  The dollar is firm.  There is a degree of optimism that is prevailing. There are some more overtures in terms of US-Chinese trade. In Hong Kong, developers and banks led an equity rally on ideas that the political tensions may ease. South Korea reported better trade data for the first ten days of September.

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FX Daily, September 10: Turn Around Tuesday

Overview: The momentum from the end of last week carried into yesterday’s activity, but the momentum began fading.  Today, equities were mixed in Asia Pacific and weaker in Europe. The Dow Jones Stoxx 600 reversed lower yesterday and is slipped further today.  The S&P 500 may gap lower at the open.

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FX Daily, September 9: Market Sentiment Still Constructive

Overview: The improvement of investor sentiment seen last week is carrying over into the start of the new weeks. Global equities are firm as are benchmark yields. Asia Pacific equities advanced, except in Hong Kong, where Chief Executive Lam’s promise to formally withdraw the controversial extradition bill failed to deter protests.

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FX Daily, September 03: Pound Punished in High Drama

A showdown between UK Prime Minister Johnson and Parliament over Brexit pushed sterling below $1.20. The euro is extended its losses after finishing last week below $1.10. Growth concerns are seeing equities retreat. Japanese and Chinese shares managed to eke out gains, but the Asia Pacific and European stocks have been sold.

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What Happened Monday

Markets in the US and Canada were closed on Monday for national Labor Day holidays. Here is a succinct summary of key developments that will set the backdrop for Tuesday. On September 1, the new round of tariffs in the US-China fight took effect. The US placed a 15% tariff on around 3000 Chinese goods that thus far had escaped action.

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September Monthly

Three forces are shaping the investment climate. The US-China trade conflict escalates at the start of September as both will raise tariffs on each other’s goods and are threatening another round in mid-December (US 25% tariffs on $250 of Chinese imports will increase to 30% on October 1).

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FX Weekly Preview: Talking and Fighting in the Week Ahead

Equity markets and the US dollar closed last week and August on a firm note. Ahead of the weekend, the dollar rose to new highs for the year against the euro, Swedish krona, Norwegian krone, and the New Zealand dollar. While the next set of US and Chinese tariffs start September 1, the market is making the most of the lull.

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FX Weekly Preview: The Week Ahead is not about the Week Ahead

It’s the last week of August. Several economic reports will be released in the coming days. They include the US deflator of consumer expenditures that the Federal Reserve targets, China’s PMI, and the eurozone’s preliminary August CPI. It is not that the data do not matter, but investors realize the die is cast.

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G7 to Deliver a Nothing Burger

A Bloomberg article about the weekend G7 meeting says, “multilateralism is dead.”  An op-ed in the Financial Times suggests that the most important political alliance may be “rejuvenated” at the G7 meeting.  The truth is likely found somewhere in between. 

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FX Daily, August 22: Tick Up in EMU PMI Does Little, Waiting for Powell

Overview:  Soft data in Asia and the continued decline in the yuan (six days and counting) prevented Asian equities from following the US lead from yesterday when the S&P 500 advanced by 0.8%.  European shares are paring yesterday’s 1.2% advance despite an unexpected gain in the EMU flash PMI.  US shares are little changed in the European morning.

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FX Daily, August 20: Marking Time Ahead of PMI and Powell

Overview:  Global equities and bonds are firmer in quiet turnover, and the dollar is narrowing mixed in narrow ranges.  The big events of the week, the eurozone flash PMI and Powell’s speech at Jackson Hole still lie ahead.  The MSCI Asia Pacific Index rose for the third consecutive session, led by Korea and Australia’s 1%+ gains. 

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FX Daily, August 19: China’s Rate Reform Helps Markets Extend End of Last Week Recovery

Overview: China announced some changes in its interest rate framework that is expected to lead to lower rates.  This helped lift equity markets, which were already recovering at the end of last week from the earlier drubbing.  Chinese and Hong Kong shares led the regional rally with 2-3% gains.  The Nikkei gapped higher for the third time in six sessions, and the first two were followed by lower gaps. 

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FX Weekly Preview: A Vicious Cycle Grips Markets

The capital markets are in their own doom loop. Poor data from Germany and China, coupled with the escalation of the US-China trade dispute and rising tensions in Hong Kong spur concerns about the risks of a global recession. Interest rates are driven lower, and curves flatten or go inverted, spurring more concern about the outlook. The problem is that it is not clear how this vicious cycle ends.

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FX Daily, August 16: Markets Take Collective Breath Ahead of the Weekend

Overview:  The global capital markets are ending the tumultuous week calmly, but it is far from clear that is will hold long.  Next week’s flash PMIs have potential to disappoint, and there is risk of new escalation in the US-China trade conflict as the PRC threatens to take action to countermeasures to the new US tariffs.

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FX Daily, August 15: Animal Spirits Lick Wounds

Overview:  It took some time for investors to recognize that the scaling back of US tariff plans was not part of a de-escalation agreement. There was an explicit acknowledgment by US Commerce Secretary Ross that there was no quid pro quo. The US tariff split was more about the US than an overture to China. 

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FX Daily, August 14: Markets Paring Exaggerated Response to US Blink

The US cut its list of Chinese goods that will be hit with a 10% tariff at the start of next month by a little roe than half, delaying the others until the mid-December. This spurred a near-euphoric response by market participants throughout the capital markets. However, as the news was digested, it did not seem as much of a game-changer as it may have initially.

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FX Daily, August 13: Investors Remain on Edge

Overview:  The confrontation in Hong Kong and the fallout from the Argentine primary over the weekend join concerns the conflict between the two largest economies and slower growth to force the animal spirits into hibernation.  Global equities remain under pressure.  Japan’s Topix joined several other markets in the region to have given up its year-to-date gain. 

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FX Daily, August 12: Yen Remains Bid, While Macri’s Loss in Argentina Weighs on Struggling Mexican Peso

Overview: China again tried to temper the downside pressure on the yuan, and this appears to be helping the risk-taking attitude. Many centers in Asia were closed today, including Japan and India, though most of the other equity markets advanced modestly, including China, Korea, and Australia. Europe’s Dow Jones Stoxx 600 opened firmer but is staddling little changed levels unable to stain any upside momentum.

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FX Weekly Preview: Macro Deterioration

The US-China tensions remain the dominant driver of investor risk appetites. President Trump has repeatedly accused China of manipulating its currency on twitter, and finally Treasury Secretary Mnuchiin acquiesced after China failed to prevent the dollar from rising above CNY7.0.

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Yes, the Dollar is Above CNY7.0, but No, the Sky is Not Falling

The world’s two great powers are at loggerheads. Chinese nationalism meet your sister, US nationalism. Import substitution strategy of Made in China 2025 meet your cousin Make America Great Again. Paradoxically, or dialectically, the similarities are producing divergent interests that extend well beyond economics and trade policy.

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FX Daily, August 7: Three Asian Central Banks Surprise Investors

While investors keep a watchful eye on the dollar fix in China (a little firmer than projected) and tensions with the US, two other developments compete for attention. The Reserve Bank of New Zealand and the central banks of India and Thailand surprised the market with lower rates. The RBNZ cut by 50 bp, India by 35 bp, and the fact that Thailand cut at all was unexpected.

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Cool Video: The implication of CNY7.0+

President Trump’s tweets last week announcing the end of the tariff truce signaled a new phase in the US-Chinese tensions.  China responded as did investors.  I was fortunate to have been invited to the Bloomberg set to discuss the issues of the day.

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FX Daily, August 5: China Strikes Back

Overview:  Chinese officials took the US tariff hike quietly last week but struck back today.  The PBOC fixed the dollar higher (CNY6.90), which it has not done, and will halt imports of US agriculture. The dollar shot through CNY7.0 to finish the mainland session a little above CNY7.03 and CNH7.07 for the offshore yuan. 

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FX Weekly Preview: The Dog Days of August are Upon Us

The die is cast. To defend the uneven expansion and ward off disinflationary forces, monetary authorities will provide more accommodation. The Federal Reserve delivered its first rate cut in more than a decade and stopped unwinding its balance sheet two months earlier than it previously indicated (worth $100 bln of additional buying of Treasuries and Agencies).

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August Monthly

After falling against all the major currencies in June, the US dollar rebounded in July. The Dollar Index finished the month at new two-year highs with the Fed’s suggestion it was engaged in a mid-course correction rather than a sustained easing cycle. The dollar also appeared buoyed by the extent of the dovishness by the ECB and the heightened risks that the UK leaves the EU at the end of October without an agreement.

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Brexit Update

The October 31 deadline for the UK to leave the EU is less than 100 days away.  The new Prime Minister is beginning to convince others that that UK will, in fact, leave at the end of October.   PredictIt.Org shows the odds of the UK leaving has risen to almost 50% from about a 33% chance a month ago.   Here is a summary of where the situation stands and some key dates going forward. 

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FX Daily, August 2: End of Tariff Truce Trumps Jobs

Overview: The market was finding its sea legs after being hit with wave and counter-wave following the FOMC decision, and more importantly, Powell’s attempt to give insight into the Fed’s thinking. Trump’s tweet than signaled an end to the tariff truce with a 10% levy on the $300 bln of imports from China that have not been subject to action previously.

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FX Daily, August 1: Mid-Course Correction Sends Greenback Higher

Overview:  The Federal Reserve delivered the first rate cut since the Great Financial Crisis but couched it in terms of a mid-course correction rather than the start of a larger easing cycle.  By doing so, Fed chief Powell cast the cut in less dovish terms than the market expected and the reaction function of the market has been clear. 

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FX Daily, July 31: Sterling Steadies, Attention Shifts to FOMC

Overview: After a shellacking in recent days, sterling has stabilized though there is not much of a bounce to speak of, suggesting the adjustment to the risk of a no-deal Brexit may not be complete. After the S&P 500 posted back-to-back declines, Asia Pacific equities struggled. Hong Kong shares led the regional decline.

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FX Daily, July 30: Sterling Pounded

Overview:  The prospect of a no-deal Brexit continues to pound sterling lower.  A little more than two months ago, it was testing $1.32.  Two weeks ago it was around $1.25.  Today it traded near $1.2120 before stabilizing.  On the other hand, the 10-year Gilt yield is below 65 bp, a new multiyear low, while the international-laden FTSE 100 is holding its own in the face of heavier equity prices in Europe.

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FX Daily, July 29: Prospects of a No-Deal Brexit Weigh on Sterling

Unrest in Hong Kong and disappointing earnings reports from South Korea weighed on local equity markets, and the MSCI Asia Pacific Index fell for the third consecutive session. European equities are edging higher in tentative trading. The Dow Jones Stoxx 600 is firmer for the sixth session of the past seven. US shares are little changed after record-high closes before the weekend.

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Seven Points on the ECB and the Price Action

Confusion

As soon as it was clear that the ECB was not easing today, the euro began to recover, after making a marginal new low for the year (just above $1.11). Draghi made it clear that easing was going to be delivered in September and on several fronts including rates (with mitigating measures like tiering) and new asset purchases (not decided on instruments, which plays into speculation of equity purchases—though I strongly doubt this will materialize).

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FX Daily, July 25: ECB Takes Center Stage

The euro remains stuck in its trough below $1.1150 ahead of the ECB meeting. The US dollar is firmer against most of the major currencies. The yen continues to resist the draw of the greenback. Most emerging market currencies are lower. The Turkish lira is weaker ahead of its central bank meeting, which is expected to deliver a large cut (~250 bp).

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FX Daily, July 24: Poor PMI Weighs on Euro Ahead of ECB

EUR/CHF and USD/CHF, July 24

Overview:  Disappointing flash PMI pushed an already offered euro lower ahead of tomorrow’s ECB meeting. European bonds rallied and equities, amid a rash of earnings, is trying to extend the advance for a fourth consecutive session.  Italian and Spanish 10-year benchmark yields are off four-six basis points, while core bond yields are off two-three basis points.

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FX Daily, July 23: Debt Deal Help Lifts the Dollar

The gains in US equities and the apparent US budget agreement has underpinned equities today and the US dollar. Asia Pacific equities recouped yesterday’s losses, and Europe’s Dow Jones Stoxx is posting gains for the third consecutive session, helped by some earning beats, to probe two-week highs. US shares are firmer. Benchmark 10-year yields are mixed with the Asia Pacific softer and European firmer.

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FX Weekly Preview: Highlights in the Week Ahead

Three events that will capture the market’s attention next week: The consequences of the Japanese election, the first look at US Q1 GDP, and the ECB meeting. The central banks of Turkey and Russia also meet. Both are expected to cut interest rates, following rate cuts in the middle of last week by South Korea, Indonesia, and South Africa.

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FX Daily, July 19: Dollar Pares Losses as Market Partly Corrects Confusion of Magntiude and Timing of Fed

Overview: Comments underscoring the importance of acting preemptively by two Fed officials sent the dollar reeling and helped lift equities after the S&P fell to a two and a half week low. The decline in rates and the US shooting down of an Iranian drone in the Gulf helped spur gold to new six-year highs. There was some attempt to clarify the (NY Fed’s) comments and the dollar has pared yesterday’s losses.

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FX Daily, July 18: Dollar on Back Foot as Equities Slide

Overview:  Profit-taking continues to weigh on global equities earnings concerns saw the biggest drop in the S&P 500 in three weeks.  The MSCI Asia Pacific Index fell for the fourth consecutive session.  The Nikkei gapped lower for the second straight session and has now retraced half of the gains scored since early June.  The Shanghai Composite is at its lowest level in a month.

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FX Daily, July 17: Back to the Well Again

Overview:  After slapping punitive tariffs on structural from China and Mexico last week, US President Trump threatened to end the tariff truce with China because it is not stepped up its purchases of US agriculture products.  Trump said the tariff freeze was in exchange for ag purchases, but at the time it seemed as if granting licenses to US companies to sell to Huawei was the quid pro quo.

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FX Daily, July 16: Sterling Weakness Punctures Subdued Session

Overview: Summer in the northern hemisphere contributing to the subdued activity in the global capital markets. The MSCI Asia Pacific index stalled after a four-day advance, with Japanese, Chinese, and Australian equities offsetting gains in Taiwan, South Korea, and India.  Europe’s Dow Jones Stoxx 600 is flattish, struggling to extend its three-day rally.

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FX Daily, July 15: Marking Time on Monday

Overview: The new record highs in US equities ahead of the weekend coupled with Chinese data that suggested the economy was gaining some traction as Q2 wound down is helping underpin risk appetites to start the week. Japanese markets were closed today, but equities were mostly firmer in the Asia Pacific regions, markets in China, Hong Kong, Taiwan, and India firmed. 

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FX Weekly Preview: What to Watch if Fed and ECB are Committed to Easing

There is little doubt after the Federal Reserve Chairman Powell’s testimony last week and the FOMC minutes that a rate cut will be delivered at the end of the month. Similarly, after comments by several ECB officials and the record of their recent meetin.g confirms it too is prepared to adjust policy. The timing of the ECB’s move is more debatable, an adjustment at the July 25 meeting appears to have increased.

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FX Daily, July 12: Greenback Limps into the Weekend

Overview:  Higher than expected US CPI and the second tepid reception to a US bond auction this week pushed US yields higher and helped stall the equity momentum. Asia Pacific yields, especially in Australia and New Zealand jumped 8-10 bp in response, and Spanish and Portuguese bonds bore the burden in Europe. 

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FX Daily, July 10: North American Focus: Poloz and Powell

Overview: The US Treasury market is retreating for the fourth consecutive session ahead of Fed Chairman Powell’s testimony before Congress. It is the longest losing streak in six months, and the 10-year yield has risen 15 bp over the run. This is helping drag up global yields, and today Asia Pacific yields mostly rose 2-3 basis points while core European bond yields are 5-7 bp higher and peripheral yields up a little less.

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FX Daily, July 9: No Turn Around Tuesday, as Equities Extend Losses and the Greenback Remains Firm

Overview:  Global equity benchmarks are headed for their third consecutive loss today as caution prevails at the start of Q3 after a strong first half.  Ten-year benchmark yields are edging higher after a soft start in Asia.  Italian bonds continue to outperform.  Greek bonds have been set back as the new government reiterated its commitment to ease fiscal commitments as if Tsipras did not try, and got a similar rebuff.

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FX Daily, July 8: Macro Monday

Overview: The capital markets have begun the week in a mixed note. Asia Pacific equities tumbled, led by 2%+ losses in China and South Korea, but European shares are edging higher, and a positive close would be the seventh in the past eight sessions. The S&P is little changed. Asia Pacific bond yields moved higher, as anticipated after the jump in US yields after the jobs data.

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FX Weekly Preview: In Bizzaro Beauty Contest, the US is Still the Least Ugly

Our hypothesis that the market had reached peak dovishness toward the Fed remains intact after the employment data.  Job growth was the strongest since January.  The participation rate and the unemployment rate ticked up. Average hourly earnings edged 0.2%  higher, and, with revisions, maintained a 3.1% year-over-year pace, which is a bit disappointing.  

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FX Daily, July 05: Dollar is Bid Ahead of Jobs Report

Overview: The dovish response to news that Lagarde was nominated to replace Draghi was extended by the dismal German factory order report that has pushed the euro to new two-week lows and kept bond yields near record lows. The focus ahead of the weekend is squarely on the US employment data, where a second consecutive poor report will fan expectations for a large Fed cut to initiate an easing cycle.

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FX Daily, July 03: Yields Extend Decline

Overview: Interest rates are lurching lower.  The US 10-year yield is at new two-year lows, but the driver is European bonds where peripheral yields are 6-7 bp lower,  though Italy’s benchmark is off 12 bp, while core yields are down 2-3 bp to new record lows.  The German benchmark is almost minus 40 bp, while the Swiss 10-year is beyond minus 100 bp.  Italy’s two-year is breaking more convincingly below zero.

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FX Daily, July 2: Post-G20 Euphoria Fades, Stuck with Same Reality

Overview: The euphoria that greeted the resumption of US-China and US-North Korea talks has subsided. Global equities have turned mixed after yesterday’s surge. Hong Kong played catch-up, and despite ongoing demonstrations, the Hang Seng rallied over one percent, and the Hong Kong Dollar strengthened beyond its band midpoint for the first time in nine months.

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FX Daily, July 01: Trade Optimism Meet Reality of Disappointing PMI

Overview: A new tariff truce between the US and China, coupled with the North Korean diplomacy and Russia-Saudi tentative agreement boosted investor confidence and sharp equity rallies. Japanese and Chinese equities rallied 2-3%. Most markets rallied in Asia-Pacific except for South Korea’s Kospi and Hong Kong markets were closed as the handover was commemorated.

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FX Daily, June 28: The World may Look Different Come Monday

Overview: Quarter-end positioning seems to dominate today’s activity. The outcome of bilateral talks at the G20 gathering partly reflects the influence of the US President who eschews multilateral efforts as a hindrance to its sovereignty.  Equities in Asia Pacific slipped today but held on to modest gains for the week.

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FX Daily, June 27: Ready. Set. Wait.

Overview: The approaching month/quarter-end and the G20 meeting dominate considerations. Although the S&P 500 closed on its lows for the third consecutive session yesterday, Asia Pacific equities liked the apparent increase in the prospect of a tariff freeze between the US and China and the pullback in the Japanese yen.

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Cool Video: Sketch of Bullish Case for Gold

I know some people who are always bullish gold. I am not. In fact, I often think I can find higher returning assets. However, I have recently have turned bullish gold, and while in Toronto on business, I was invited to the set of Bloomberg to discuss my change of heart.

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FX Daily, June 25: Heightened Political Risks Weigh on Sentiment

Overview: It is far from clear that the US sanctions against nine Iranian officials, with the foreign minister to be added later brings negotiations any closer. At the same time, US officials trying to keep expectations low for the weekend meeting between Trump and Xi. The heightened political anxiety will have to make room for Fed Chairman Powell’s talk in NY.

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FX Daily, June 24: Slow Start to Important Week

The Trump-Xi meeting at the G20 this coming weekend and heightened tensions in the Gulf, with the US set to impose new sanctions on Iran’s crippled economy are keeping investors on edge. News the opposition won the re-do of the Istanbul mayoral election has lifted the Turkish lira.

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FX Weekly Preview: Cutting to the Quick

Central banks are prepared to take fresh measures to strengthen and extend the business cycle primarily because price pressures are below what their predecessors thought would be acceptable levels. Draghi, speaking for the ECB, the Federal Reserve, and the Bank of Japan ratcheted up their concerns, which, even without new initiatives, were sufficient to drive interest rates lower.

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FX Daily, June 21: Markets Pause Ahead of the Weekend

The global capital markets are trading quietly ahead of the weekend. Equity markets are mostly narrowly mixed. Chinese shares extended their run, and the major benchmarks were up 4%+ on the week. Japan, Australia, South Korea, and India saw gains pared.

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FX Daily, June 20: Doves Rules the Roost Except in Oslo

Overview:  The prospect of “lower for longer” continues to fuel the bond and stock rally.  The initial US equity response to the Fed was positive but not strong and closed about 0.3% higher.  Asia Pacific equities followed suit with mostly modest gains, except for China and Hong Kong, where gains of more than 1% were recorded.

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FX Daily, June 19: Still Patient?

Overview:  Risk-taking was bolstered by the dramatic shift in Draghi’s rhetoric less than two weeks after the ECB meeting and a Trump’s tweet announcing that there was going to be an  “extended” meeting between him and Xi at the G20 meeting and that the respective staff would begin coordinating. It was later confirmed by the Chinese media.

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FX Daily, June 17: Quiet Start to Big Week

Overview: The global capital markets are off to a subdued start to what promises to be a busy week, featuring the FOMC, BOE, BOJ meetings, and the flash June PMIs. Investors also expect some signal whether Presidents Trump and Xi will at the G20 meeting later this month. Asian equities were narrowly mixed.

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FX Daily, June 14: Waning Risk Appetite Going into the Weekend

Overview:  Worries about an escalation in the Gulf following US accusations that Iran was behind yesterday’s two attacks and weaker growth impulses, while trade tensions remain high, are dampening risk appetites ahead of the weekend.  Equities are lower.  Nearly all the stock markets in the Asia Pacific region fell today with Japan and Australia being the notable exceptions.

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FX Daily, June 13: Financial Statecraft or Whack-a-Mole

Overview: After roiling the markets by threatening escalating tariffs on Mexico, US President Trump has threatened China that if Xi does not meet him and return to the positions that the US claims it had previously, he will through on imposing tariffs to the remaining goods the US buys from China that have not already been penalized. 

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Great Graphic: Euro’s (OECD) PPP

US President Trump recently bemoaned the fact that the euro is undervalued. While his critics complain that he is prone to exaggeration, in this case, the euro is undervalued. This Great Graphic a 30-year chart of the euro has moved around its purchasing power parity as measured by the OECD. Currently, the euro is about 22% undervalued, and it has been cheap to PPP since for the past five years.

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FX Daily, June 12: Anxiety Ticks Up, Risks Pared

Overview: The S&P 500 snapped a five-day advance yesterday and set the heavier tone for equities today.  Continued protests in Hong Kong were not shrugged off as they have been in the last couple of sessions.  The Hang Seng’s nearly 1.9% decline was the largest in a month and led the region lower. 

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FX Weekly Preview: US Policy Mix Flips and Will Take the Dollar with It

There is a new game, afoot. For the last couple of years, it has been about normalizing policy. Even the Bank of Japan, which has never declared it was tapering, has gradually reduced the amount of government bonds it purchases. Countries like the US, or Canada in 2017, who could raise interest rates were rewarded with stronger currencies.

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FX Daily, June 7: Jobs Data and Tariffs Dominate

Overview:  Global equities continue to recover from the recent slide.  Chinese and Hong Kong markets were on holiday today, but the MSCI Asia Pacific Index eked out a minor gain and ensured that its four-week slide ended.  Europe’s Dow Jones Stoxx 600 is up about 0.7% through the European morning. 

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FX Daily, June 6: US Tariff Threats on Mexico Compete with ECB for Attention

Overview: The implications of President Trump’s assessment that there has not been “nearly enough” progress in negotiations with Mexico that would avert the tariff on June 10 competing for investors’ attention, which had been squarely today’s ECB meeting. Minutes before Trump spoke Fitch cut its sovereign rating for Mexico to BBB from BBB+, while Moody’s cut its outlook to negative from stable.

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FX Daily, June 05: Dollar Remains on Back Foot

Overview: The Federal Reserve’s patience never excluded a rate cut should conditions warrant. The acknowledgment of this without signaling a change its stance is being seized upon to justify aggressive pricing of rates. At the same time, there has some tempering of trade anxiety on the margin that is also constructive. Asia and European equities were pulled higher after the strongest rally in several months in the US. 

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FX Daily, June 04: Nervous Calm Settles Over Markets

The global capital markets are stabilizing today after taking a body blow of broadening the use of US tariffs (in migration dispute with Mexico), threatening the ratification of NAFTA 2.0, and still escalating hostile rhetoric between the US and China, and the threat of anti-trust action against the largest digital platforms.

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FX Daily, June 03: US Penchant for Tariffs Keeps Investors on Edge

Overview:  The weekend failed to break the grip of investor worries that is driving stocks and yields lower.  The US Administration’s penchant for tariffs is not simply aimed at China, where there is some sympathy, but the move against Mexico, dropping special privileges for India, and apparently, had considered tariffs on Australia.  At the same time, the threat of 25% tariff on auto imports.

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FX Weekly Preview: Curiouser and Curiouser

The first week of June features the Reserve Bank of Australia meeting, an ECB meeting, and the US employment data.  The RBA is expected to deliver its first rate cut in three years.  The market appears to have discounted not only a second cut in H2 but has priced nearly half of a third cut as well.

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FX Daily, May 31: US Struggles to Build Physical Wall, Tries Tariff Wall on Mexico

Overview: The US announcement to lay a 5% tariff on all goods coming from Mexico (starting June 10) until it stops the flow of “illegal migrants” spurred sharp losses in the Mexican peso and general risk-off move that strengthened the yen. The tariffs are set to rise every month until reaching 25%. This is a significant surprise and especially given that the Trump Administration is preparing to formally submit the USMCA to Congress.

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Canada, Mexico, and the USMCA

The US dollar closed today above CAD1.3500 for the first time since January 2.  Despite the setback, the Canadian dollar is the strongest of the major currencies year-to-date with a little less than a one percent gain.  The yen, in second, has is up about 0.2% (~JPY109.50).  Among emerging market currencies,  the Mexican peso’s 2.6% gain puts it in in second place behind the Russian rouble’s 7.2% appreciation.

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FX Daily, May 30: Kill Bull: Intermission

Overview:  After significant moves in equities and interest rates, investors are taking a collective breath, waiting for fresh developments.  A nervous calm has settled over the capital market.  China, Japan, and Australian equities leaked lower, but other bourses in the region, including Korea and Taiwan posted modest gains, while Indonesian equities are still responding positively to the recent election.

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FX Daily, May 29: Equity Slump Deepens while Yields Plunge

Overview:  The slump in equities continues after the poor showing in the US yesterday.  Nearly all bourses in Asia Pacific and Europe are lower.  Indonesia is the notable exception as domestic operators re-position after the election.  Foreign investors have been notable sellers of Korean and Taiwanese shares this month (in excess of $6.2 bln). Europe’s Dow Jones Stoxx 600 is testing its lowest levels since March, and the S&P 500 is poised to gap lower through the 2800-level that has offered support in recent weeks.

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FX Daily, May 28: Risk Appetites Curbed, US Leadership Awaited in FX

Overview:  The euro initially reacted positively to the EU Parliament elections.  The populists did not do quite as well as many expected.  The two main groupings failed to secure a majority, but with the help of the Liberals, and possibly the Greens, that did well throughout Europe, a new European Commission will be forged.  The heads of state meet later today, but no real decisions are likely.  The horse trading will likely take most of the next few months. 

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FX Weekly Preview: The Evolution of Three Issues are Key in the Week Ahead

As May winds down, the light economic calendar will allow investors to take their cues from the evolution of three disruptive forces–trade, Brexit and the US economy. With actions against Huawei and possibly a handful of Chinese surveillance equipment producers, the US raised the stakes. The retaliatory tariffs are effective on June 1, but Beijing has not formally responded to the moves against Chinese companies.

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FX Daily, May 23: Trade, Brexit, and Disappointing Flash PMIs Weigh on Global Markets

Overview:  The deterioration of the investment climate is spurring the sales of stocks and the buying of bonds. The dollar is firm.  China and the US appear to be digging as if the trade tensions will remain for some time and the breech is beginning to look too big for Trump and Xi to pull another rabbit out of the hat like they did at the end of last year when the tariff truce was struck.   The move against Huawei and possible a number of companies involved in surveillance equipment represents a new front.  India and Indonesia were notable exceptions to the sell-off in Asian Pacific shares, which saw the Shanghai Composite fell almost 1.4%.  Modi looks to have secured a majority.  European bourses are lower with the Dow Jones Stoxx 600 off almost 1% following the disappointing

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FX Daily, May 22: Sterling Can’t Get Out of Its Own Way

Overview:   There is a nervous calm in the capital markets.  Yesterday’s rally in US shares failed to excite global investors.  China, Hong Kong, and Taiwan markets fell, while Japan was mixed. Foreign investors continued to sell Korean shares, but the Kospi rose.  European shares narrowly mixed, leaving the Dow Jones Stoxx 600 little changed.

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Rare Earths may Provide Leverage

Many American observers argue that the trade imbalance gives the US an advantage in a trade war with China. The US enjoys escalation dominance in tariffs because Chinese imports of US goods are so much less than the US imports of Chinese goods.  However, the focus on quantities may be misleading.

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FX Daily, May 21: Equities Find Some Traction while the Dollar Firms

Overview:  Equities are paring some of their recent losses.  The MSCI Asia Pacific Index is posting its first back-to-back gain in a month, led by a more than 1% rally in China.  Heightened prospects for an Australian rate cut in a few weeks helped extend the run in the local equity market to a new record high.  European bourses are higher, with the Dow Jones Stoxx 600 rising around 0.3% in the morning session.

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Cool Video: End of Tariff Truce Spurs Over Correction

The S&P 500 recorded a key reversal on May 1, and the end of the tariff truce ensured follow-through selling.  With today’s early losses, it is off nearly 3.5% this month.   In my brief chat with Stuart Varney at Fox Business, I suggest that the stretched technical condition left the market vulnerable to a “buy in May and go away”  scenario. 

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FX Daily, May 17: China Questions US Sincerity

Since the presidential tweets on May 3, the US had the initiative in the negotiations with China, but today, China has pushed back. It is cool to the idea promoted by the US that trade talks will resume shortly. Now it may take the Trump-Xi meeting at the end of next month to restart talks. This, coupled with US sanctions on Huawei banning imports from it and sales to it, threatens to disrupt business and this took a toll on Chinese, Taiwanese and Korean shares. 

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FX Daily, May 16: US Struggles to Strike a Less Strident Tone

Overview: Retail sales and industrial production disappointed in both the US and China prior to the end of the tariff truce, declared by the US in a series of presidential tweets on May 5.  The reaction function of the US to the drop in equities was to play down tensions on three fronts.  First, a US team is expected to return to Beijing in the coming weeks. 

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FX Daily, May 15: Angst Continues

Overview: Disappointing Chinese April data spurred speculation that more stimulus will be forthcoming and bolsters hopes that a trade deal with the US by the end of next month helped Asian Pacific equities advance for the first time this week.  Indonesia, which reported a record trade deficit on the back of collapsing exports (-13.1% year-over-year in April, nearly twice the decline expected after a 10% fall in March) kept the pressure on its equity market.

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Why China Finds it Difficult to Weaponize the Yuan and US Treasuries

It looks so easy on paper. China can sell its holding of US Treasuries and/or weaken the yuan to offset the tariffs and boost exports. It is the first and easy answers from strategists, journalists, and some academics. Often times, it is presented a novel idea; as if diplomats, investors, and policymakers have not thought it.

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FX Daily, May 13: Investors Still Looking for New Balance

The end of the tariff truce between the US and China has discombobulated investors. They had been repeatedly that a deal was close and there had even been talk at the US Treasury about where Trump and Xi should meet to sign the agreement. Now China was given around a month to capitulate to US demands or face a 25% tariff on their remaining exports to the US.

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FX Weekly Preview: Trade, the Dollar, and the Week Ahead

China is isolated on trade. No one supports its trade practices. The idea that China was going to “naturally” evolve to be more like the US, or Europe for that matter, was always fanciful and naive. The emergence of China, as Napoleon warned two centuries ago, would make the world shake.

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FX Daily, May 10: Waiting for the Other Shoe to Drop

Overview:  Contrary to hopes and expectations, the US made good on the presidential tweet and raised the tariff on around $200 bln of Chinese goods from 10% to 25%.  Trump indicated that the process that will levy a 25% tariff on the remaining Chinese imports has begun. Also contrary to expectations, Chinese officials did not detail their response, though it is expected to be forthcoming.

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FX Daily, May 09: De-Risking as US-China Trade Talks Resume

The end of the tariff truce between the US and China continues to dominate investment considerations. The truce was often cited in narratives explaining the recovery of equities from the Q4 18 slide. Ahead of the midnight US tariff hike, global equities are being smashed. Korea’s Kospi was off 3%, and Hong Kong’s Hang Seng was shed 2.4%. Shanghai lost 1.5%.

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FX Daily, May 08: Markets Trying to Stabilize

Overview:  It is taking investors a bit more than two sessions to find its footing after being the unexpected end of the tariff truce between the US and China struck last December. Asia Pacific equities tumbled after the S&P 500 shed nearly 1.7% yesterday, the third largest decline in 2019, but Europe’s Dow Jones Stoxx 600 is consolidating near yesterday’s lows.

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FX Daily, May 07: Markets Steady as China Pushes Forward

Overview: News that the US tariff escalation did not scupper trade talks with China has helped the global capital markets stabilize today.  China’s Vice Premier Liu He is still leading a delegation to the US.  Most Asian equities recouped part of yesterday’s losses, including China, Hong Kong, Taiwan, Australia, and Singapore.  Japanese and Korean markets were closed on Monday and bore some selling pressure today.

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FX Daily, May 06: Trump’s Tariff Tweets Help Investors Discover Volatility

Reports that a US-China deal could be struck by May 10 before the weekend left investors ill-prepared for the presidential tweets yesterday that announced that the US was ending the tariff truce. Trump indicated that the 10% tariff on $200 bln of Chinese goods would be lifted to 25% at the end of the week and that the remaining $325 bln of Chinese goods that have not been subject to an extra levy, will be slapped with a 25% tariff soon.

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FX Daily, May 03: Ahead of US Jobs Report, the Greenback Remains Firm

Overview: The US April jobs data stand before the weekend, and the greenback is holding on to most of yesterday’s gains as participants wait for the report. Equities in the Asia Pacific region were mixed without leadership from China and Japan, where the markets remain closed for the extended holiday. On the week, Australia’s ASX was the worst performing.

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FX Daily, May 02: Dollar Consolidates Fed-Inspired Recovery

Overview:  The US dollar is consolidating yesterday’s post-Fed rally, and this is giving it a slightly heavier tone today.   Equities are mostly lower and Europe’s Dow Jones Stoxx 600 is off about 0.5% in late morning turnover, which if sustained would be the largest decline in three weeks.  The S&P 500 posted a potential key reversal yesterday by setting new record highs and then closing below the previous session’s low.

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FX Daily, April 30: Dollar Pares more Gains as EMU GDP Surprise

Overview: The S&P 500 set a new record high and close yesterday, but the lift to global markets was not strong enough to overcome the disappointing Chinese PMI.  Although Chinese equities traded higher on ideas that the news will spur additional stimulative measures, other Asian markets were mixed. 

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Cool Video: Q1 US GDP Optics may Mark Near-Term Peak in Divergence Theme

I joined Tom Keene and Francine Lacqua to talk about US GDP with David Riley from BlueBay Asset Management. Here is a link to a 2.5-minute clip. The initial estimate of Q1 US growth was well more than nearly anyone expected. The details were underwhelming as the consumption was halved and the GDP deflator was halved. Final private domestic sales, which strips away inventories, trade, and government spending rose 1.3%, the least more than five years.

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FX Daily, April 29: The Busy Week Begins Slowly

Overview: It promises to be an eventful week with the FOMC and BOE meeting, US jobs report and EMU April CPI and Q1 GDP on tap.  However, the week is marked by the May Day holiday in the middle of the week.  Japan’s markets are closed all week, while China’s markets are closed from mid-week on for an extended holiday.  The week has begun on a decidedly consolidative tone. 

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FX Daily, April 26: Greenback Consolidates Ahead of Q1 GDP

Overview:  The equities are finishing softly after the rally stalled in the middle of the week.  The large markets in Asia fell, led by China, and the MSCI Asia Pacific Index fell for a third session, the longest losing streak in two months.  Europe’s Dow Jones Stoxx 600 ended an eight-day advance with a two-day loss coming into today where it is a little softer. 

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FX Daily, April 25: Equities Waiver, the Dollar Does Not

Overview:  After closing at record highs on Tuesday, the S&P 500 slipped yesterday, and the Dow Jones Stoxx 600 snapped an eight-session advance.  Asia followed suit, with the Shanghai Composite posting its biggest loss (~2.4%) in over a month.  It is off about 4.6% this week, which if sustained tomorrow, would be the largest loss in six months.

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FX Daily, April 23: Oil Extends Gains While Markets Await Fresh Incentives

Overview: Financial centers that have been closed for the extended holiday have re-opened, but the news stream is light and market participants are digesting developments and positioning for this week’s central bank meetings and the first look at Q1 US GDP. The US decision to end exemptions to the embargo against Iran led to a surge in oil prices, which are extending gains to new six-highs today.

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Cool Video: Discussion of the Deflationary Risks in Japan and Brexit

I joined CNBC Asia’s Amanda Drury and Sri Jegarajah via Skype earlier today as the new week was beginning in Asia. In this three minute clip, we discuss the outlook for the BOJ and sterling. Most of the rise in Japan’s inflation is due to food and energy prices. Despite an aggressive balance-sheet expansion effort, the BOJ has missed its target by a long shot.

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FX Daily, April 22: Surge in Oil Punctures Holiday Markets

Overview: With many centers closed for the extended holiday, the calm in the global capital markets has been punctuated by reports that the US is considering ending its exemption for eight countries to have bought Iranian oil over the past six months.  The waivers were to end on May 2, but previously it was thought that a couple of waivers, like for China and India, would be extended.

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FX Weekly Preview: Six Events to Watch

The divergence thesis that drives our constructive outlook for the dollar received more support last week than we expected. A few hours after investors learned that Japan’s flash PMI remained below the 50 boom/bust level, Europe reported disappointing PMI data as well. And a few hours after that the US reported that retail sales surged in March by the most in a year and a half (1.6%).

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FX Daily, April 19: Holiday Note

Many financial centers are closed today. These include Australia, India, most European markets, and the US. In Asia, equity markets that were open moved higher. The Nikkei, which gapped higher on Monday, rose 0.5% today for a 1.5% gain on the week. China’s Shanghai Composite rose 0.6%, lifting the weekly increase to 2.6%.

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FX Daily, April 18: EMU Disappointment Lifts the Dollar

Overview: A bout of profit-taking in equities began in the US yesterday and has carried through Asia and Europe today. The MSCI Asia Pacific Index fell for the first time in five days, while the Dow Jones Stoxx 600 is snapping a six-day advance.  The Nikkei gapped higher to start the week and a gap low tomorrow would undermine the technical outlook.

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Cool Video: Trump Ahead in 2020?

Marc Chandler

First, I tried playing down the significance of Goldman’s call. The markets have anticipated this. redictIt.Org has shown the President to be an easy favorite since the start of the year. Charles Payne, the host, dismissed these results because he said they reflect professional gambler. I don’t know if that is true or even relevant (ad hominem?).

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FX Daily, April 16: The Dollar and Stocks Catch a Bid

Amid light news, global equities are moving higher In Asia, the Nikkei rose to a new high since early December, while the Shanghai Composite rose 2.3% and posted its highest close since March 2018. European equities are solid, with the Dow Jones Stoxx 600 moving higher for the fifth consecutive session.

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FX Daily, April 15: Redemption Monday

The holiday-shortened week is off to a slow, tentative start. The surge of the S&P 500 before the weekend failed to inspire today. Asia markets were mostly firmer, led by Japan, while China, Hong Kong, and Singapore moved lower.

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FX Weekly Preview: Dollar Super Cycle Revisited

In the big picture, we argue that the dollar’s appreciation is part of the third significant dollar rally since the end of Bretton Woods. The first was the Reagan-Volcker dollar rally, spurred by a policy mix of tight monetary and loose fiscal policies.

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FX Daily, April 12: Euro Bid Above $1.13 for the First Time this Month

Overview:  The consolidative week in the capital markets is drawing to a close.  Equity markets are narrowly mixed.  In Asia, most indices outside of the greater China (China, Taiwan, and Hong Kong) edged higher, leaving the MSCI Asia Pacific Index slightly lower on the week.  The MSCI Emerging Markets Index snapped a ten-day rally yesterday and is little changed so far today. 

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FX Daily, April 11: Market Yawns at Latest Brexit Extension

The S&P 500 closed higher yesterday for the ninth session in the past ten, but the coattails are short and global equities are trading with a heavier bias today. A firm CPI reading in China took a toll local shares with the Shanghai Composite, shedding 1.6%, the most in more than two weeks. European bourses are mostly in the red.

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FX Daily, April 10: Be Careful What You Wish For

There were only a few formal disputes under NAFTA 1.0. It says more about the adjudication process than the underlying issues. It was not binding. The Democrats want stronger enforcement provisions in what the NAFTA 2.0. It is understandable. Still, without opening up the agreement, which had been already agreed to by three heads of state, it is difficult to see how this will happen.

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FX Daily, April 09: Is the USMCA Dead?

The heads of state may have agreed on the modernization of NAFTA, but the necessary legislative approval may not be forthcoming this year. The US legislative process has been complicated by the fact that the Democrats secured a majority in the House of Representatives last year.

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FX Daily, April 8: Brexit, the EU-China, and the Abandonment of the Open Door

(I am in Mexico at the World Trade Center General Assembly, participating on a panel about USMCA–NAFTA2.0–for which approval remains elusive.  It is possible that the US threatens to pull out of NAFTA 1.0 to force action by the US Congress.  Mexico is due to pass legislation this week that may meet demands by the some in the US and Canada for stronger labor protections.

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FX Weekly Preview: Important Steps Away from the Abyss

It seems to be well appreciated among by policymakers and investors that the system is ill-prepared to cope with another financial crisis. It is understandable that so many are concerned that the end of the business cycle could trigger a financial crisis. In practice, it seems like it has worked the other way around. The financial crisis triggered the Great Recession.

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FX Daily, April 03: Optimism Sweeps Through the Capital Markets

Overview: Japan announced the name of the new era that begins May 1 and a new emperor.  The connotation is of beautiful harmony.  And investors have taken the bit and run with it.  Optimism that the US and China near reaching an agreement on trade. China and Europe have reported better than expected PMIs today. 

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FX Daily, April 02: Herding Cats

After surging yesterday, equities are struggling to maintain the momentum that carried that S&P 500 to its best level since last October. Most Asia Pacific equity markets advanced. Japan’s small losses were a notable exception. The Dow Jones Stoxx 600 has advanced in four of the last five sessions and is little changed, while US shares are trading with a heavier bias.

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April Monthly Currency Outlook

Poor economic data and soft inflation saw several central banks, including the Federal Reserve and European Central Bank, take a dovish turn in March. Contrary to expectations that interest rates would rise as the G3 central banks were no longer adding to their balance sheets on a combined basis.

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FX Weekly Preview: The Green Shoots of Spring

Investors have worked themselves into a lather. Equities crashed in Q4 last year amid on corporate earnings and concerns about growth. The Fed’s tightening decision in December was made unanimously. The above-trend growth, the preferred inflation measure was near target, unemployment was the lowest in a generation and real rates were historically low.

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FX Daily, March 28: Brexit Uncertainty Deepens as Parliament is Divided, while Turkey’s Short Squeeze Falters

The lurch lower in global interest rates continue. The US 10-year yield is at new 15-month lows, five basis points through the average effective Fed funds rate. Late yesterday, it appeared that 10-year German Bund yields slipped below similar Japanese government bond yields for the first time since Q4 16, but when the JGB market opened, it the 10-year JGB yield fell a couple more basis points to minus 10, the most negative since August 2016.

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FX Daily, March 27: Global Bond Rally Continues, Greenback Remains Firm

Overview: The US 10-year yield is trading below the Fed funds target. The two-year yield is trading below the lower end of the Fed funds target range. A warning by New Zealand that the next rate move could be a cut sent New Zealand and Australian yields to new record lows. In Japan, the 10-year yield slipped below the overnight unsecured call rate.

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Cool Video: Bloomberg–Sterling and the Euro

I joined Shey Ann and Amanda Lang on the Bloomberg set to talk about sterling and the euro. The media makes it sound like there was a coup in the UK and Parliament has taken control of Brexit. This is an exaggeration. The House of Commons did secure tomorrow to have “indicative votes” on the different alternatives. These votes are not binding on the Prime Minister who as already indicated some alternatives that she will not accept.

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FX Daily, March 26: Semblance of Stability Re-Emerging

Overview:  The sell-off in equities seemed to peak yesterday, and US indices were narrowly mixed. Traders found comfort in that performance, even though the S&P 500 finished a little below 2800, and took the markets in the Asia-Pacific region higher, except in China, where the Shanghai Composite fell 1.5%. 

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Europe and China

The US-China trade talks look like they may very well continue through most of the second quarter, despite how much progress is being claimed.  Meanwhile, the tariffs remain in effect, but the market’s sensitivity to developments has slackened since it was clear the Trump and Xi were not going to meet at the end of this month.

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FX Daily, March 25: Monday Blues: Equities Pare Quarterly Gains

Overview:  Global equities have soured after the US shares dropped the most since very early in the year before the weekend.  Asia’s sell-off was led by the 3% decline in Nikkei, while Malaysia fared among the best, surrendering 1%.  Europe’s Dow Jones Stoxx 600 is off for a fourth session. It lost 1.2% at the end of last week and gapped lower today but stabilizing after the better than expected German IFO survey.

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FX Weekly Preview: The Week Ahead

The combination of the dovish hold by the Federal Reserve and the eurozone’s miserable flash Purchasing Managers Index casts a pall over the economic outlook.  Japan’s flash PMI remained stuck at February’s 48.9, while core inflation unexpectedly eased.  Three months after the European Central Bank stopped buying bonds, the German 10-year Bund yield fell below zero for the first time since 2016.

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FOMC: Above Trend Growth Requires Continued Monetary Support

The Federal Reserve sounded more dovish than many expected and this prompted a 5-7 bp drop in US rates, and the dollar fell to new lows for the week against many of the major currencies.  The median Fed forecast now anticipates no hike this year but one next year.  The Fed will also taper the roll-off of its balance sheet and completing it by the end of September.

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FX Daily, March 22: Dreadful EMU PMI and US Machinations Rival Brexit for Attention

Overview:  The S&P 500 recovered from the post-FOMC reversal to close a new 5-month high yesterday, led by technology.  Financials were the only main sector to retreat.  The large equity markets in Asia, Japan, China, Australia, South Korea, and Taiwan all advanced.  Europe’s Dow Jones Stoxx 600 reversed its initial gains and is nursing a small loss on the week.

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FX Daily, March 20: Brexit Drama Continues but Fed Moves to Center Stage

Overview: US stocks were not able to hold onto early gains yesterday, and this has helped set the stage for today’s heavier bias. Asia Pacific markets were narrowly mixed, with Japan and Korea eking out small gains while China and Taiwan slipped a little. Europe’s Dow Jones Stoxx 600 is threatening to snap a five-day advance as materials, healthcare, and energy leads the profit-taking while communication and real estate are proving a bit more resilient.

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FX Daily, March 19: Third Vote on Withdrawal Bill Scuppered Until after EU Summit

Overview:  The capital markets remain subdued.  Many Asian equity markets eased after a strong two-day advance.  European equities are slightly firmer.  The S&P 500 closed at new five-month highs yesterday.  Benchmark 10-year yields are mostly a little softer.  Australian 10-year bond yield fell five basis points, and the discount to the US widened to a new high since the early 1980s. 

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FX Weekly Preview: Three Highlights in the Week Ahead

Three events next week will shape the investment climate. The Federal Reserve meets and will update its forecasts and guidance. The British House of Commons may vote for a third time on the Withdrawal Bill before Prime Minister May heads of the EU Summit to ask for an extension of the UK leaving the EU. The eurozone sees the flash March PMI, with great hope that the green shoots of spring will be evident.

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There at the Beginning

Sometimes it is difficult to gain perspective. That is why it may be difficult to see the forest for the trees. It is as we spend most of our time climbing a mountain: One handhold and foothold at a time. Immediacy and urgency limit our peripheral and forward visions.

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FX Daily, March 15: Euro and Yen Volatility Slips to New Five-Year Lows on the Ides of March

Overview: The capital markets are calm ahead of the weekend.  Outside of Australia and Thailand, Asia Pacific equities advanced, while European shares are mostly little changed. The regional benchmarks, like the S&P 500 have recouped last week’s losses.  Benchmark 10-year yields are little changed on the day, leaving the US 10-year yield virtually unchanged on the week near 2.62%.

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FX Daily, March 14: Another UK Vote, but No Closure

Overview:  The Brexit drama continues to play out, and the Withdrawal Bill that has been twice defeated is ironically not dead yet. Today’s vote, in fact, is predicated on another “meaningful vote” before seeking an extension.  Sterling remains firm near yesterday’s highs, which were the best levels since last June.

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FX Daily, March 13: Still Waiting for Brexit Climax

The Brexit drama continues to command attention. A vote on leaving without an agreement will be held today, and if that fails, there will be a vote tomorrow on an extension. Meanwhile, the first increase in headline US CPI in four months failed to impress as the year-over-year pace fell to 18-month lows.

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FX Daily, March 12: Wave of Optimism Sweeps through the Capital Markets

Last minutes statements meant to clarify what many MPs find to be the most odious part of the Withdrawal Bill, the backstop for the Irish border is goosed global equity markets even though it does not seem as if the Withdrawal Bill has changed one iota. And after the big rally in US shares yesterday, there might have been follow-through buying in any case today. Asian markets did not disappoint.

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FX Daily, March 11: Greenback Starts New Week Decidedly Mixed, with Brexit Anxiety Weighing on Sterling

Overview:  Asian shares recovered from opening losses to finish mostly higher, with the Shanghai Composite up nearly 2% and India tacking on 1% after the election was called, starting April 11.  European markets, led by energy, communication, and materials sectors, is up about 0.5% through midday. The S&P 500, which closed lower every day last week is looking a little firmer. 

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FX Daily, March 07: EMU Looks to ECB

The ECB meeting is today’s highlight. A dovish signal is expected. The euro remains pinned near its lows ahead it. The global equity market rally in January and February is faltering this week. Asian equities were mixed, but the Nikkei eased for the third consecutive session.

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Thoughts about the ECB and Euro

draghi

Mario Draghi’s term at the helm of the ECB is winding down. He will step down in October. It has not been an easy job. The light at the end of the tunnel in 2017 turned out to be another train in 2018. The eurozone enjoyed 0.7% quarterly growth every quarter in 2017. The ECB was able to outline an exit from its asset purchases. The debate began over sequencing and when the first rate hike could be delivered.

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FX Daily, February 28: Trump Walks Away from North Korea. Should Beijing Worry?

Overview:  News that the US-North Korean summit ended abruptly without an agreement spurred losses in equities and gains in the Swiss franc and Japanese yen. US President Trump willingness to walk away from the talks is important in and of itself, but it also sends a warning not to go all in on a US-China trade agreement that could also sour at the last minute.

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CNBC Clip: February 24 Brexit

We tried a CNBC hook-up in Asia via Skype on February 25.  I did not think there would be a clip, but I stumbled on it looking for something else.  Click here for the roughly 2.5-minute interview done from my apartment in NYC.  The discussion is on Brexit and sterling. 

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FX Weekly Preview: The Week Ahead

After a dismal end of 2018, investors are faring better through the first two- thirds of the Q1 19. Equity markets have recouped a good part of the late-2018 decline. Bond yields, however, have not returned to where they previously were. The tightening of financial conditions, which was both cause and effect of heightened anxiety among investors, and spooked some central bank have eased considerably.

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FX Daily, February 22: Markets Ending Week with A Whimper

Overview:  The global capital markets are winding down what appears to be an inconclusive week quietly and on a mixed note.  The MSCI Asia Pacific Index is poised to snap a four-day advance but held on to a nearly 2% gain for the week.  European bourses are mostly higher, and although the weekly advance of around 0.5% may not be that impressive, Dow Jones Stoxx 600 has only fallen in one of the first eight weeks of the year for a 9.5% year-to-date gain.  Benchmark yields are mostly one-two basis points lower, with Australia and Italy the notable exceptions.  The US dollar is confined to its well-worn ranges and is narrowly mixed.  The Australian dollar has pared yesterday’s losses amid efforts by officials to play down the disruption of coal exports to China.  Sterling

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Cool Video: Fox Business–Stocks and the US Consumer

Marc Chandler Fox Business TV

I joined Varney and Company on Fox Business TV earlier today. Varney had liked by bullish call on stocks from the end of last year, but seemed dismayed that I have turned cautious. I suggested that the S&P are approaching a key area a little above 2800 that has capped in Q4 18.

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FX Daily, February 20: US-China Trade and Brexit Dominate Ahead of FOMC Minutes

Overview:  The US dollar is narrowly mixed against the major currencies, but the strongest currency today is the Chinese yuan, following reports that US wants China to keep the yuan stable and not offset US tariffs with currency depreciation.  The second monthly decline in Japanese exports weighted on the yen.  In the UK, another Labour MP left, while there is speculation that a few Conservatives may defect today. 

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FX Daily, February 19: Investors Need Fresh Incentives

Overview: Activity in the global capital markets is subdued as investors await fresh developments. New wording for the Irish backstop apparently is being drafted. US-China trade talks resume. No decision has been made on US auto tariffs, but European and Japanese officials seem to be playing down the threat. 

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FX Daily, February 18: Dollar Drifts Lower

Overview:  In quiet turnover, the US dollar slipped lower against most of the major currencies to start the new week.  The news stream is light and the US markets are closed today.  The MSCI Asia Pacific Index was up five of the past six weeks and extended its gains today.  Nearly all the equity markets in the region rose but India.

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FX Weekly Preview: Drivers, While Marking Time

The main issues for investors have not changed. There are three dominant ones: Trade, growth, and Brexit. Unfortunately, there won’t be any closure in the week ahead, and that may make short-term participants reluctant to turn more aggressive.

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FX Daily, February 15: Equities Stall While Greenback Remains Firm

Overview:  The S&P 500 snapped a four-day advance yesterday, and equities in the Asia Pacific followed suit.  All the markets in the region were lower but in Australia.  MSCI’s regional benchmark stalled after reached a four-month high in the middle of the week.  European markets were mostly higher in the morning session after slipping yesterday. 

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Socialism, Keynesianism, and Fascism

The American political discourse has changed since the 2018 midterm election. Enthusiasm and passion were to be found on the left-wing of the Democratic Party. A new sense of hope and mission replaced the defeatism and cynicism seen in 2016. Some identified with democratic socialism, but in the political rhetoric the broad brush of “socialism” has been used to paint the entire party

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FX Daily, February 13: QT is not the Opposite of QE

silence

The Federal Reserve has long been clear on the sequence of events as it innovated the playbook during the Great Financial Crisis. There would be a considerable period between when the Fed would finish its credit easing operations that involved purchasing Treasuries and mortgage-backed securities (MBS) and its first-rate hike.

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FX Daily, February 12: Dollar Buying Pressure Subsides

The Dollar Index’s eight-day advance is in jeopardy. Although the greenback recorded new highs against some major currencies, the momentum appears to be stalling. The news stream is constructive as a compromise seems to have been reached to avoid another US government shutdown, and there is some optimism that the US and China will strike a deal even if not by March 1.

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FX Weekly Preview: Little Resolution in the Week Ahead

According to legend, the person who unraveled the Gordian Knot would rule the world. No one succeeded until Alexandar the Great took his mighty sword and sliced the knot in half. A young boy saw him afterward, crying on the steps of the Temple of Apollo. “Why are you crying?” the boy asked, “you just conquered the world. “Yes'” Alexander wept, ” now there is nothing else for me to do.”

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Cool Video: Noise or Signal?

From the second half of last week through the first half of this week, the S&P 500 rallied.  It surpassed our target of 2700 and made it to almost 2740, retracing more nearly 2/3 of the decline from the record high set last September. It stalled ahead of the 200-day moving average, which had previously offered support declines. 

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FX Daily, February 07: Dollar’s Gains Extended

The five-day advance of the S&P 500 stalled yesterday and global equities are mixed today. Most Asian centers remain closed, Japan and some small markets were lower, while Taiwan, Australia, and India moved higher. The seven-day rally in Europe’s Dow Jones Stoxx 600 is under threat today.

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FX Daily, February 06: Dollar Gains by Default

Overview: The rally in equities is threatening to pause today, even though the few markets open in Asia edged higher.  Europe’s Dow Jones Stoxx 600, which has advanced in eight of the past ten sessions and six in a row, is seeing some profit-taking pressures.  US shares are also trading heavier in Europe.  The S&P 500 has a five-day rally in tow but looks poised for some backing and filling action. 

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FX Daily, February 05: Greenback Remains Firm

Overview: The US dollar is little firmer against most of the major currencies.  Despite some disappointing data (retail sales, trade, PMI), the Australian dollar has recovered from initial losses below $0.7200 on the back of the central bank’s reluctance to adopt an easing bias.  A small upward revision in the eurozone’s flash service and composite PMIs help steady the euro after it neared $1.14.

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FX Daily, February 04: Subdued Start to Quiet Week

Overview: The Lunar New Year celebration made for a quiet Asian session while a light diary in Europe saw subdued turnover. Equity markets are narrowly mixed. Among the three large markets open in Asia Pacific, Australia and Japanese equities rose while India slipped. European bourses are little changed, putting the Dow Jones Stoxx 600 four-day advance at risk.

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Short Note on Jobs Report

The January employment report was mixed.  It is unlikely to have a material impact on expectations for Fed policy.  However, it does suggest the downside risks may not materialize. The US economy grew 304k jobs, well above expectation.  It is marred by a 70k net downward revision of the past two months, and notably a 90k cut in December’s estimate, which brings it to 222k (from 312k). 

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Two Brinkmanship Games and a Possible Third

Some historians give Adlai Stevenson credit for inventing the word “brinkmanship” as part of his criticism of US foreign policy under Dulles, who said that “if you are scared of going to the brink, you lost.” But surely we can agree that the tactic is as old as civilization. The idea is you take the issue to the very edge, risking a significant confrontation, to force a deal, is the way it may seem.

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FX Daily, February 01: Did the Fed Steal the Jobs Data Thunder?

Overview:  Weak manufacturing PMI readings are curbing risk appetites ahead of the US jobs report.  Growth concerns are top and center after dovish Fed and the Bundesbank’s Weidmann warning that Germany may undershoot 1.5% growth this year, though the ink is barely dry on the central bank’s forecast for 1.6% growth this year and next.

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FX Daily, January 31: Did Powell Toss in the Towel or was it a Tactical Retreat?

Overview: The Fed’s dovish tone and earnings news are the main drivers of the capital markets today, helping lift stocks, bonds, and currencies.  Large equity markets in Asia, including Japan, Hong Kong, China’s CSI 300, India, and Indonesia, all rose more than 1%, putting the MSCI Asia Pacific Index in a good position to extend its rally for a fourth consecutive week. 

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FX Daily, January 30: She Can’t Accept No

Overview: The UK Prime Minister has two weeks to strike a new deal with the EC over the Irish backstop or return to Parliament in mid-February to consider alternatives, six weeks before Brexit. Sterling has recovered about half of yesterday’s drop. The Australian dollar jump back to $0.7200 was aided by the nearly 10% jump in iron ore price after Vale announced a sharp reduction in output.

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FX Daily, January 29: Fragile Tone Persists

The positive impulse in the capital markets seen last week has faded. The gap higher opening ahead of the weekend by the S&P 500 was follow by a gap lower opening yesterday. The US threatened crackdown on Huawei disrupted equities in that sector, with as many as two dozen companies on the Shenzhen exchange that were limit down (10%).

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Cool Video: Bloomberg Clip US Growth in Relative Terms

Marc Chandler

With a jam-packed week for investors, and several high profile earnings reports, first look at Q4 GDP, the resumption of US-China trade talks, the FOMC meeting, and US jobs, it was a good time to be invited on the set of Bloomberg TV, with David Westin and Lisa Abramowicz. The clip here is with Matt Winkler, Editor-in-Chief Emeritus.

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FX Daily, January 28: Getting Ducks Lined Up for Later in the Week

Overview: The global capital markets are consolidating ahead of this week’s big events, which include the FOMC meeting, US jobs, an important Brexit vote in the UK parliament and the first look at Q4 EMU and US GDP. The US dollar is narrowly mixed. Equities are mostly lower. European benchmark 10-year yields have edged up, though the US 10-year yield is struggling to hold above 2.75%.

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FX Weekly Preview: Divergence Reinvigorated

Last week the focus was on Europe. Prospects of a delay in Brexit helped extend sterling’s gains to 11-week highs. Disappointing flash PMI for the eurozone and a dovish Draghi pushed the euro below $1.13 for the first time since mid-December.

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Summary of Fox Biz Talk

I had a brief talk on the set with of Fox Business with Varney & Co today, but there is no video available. We began by talking about stocks. For several weeks, I have been suggesting to viewers that the S&P 500 could recover to 2700. Last Friday, the S&P 500 gapped higher and reached 2675. I did not like the gap and thought it would be quickly filled.

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ECB Preview: Worries Increase but Not Quite Ready to Act

Draghi Conductor

The ECB meets Thursday, and it may be best conceived as a transition meeting. It will lay the rhetorical groundwork for two things: a likely downgrade to the staff’s growth forecasts and moving toward a new round of long-term loans (targeted long-term refinance operations).

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FX Daily, January 22: Dollar Consolidates and Equity Rally Stalls

The US dollar is firmer against most major and emerging market currencies. The yen is a notable exception, and it is firmer, but well within recent ranges. The dollar-bloc currencies and the Norwegian krona are the weakest of the majors as a setback in equities and oil reflects a diminished risk appetite.

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FX Daily, January 21: Chinese Data and UK Brexit Start New Week

Overview: Mixed data from China and the anticipation of Prime Minister May’s “Plan B” are the main talking points, while US stock and bond markets are closed today.  Asia Pacific equities were higher, while European markets have failed to follow suit.  Benchmark 10-year bond yields are mostly softer, with the on-the-run Japanese Government Bond yield dipping back into negative territory.

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FX Weekly Preview: Things to Watch in the Week Ahead

“The sky is falling. The sky is falling,” they cried, as equities plunged in December. It is signaling a recession, we were told. Instead, global equities have begun the year with a strong advance. The S&P 500 gapped higher ahead of the weekend, extending this year’s rally to about 14%.

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FX Daily, January 18: Markets Finishing Week on Positive Note

Sentiment has improved since the volatility last month spooked investors and, perhaps, some policymakers. Global equities are rallying. The Shanghai Composite and the Nikkei are at their best levels in almost a month, while the Dow Jones Stoxx 600 is at its best level since early December, gapping above a downtrend in place since late last September.

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The Death of a Business Cycle

How do business cycles end? In the US, conventional wisdom is that they are murdered by the Federal Reserve. It is too slow to raise rates and then goes too quickly. This view is espoused by numerous well-respected economists and policymakers. President Trump’s criticism of the Federal Reserve is anchored by such views.

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FX Daily, January 16: Markets are Eerily Calm

Overview: There is an eerie calm over in the capital market through the European morning today despite some ostensibly worrisome developments.  While many, like ourselves, expect UK Prime Minister May to survive a vote of confidence, it hardly clarifies the outlook. 

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Cool Video: Brexit–Now What?

Marc Chandler CNBC

I joined Wilf Frost, and Sara Eisen on the CNBC set at the NYSE shortly after the House of Commons delivered an unprecedented defeat to UK Prime Minister May. Catherine Mann (Citi) and Christopher Smart (Barings). The guests generally agreed that a delay in Brexit was likely.

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FX Daily, January 15: New Phase Begins with UK Vote

Several of the equity benchmarks are flirting with six-week highs, including MSCI Asia Pacific Index and the Emerging Markets Index. The Dow Jones Stoxx 600 is trying to extend its advancing streak for a third week, something not done since July.

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FX Daily, January 14: Dismal Chinese Trade Data Sets Tone

Overview:  China’s exports and imports were weaker than expected, though the trade surplus swelled to its widest in a couple of years. The implications have undermined equities and weighed on risk appetites more broadly. Nearly all the Asia-Pacific markets were lower except Japan and the Dow Jones Stoxx 60o in Europe is off 0.5% near midday to snap a four-day advance.

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FX Weekly Preview: Europe Moves to the Center Ring

In recent weeks, the macro story focused on the shifting outlook for Fed policy and the Sino-American trade relationship. There is unlikely to be further progress on either issue in the week ahead. The Fed won’t raise interest rates until toward the middle of the year at the earliest.

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Two Takeaways from ECB Record

The record of the ECB’s December meeting was released, and there are two takeaways. The first is that officials may have been more concerned with the deteriorating situation than they let on at the time. Apparently, paring near-term growth forecasts was seen as a sufficient signal that risks were increasing. This allowed Draghi to maintain the “broadly balanced” risk assessment.

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FX Daily, January 09: Equities Continue Recovery, Greenback Remains Heavy

Overview:  Global equities have extended the New Year rally. The MSCI Asia Pacific Index advanced for the fifth consecutive session and the 10th in the past 11.  The Dow Jones Stoxx 600 in Europe is rising for the second consecutive session, something it has managed to do only one other time in the past month.  The S&P 500 is off to one of its best starts in years. 

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Keep Fitch’s Warning in Perspective

meh

The global head of Fitch’s sovereign ratings warned that the continued US government shutdown could jeopardize the AAA-status the rating agency grants America. It spurred little market reaction (and for good reason).

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FX Daily, January 8: Dollar Steadies, but Weakly for Turn-Around Tuesday

Overview: The global capital markets remain calm after the surge in volatility seen over the last couple of weeks. Asian equities were mixed, with the Japanese, Australia and Indian shares gaining, but other large regional markets, like China, South Korea, and Taiwan fell. European equities are firmer. Benchmark bond have edged higher. 

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FX Daily, January 07: Recovery Falters in Europe

Overview:  The combination of robust US jobs and wage growth, more comforting words from Powell and a strong rally US stocks before the weekend helped lift Asian markets today and underpinned risk-taking appetites.  However, renewed protests in France (and Hungary) coupled with weak German factory orders have prevented European bourses from fully participating in the equity recovery. 

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FX Weekly Preview: For the Millionth Time, Markets Exaggerate

The S&P 500 fell more than 12% in a few weeks. The 10-year Treasury yield fell nearly 40 bp. There were cries that the sky was falling. A recession is imminent, we are warned by prognosticators. The Fed went ahead and raised interest rates on March 21, 2018, and the S&P 500 proceeded to gap lower the next day and continued to sell-off the following day. Investors did not like the unanimous decision.

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Apple, China, Yen, and US Jobs: Welcome to 2019

The New Year is off to an auspicious start.  The Japanese yen, the third most actively traded currency behind the dollar and euro, got caught in a vortex of a retail short squeeze, algos, and who knows what else.  The US dollar plunged from around JPY109 to a slightly below JPY105 in a few minutes a little more than an hour after US markets closed yesterday.  

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A Word on Q3 COFER-It Might not be What You Think

Foreign Exchange Reserves by Currency, Q1 2016 - Q3 2018

The IMF offers the most authoritative report on central bank reserves on a quarterly basis with a quarter lag.  The report, the Currency Composition of Official Foreign Exchange Reserves (COFER), covering Q318 has been released.  It may be have been overlooked during the holidays, but if and when the pundits see it, the leading takeaway is that the dollar’s share of global reserves fell below 62% for the first time five years.

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Technical Musings about the Euro and Dollar Anchored by Macro

Tunafish

The $1.1475-$1.1550 is an important area for the euro.  Many bulls see a rounded bottom being carved and a break above it would be embraced as a confirmation. The lower-end corresponds to the 100-day moving average. Such a bottom pattern, if confirmed, would project toward $1.1800 the high in H2 18. On the downside, the low from H2 18 was near $1.1200.  This is just above a key (61.8%) retracement of the January 2017-February 2018 rally. 

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Week Winding Down on Firm Note, but Wild Ride may Not Be Over

The biggest reversal in the S&P 500 since 2010, allowing it to string the biggest two-day rally in three years helped lift Asian and European shares today. All the Asia-Pacific equity markets advanced today but Japan, where the strength of the yen saw the Nikkei and Topix buck the move. European equities.

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Some Thoughts on What is Happening

Elephant

People do not just disagree on what should and will happen, but they disagree on what has happened. As William Faulkner instructed: “The past is not dead. Actually, it’s not even past. This is clear in the narratives about the sharp drop in equity markets.

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Forex Forensics: The Case of the Yen

Over the past five sessions, the yen is the strongest of the major currencies, appreciating about 1.7% against the US dollar, eclipsing the Swedish krona, which rallied strongly today after the Riksbank’s surprise rate hike.  Given the sell-off in equities and the decline in markets, the yen’s strength is not surprising. 

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FX Daily, December 21: Markets Stumble into the Weekend

Overview: There is little reprieve from the equity meltdown ahead of the weekend. Major markets in the Asia-Pacific region, including Japan, China, India, and Australia pushed lower. The MSCI index of the region is near 15-month lows. The Dow Jones Stoxx 600 is off about 0.6% near midday in London to make new two-year lows. US shares are also trading lower in Europe.

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FX Daily, December 18: Stock Rout Deepens, Casts Shadow over Holiday Spirit

Overview: The 2% slide in the S&P 500 to new lows for the year yesterday hit Asian and European equities today. Bond yields are lower, and the dollar is softer against most major currencies. The dramatic equity losses and some disappointing data sparked doubts about the ability of the Fed to raise rates tomorrow at the conclusion of its last meeting of the year.

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FX Daily, December 17: Markets Quiet to Start Fed Week

Activity in the global capital markets is subdued as investors move to the sidelines as the year-end approaches. The Federal Reserve headlines the holiday week that also features a Bank of England a Bank of Japan meeting. Only the Fed is expected to change rates.

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FX Weekly Preview: FOMC Dominates Week Ahead Calendar

The last FOMC meeting of 2018 is at hand. After hiking rates three times in 2017, the Fed signaled that four hikes were likely this year and with a widely expected move on December 20, it would have fully delivered, though many steps along the way, skeptical investors had to be led by the nose, as it were, to minimize the element of surprise.

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FX Daily, December 14: Week Closing on a Disappointing Note

Overview:  A string of disappointing economic is spurring risk-off sentiment today.  Global shares prices are being punished and core bonds are being snapped up.  The US dollar is trading higher against most major and emerging market currencies.  The MSCI Asia Pacific Index was flat on the week coming into today’s session.

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FX Daily, December 13: May Survives but its Draghi’s Day

Overview: There is a sense of optimism among investors today that may be tested as the session progresses. News that China may reconsider its “Made in China 2025” initiative as an apparent concession to the US while reports suggest it has bought 1.5-2.0 mln tons of soy is easing trade tension fears. 

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FX Daily, December 11: Fragile Calm Threatens to Break Out

Indications that US and Chinese trade talks are proceeding, coupled with a dramatic reversal in the S&P 500 yesterday is helping stabilize the capital markets today. Asian equities were mixed, but the Greater China (China, Hong Kong, and Taiwan markets) alongside India and Australia posted modest gains.

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Cool Video: Bloomberg Economic Discussion

Marc Chandler and Chris Wolfe on set of Bloomberg's Daybreak

I joined Chris Wolfe from First Republic Wealth Management on the set of Bloomberg’s Daybreak to discuss market developments and the outlook for the US economy. We generally agreed that while the economy is slowing it is doing so from unsustainably strong levels.

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FX Daily, December 10: Lack of Closure Weighs on Sentiment

Investors angst over trade tensions and Brexit continue remains elevated, and poor Chinese and Japanese economic news played on global growth fears. Equities continue to slog lower. Bond yields are little changed, and the dollar is lower against most of the major currencies.

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FX Weekly Preview: The Week Ahead: Don’t Skip Steps on Escalation Ladders

The drop in US yields and disappointing economic data weighed on sentiment and the dollar last week. Even weakness in equities, which had seemed to lend the greenback support, failed to do so at the end of last week. With the real Fed funds rate (adjusted for inflation) below zero, employment at 50-year lows, and some fiscal stimulus still in the pipeline, the doom and gloom cant of a recession next year seems misplaced.

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FX Daily, December 06: New Spanner in US-China Relations Weighs on Risk Appetites

Overview: The global capital markets were fragile amid trade uncertainty and economic slowdown fears. News that Canada arrested the CFO of Huawei on behalf of the US, ostensibly for violating the embargo against Iran triggered an almost immediate risk-off wave that has extended the equity markets losses, sending core bond yields lower, with the US 10-year slipping below 2.9%, and underpinning the dollar against most currencies, with the notable exception of the Japanese yen and Swiss franc.

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The Dollar and Its Rivals

I was in graduate school, studying American foreign policy when I stumbled on Riccardo Parboni’s “The Dollar and Its Rivals.” This thin volume showed how the foreign exchange market was the arena in which capitalist rivalries were expressed. More than any single book, it set me on a more than 30-year path.

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Great Graphic: The Dollar Index Climbs a Wall of Worry

To be sure, the Dollar Index is not the dollar. It is not even a trade-weighted measure of the dollar. Two of America’s largest trading partners, China and Mexico, are not represented. It is heavily weighted to the euro and currencies that move in its orbit, like the Swiss franc Swedish krona, and arguably the British pound.

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FX Daily, December 03: G20 Fan Animal Spirits

The US and China kept their trade guns cocked at each other but offered the last opportunity for a negotiated settlement before escalation. What is billed as a 90-day freeze on tariff increases is really only 60 days beyond January 1 when Trump had threatened to increase the 10% tariff on $200 bln of Chinese goods to 25%.

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FX Weekly Preview: Dramatic Week Ends with Whimper?

There is an eerie calm in the capital markets today as the G20 meeting gets underway. There is much uncertainty, and the event calendar is chock full next week, with the Brexit debate getting underway in the UK Parliament, the CDU picks a new leader to replace Merkel, possible partial US government closure, Powell’s testimony before Congress, OPEC+ meeting, and US employment data.

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Cool Video: Santa Claus Rally and Trade

Marc Chandler in Fox Business

I was on Fox Business today. Stuart Varney introduced me by asking me about my forecast for a Santa Claus rally–a year-end recovery in equities. From a technical perspective, I liked the fact that the S&P 500 successfully retested last month’s lows last week. I liked that the price action made last Friday’s price action into an island bottom, with a gap lower opening followed by Monday’s gap higher opening.

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Great Graphic: Weekly Jobless Claims and the S&P 500

S&P and Weekly Jobless Claims

The softer than expected PCE deflator today plays into the dovish market mood. There may be little that can resist it until next Friday’s employment data, which should be another robust report with hourly earnings holding above 3% year-over-year.  Last November, average hourly earnings rose by 0.3%. As this drops out of the year-over-year comparison, even a healthy bounce back from the 0.2% drop skewed by the hurricane will be needed just to hold the rate at 3.1%.

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FX Daily, November 29: Reluctant to Extend Dollar Losses

Overview: The biggest US equity advance since Q1 has helped lift global markets today. The MSCI Asia Pacific Index rose for the fourth session, and nearly all the bourses in the region rallied with the notable exception of China and Hong Kong. Almost all the sectors in Europe are rallying but energy and real estate. US oil inventories rose three times more than expected and Putin expressed little support for fresh output cuts.

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FX Daily, November 28: Powell Awaited

Overview:  Global capital markets are relatively calm as investors gird for drama.  The Bank of England reports its assessment of the impact of Brexit and the stress tests a little before Fed Chair Powell speaks at midday in NY.  The G20 meeting begins Friday, and several bilateral meetings are taking the spotlight from the larger gathering. 

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FX Daily, November 27: Market Shrugs Off Latest US Tariff Provocation

The global capital markets have taken the US latest tariff threats in stride.  Most of the Asian equity markets advanced, including Japan, Korea, Taiwan, India, and Australia. China and Hong Kong were exceptions with marginal losses. European markets are trying to extend their recovery for a third session, but the industry performance is mixed with energy and materials lower, and utilities, consumer staples, and information technology/communication advancing. 

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Near-term Outlook

There are three key scheduled events between now and the end of the year.  In chronological order, this weekend G20 meeting is first.  It will shape expectations for trade tensions between the US and China, with extensive secondary impact. Saudi Arabia and Russia’s meeting may help shape expectations for the price of oil, which has collapsed here in Q4 18.

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FX Weekly Preview: Powell and Draghi, Xi and Trump

The investment climate will be shaped by three events next week.  ECB President Draghi’s testimony before the European Parliament to kick-off the week.  Fed Chairman Powell speaks to the NY Economic Club in the middle of the week.  Presidents Trump and Xi are to meet at the G20 meeting to end the week in hopes of dialing back the escalating trade conflict.  Also at the G20 summit, the NAFTA2.0 is expected to be signed, and the steel and aluminum tariffs on Canada and Mexico may be modified (turned into quotas?) shortly.

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FX Daily, November 23: Friday

The US dollar is firmer against most of the major currencies. Japanese and Indian markets were closed for holidays and a weaker than expected flash EMU PMI helped keep the euro pinned near this week’s lows. Although the EU seemed to thrown UK’s embattled May a lifeline with some compromise wording in a draft declaration, the challenge remains the same–Parliament’s approval.

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Cool Video: CNBC Squawk Box

I was part of the “Trading Block” on CNBC earlier today. The sharp fall in stocks and oil would have led many, like Joe, to anticipate dollar weakness. Instead, the dollar rallied. Perhaps, I suggested, the dollar was acting like a safe haven. Bill yields are high enough to make cash a reasonable alternative to park one’s savings.

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FX Daily, November 21: A Semblance of Stability Returns

Yesterday’s frenzy has burnt itself out for the moment. Equities began recovering in Asia after early losses. China, including Hong Kong, Singapore, and Thailand closed higher and European markets are recouping some of yesterday’s decline. The Dow Jones Stoxx is trying to snap a five-day decline and is up a little more than 0.5% near midday.

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FX Daily, November 20: Equity Slide Continues

Yesterday’s 3% drop in the NASDAQ is setting the tone for today. The US stock market advance had been led by a narrow group of equities, and those have come under strong pressure amid slower consumer demand and stricter export control. Asian equities were a sea of red today. Chinese markets led the sell-off with more than a 2% drop. In Europe, the Dow Jones Stoxx 600 is for a fifth session. 

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Cheat Sheet

biking

The market always has taken the Fed’s forecast for three rate hikes next year with a large dose of skepticism. The fed funds futures strip implies growing expectations that the Fed pauses after a hike in December and Q1 19. It is still unclear the direction of fiscal policy next year. It may be difficult for the Democrats to oppose making middle-class tax cuts permanent and an infrastructure initiative cannot be ruled out.

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FX Weekly Preview: Unfinished Business

Often, and apparently wrongly attributed to Mark Twain is the observation that it is not what we know that gets into trouble, but “what we know that just ain’t so.” Now though, investors suffer from a different problem. Several processes are in motion, and there is little confidence in their outcomes. Among these are Brexit, US-China trade, the trajectory of Fed policy, and the EC’s efforts to enforce the agreed-upon budget rules.

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FX Daily, November 16: Turning Brexit into a Dog’s Breakfast

Overview: It is the height of irony or tragedy that what was offered as a non-binding referendum on UK’s membership in the European Union to bring the country, or at least the Tory Party, together is the most destabilizing event since the UK unceremoniously quit the European Exchange Rate Mechanism more than a quarter of a century ago. 

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FX Daily, November 15: UK Political Drama Roils Sterling

Overview: The resignation of the UK’s Brexit negotiator after Prime Minister May had secured support from a majority of the cabinet sent sterling sharply lower.  Raab’s resignation underscores the difficulty the Brexit agreement faces in the UK Parliament.  Sterling was hammered nearly 2.5 cents on the news and trade below $1.28.

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FX Daily, November 14: Dollar Comes Back After Yesterday’s Profit-Taking

Overview:  Investors are on pins and needles today.  Oil prices are trying to stabilize after WTI’s outsized 7% fall yesterday, its largest in three years.  Global equities are heavier, dragged down by energy, but also larger than expected Q3 contractions in Japan and Germany, and a mixed bag of Chinese data that showed possible stabilization of the industrial sector though weaker consumption. 

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Cool Video: Euro Pressured Lower

As a long-term dollar bull, I was happy to accept Bloomberg TV’s invite to come to the set on the day that the Dollar Index made new highs for the year and the euro punched through the $1.1300 support that has held since mid-August.  

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FX Daily, November 13: Weak Turn-Around Tuesday

Overview:  The US dollar has a heavier bias against most of the major and emerging markets currencies, but the pullback is shallow, and the greenback’s underlying strength is still evident.  Asian equities were mixed.  Concern that Apple may be reducing orders weighed on suppliers, but news that China and US trade talks are resuming boosted sentiment, allowing Chinese stocks to recover helped lift the Australian and New Zealand dollars.

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Cool Video: Fox Biz TV Broad Economic Discussion

I joined Charles Payne on Fox Business TV for a broad economic discussion today.  Payne, like many, are concerned that the Fed continues to tighten and worries this is going to end the business cycle.  He also argued that the strong dollar was a significant threat of US multinational earnings.

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FX Daily, November 12: Sterling’s Losses Lead Dollar Rally

Overview: The US dollar is enjoying broad gains against most major and emerging market currencies. Sterling, dragged down by Brexit concerns, is leading the way. With today’s losses, sterling has shed nearly 3.7 cents over the last four sessions. The euro, for its part, is at a new 17-month low (~$1.1250). 

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FX Weekly Preview: DOTS in the Week Ahead: Divergence, Oil, Trade and Stocks

The Federal Reserve’s confidence in the economy and its need to continue to gradually increase interest rates stands in sharp contrast to most of the other major central banks. The European Central Bank will finish its asset purchases at the end of the year, but it is in no position to begin to normalize interest rates. Indeed, the risk is that it may feel compelled to off another Targeted Long-Term Repo, which would, in effect, allow the borrowers to extend the maturities of existing funds.

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Fed Sticks To Script, Enjoys the Sweet Spot

The Federal Reserve kept policy on hold, and its sparse statement gave little clue as to what it makes of the pressures in the money markets or the weakness in the housing market.  The effective Fed funds rate is bumping against the cap provided by the interest rate on reserves.  Some repo rates, like SOFR (the intended replacement for LIBOR), have on occasion poked above what should be the ceiling.

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FX Daily, November 09: Greenback Stabilizes at Higher Levels

The US dollar’s gains scored in the wake of the Fed’s signal that will continue on course to gradually hike rates have been extended. Most emerging market currencies are lower as well.  Equity markets are heavy.  Bond yields in Europe and US are a little lower, with the exception of Italian bonds. 

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FX Daily, November 07: Equities and Bonds Jump While the Dollar Slumps

The dollar has fallen against nearly every currency. It had been moving lower at the start of the week, but what seems like a correction broadened and deepened following the US midterm election. The outcome was largely in line with expectations for the Republicans to hold the Senate and the Democrats to take a majority of the House for the first time since 2010.

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Euro and Yen Outlook

Broadly speaking, the risk is that the dollar’s cyclical advance is not complete. The drivers will likely remain in place through at least the middle of next year. Additional gradual interest rate hikes by the Federal Reserve and a favorable policy mix underpin the dollar.

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FX Daily, November 6: US Goes to the Polls

Overview: The US dollar is narrowly mixed against the major currencies today, largely consolidating its recent losses. Equities are mixed.  In Asia, Japan, Australia, and Hong Kong equities gained around 1%, while most other bourses were softer.  In Europe, the Dow Jones Stoxx 600 is little changed in late morning turnover.

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Talking Turkey

Turkey’s economic challenges arise from the imbalances created during the economic boom that saw poverty halved between 2002 and 2011, extensive urbanization, and integration in the world economy through trade and capital flows. The dramatic economic changes saw the rise of Erdogan, who was re-elected as President for a second term in June. His party (AKP) is joined by the Nationalists (MHP).

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FX Weekly Preview: Stocks, Trade, and the Fed in the Week Ahead

Last month’s downdraft in equities spooked investors. The fear that is often expressed is that the end of the business cycle may coincide with the end of a credit cycle and a return to 2008-2009 crisis. It seems like an increasing number of economists agree with the sentiment expressed by President Trump that the Fed is too aggressive.

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FX Daily, November 01: Dollar Slumps to Start New Month

Overview: It appears that month-end considerations deterred the dollar selling that the technical indicators warned was coming and as the new month starts, the dollar is offered. It is weaker against all the major currencies and most of the emerging market currencies.

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Cheat Sheet

Jobs data ahead of the weekend should recover after a storm depressed the September jobs growth. The base effect will allow earnings to show a strong year-over-year gain. The FOMC meets next week. A 25 bp rate hike in December remains the most likely scenario despite the heightened volatility in the stock market.

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FX Daily, October 31: No Fright on This Halloween

After sliding hard this month, equities continue to stabilize into month-end. All of the equity markets in Asia-Pacific rallied with the help of a solid close in the US. European bourses are higher too as the Dow Jones Stoxx 600 tries to extend the recovery for a third consecutive session, led by energy, materials, and information technology.

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FX Daily, October 30: Another Attempt to Put a Bottom in Stocks

Overview: First, reports suggested that if China refused to make any trade concessions, the Trump-Xi meeting on the sidelines of the G20 meeting next month would not take the issue up.  Fair enough.  Then, new reports indicated that the White was prepared to take additional trade measures if there was no agreement between Trump and Xi. 

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FX Daily, October 29: Market Awaits US Leadership

The Dollar index is trading within last Friday’s trading ranges. The year’s high, set on August 15, was just shy of 97.00. The euro continues to straddle the $1.14 level but is spending more time in Europe below there. There is a 1.5 bln euro option expiring today at $1.1350 and an almost 600 mln euro option at $1.1400 that will be cut.

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FX Weekly Preview: Thumbnail Sketch of Six Things to Monitor This Week

Global equities have sold off hard. The magnitude of the recent loss is similar to what happened earlier this year. The MSCI World Index of developed countries fell 10.5% in January-February carnage and are now off about 11% this month. The MSCI Emerging Markets Index has matched the 11% loss back at the start of the year, but never truly recovering in between.

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FX Daily, October 25: ECB Overshadowed by Equity Market Drama

The Dollar Index broke above 96.00 yesterday and is consolidating today. Provided the 96.00 area holds, the next target is the year’s high near 97.00. The euro has been confined to a little more than a quarter of a cent. Players seem reluctant to sell it below $1.14 and note there is a 570 mln euro option at $1.1420 that expires today.

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FX Daily, October 24: Disappointing Flash PMI Weighs on Euro

The US dollar is firmer against the major currencies and most emerging market currencies.  While the seemingly fragile equity markets are still the center of investors’ attention, the weakness of the eurozone flash PMI is disconcerting and has sent the euro closer to $1.14.  China’s officials continue to unveil initiatives to minimize the disruption of the equity and debt markets while seemingly adding to moral hazard risks. 

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Europe Challenged

Europe is in an untenable position. It is being challenged on many fronts. A weaker euro need not result, but it is the path of least resistance. The economy has lost its momentum. What was first written off as a soft patch, now looks a bit more serious.

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FX Daily, October 23: Stock Slump Pushes Yields Lower and Buoys Yen

There is one main story today, and that is the resumption of the slide in equities. It is having a ripple effect through the capital markets. Bond yields are tumbling. Gold is firm. The dollar is narrowly mixed, though the yen stands out with almost a 0.5% gain. Most of the large equity markets in Asia, including Japan, China, Hong Kong, Korea, and Taiwan were off mostly 2%-3%.

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Cool Video: Bloomberg Discussion of Late US Cycle

An assessment of the US economy is an important input into the expectations of the dollar’s behavior in the foreign exchange market. As a currency strategist, my views of the US economy are often subsumed in discussions or talked about indirectly by talking about Fed policy.  However, in this clip with Alix Steel and David Westin, I have an opportunity to sketch outlook for the US economy.

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FX Daily, October 22: Collective Sigh of Relief?

After a slow start in Asia, the US dollar has turned better bid. The euro recovered from $1.1430 before the weekend to $1.1550 today, where an option for almost 525 mln euros expires today. There is another option (1.6 bln euros) at $1.1500 that also expires today.

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FX Weekly Preview: What Can Bite You This Week?

Several major central banks will meet next week, including the European Central Bank, but it is only the Bank of Canada that is expected to hike rates. The flash PMIs and the first official estimate of Q3 US GDP are among the data highlights. Beyond the events and data, the volatility from global equity markets from Shanghai to New York will continue to have a strong influence on other capital markets.

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FX Daily, October 18: China’s Angst Stays Local

Asian equities were lower, led by a nearly 3% drop in Shanghai, while European shares shrugged it off and the Dow Jones Stoxx 600 is up about 0.4% in late morning turnover. The S&P 500 is off by about 0.25%. Global bond yields were dragged higher by US Treasuries where the 10-year yield is straddling 3.20% after rising four basis points yesterday.

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Brexit: Five FAQs

Brexit

The UK voted in s referendum to leave the EU in June 2016. It will happen at the end of March 2019. What is the status of the negotiations? It had been hoped that the two sides would be close enough to allow a special summit to be called next month to finalize an agreement.

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Great Graphic: What is Happening to Global Equities?

The decline in the global equity market is the most serious since the February and March spill. In this Great Graphic, the white line is the S&P 500. With the setback, it is up a little more than 8% for the year. It managed to recover fully from the sell-off earlier in the year.

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FX Daily, October 16: Semblance of Stability Returns

Overview:  Although the S&P 500 was unable to sustain early gains yesterday, the largely consolidative session was part of the stabilization of equities after last week’s jump in volatility.  Asia and European stocks are also cautiously steadying.  Most Asia equity markets advanced with the Nikkei’s 1.25% advance most bourses higher.  China was a notable exception, The Shanghai Composite recorded new lows for the year and finished uninspiringly on its lows.  Europe equities are mostly firmer, led by Italy and Spain.

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Macro Cheat Sheet

Fred

The dollar’s recovery ahead of the weekend was aided by the stabilization of the stock market, where the S&P 500 managed to close back above the psychologically important 200-day moving average.
Interpolating from prices, the market does not expect the President’s criticism to alter the Fed’s course.

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FX Daily, October 15: Monday Blues

Despite the pre-weekend gains that lifted the S&P 500 above its 200-day moving average, global equities are moving lower today. The main news over the weekend included the US renewing its threat to impose more tariffs on China and Saudi Arabia threatening retaliation for any sanctions relating to the disappearance of the journalist Khashoggi, and the lack of a breakthrough in UK-EU negotiations.

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FX Weekly Preview: Forces of Movement

There are three broad forces of movement in the week ahead: the equity market performance, political developments, and economic data. It was a tumultuous week for equities, and there was not clear or obvious trigger.  With US bond yields and equities trending higher this year, there does not seem to a reason why it ended last week. 

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FX Daily, October 12: Market Fever is Burning Itself Out Ahead of the Weekend

 Equity markets are stabilizing today as Asian and European markets shrug off the failure to get traction in the US yesterday.   As everything and nothing was behind the dramatic sell-off in recent days, the same could be said about today’s recovery.  Most accounts seem to be emphasizing two developments:  a report indicating that despite the talk earlier in the week, there is a recognition by the US Treasury staff that China’s actions do not reach the threshold of manipulation, and signs that the US tariffs were not having much impact on Chinese trade through last month.

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Macro Cheat Sheet

clouods

Rising US rates in absolute terms and relative to other countries, coupled with the policy-mix and US tax reform are the main drivers. The market has nearly completely discounted three more Fed hikes by the end of next year, while the Fed has signaled that four hikes may be appropriate.

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FX Daily, October 10: US Dollar Pullback may Continue in North America

The euro bottomed yesterday near $1.1430 and reached $1.1515 in Asia. Support is seen near $1.1480 and should hold if the euro’s upside correction is to continue. There are options struck $1.1500-$1.1510 for nearly 1.4 bln euros that expire today. For the third consecutive session, the dollar found bids a little below JPY113.00. There is a $1 bln JPY113 option that will be cut today.

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FX Daily, October 09: A (Short) Reprieve For China while the Dollar Stays Firm

The small gains in China’s Shanghai Composite and the yuan is helping sentiment today. News that Italy’s budget watchdog may reject the government’s fiscal plans has helped stabilize Italian assets initially, but renewed pressure quickly materialized. Most Asian equities retreated while Europe’s Dow Jones Stoxx 600 is struggling to snap a three-day slide. US shares are trading heavily in Europe.

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Cool Video: Clip from CNBC Squawk Box

Marc Chandler

The combination of divergence and the US policy mix is underpinning the dollar and I was invited to share my views on CNBC’s Squawk Box earlier today. It dovetailed nicely Matthew Diczok (from Merrill Lynch) views on Fed policy and US interest rates.

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FX Daily, October 08: China and European Woes Weigh on Equities but Buoy the Dollar

Overview:  The markets are having a rough adjustment to the return of the Chinese markets are the week-long holiday.  The cut in the required reserves failed to lift investor sentiment.  The Shanghai and Shenzhen Composites fell almost 4%, and the yuan slid nearly 0.8%.  It is an unusually large decline for the closely managed currency.  The offshore yuan fell by a little more than 0.5%. 

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Great Graphic: The Dollar’s Role

Currency's Share of the Category in the International Monetary System Q4 2017

This Great Graphic comes from Peter Coy and team’s article in Business Week. It succinctly shows three metrics for the internationalization of domestic currencies: global payments, international bonds, and foreign exchange reserves. It does not strike me as surprising, and the role of the euro as a payments currency reflects its role in intra-European trade.

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Cool Video: Bloomberg Clip from Discussion on Emerging Markets

In my first television appearance since joining Bannockburn Global Forex, I joined Tom Keene and Francine Lacqua on the Bloomberg set. In this nearly 2.5 min clip, we talk about the Indonesia rupiah and the dollar’s move above the IDR15000 level for the first time since the 1997-1998 Asian financial crisis.

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FX Daily, October 02: Greenback Advances

The US dollar is rising against most of the major and emerging market currencies. The Swiss franc and the Japanese yen are the exceptions and are holding their own. Global equities are mixed. Asia, excluding Japan, was mostly lower, with 1.2% losses in Taiwan and South Korea and 2.5% drop in Hong Kong and in the H-shares that trade there.

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A Word About the Q2 COFER Report

US Dollars in Billions, Q2 2017 - Q2 2018

The IMF reports the most authoritative currency allocation of global reserves at the end of every quarter with a quarter delay. Invariably, an economist, strategist, or journalist is inspired to write why some data nugget confirms the demise of the dollar as the dominant currency.

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Fed Delivers, Market Yawns

The Federal Reserve did what it was widely to do. The fed funds target range was lifted 25 bp to 2.00-2.25%. Three-quarters of Fed officials anticipate a hike in December. The market had discounted around an 80% chance. The Fed sticks with the three rate hikes in 2019 and one in 2020. The year-end rate in 2021 is the same as in 2020.

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FX Daily, September 28: Dollar Remains Firm While Italy is Punished

The US dollar’s post-Fed gains have been extended, though the upside momentum appears to be stalling. Japan’s Nikkei advanced 1.35% on the back of the yen’s declines and reached its highest level since 1991. Chinese shares (A and H) rallied amid reports that MSCI and FTSE-Russell are boosting Chinese shares in their benchmarks.

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FX Daily, September 26: The Dollar Index has Fallen Four of the Five Times the FOMC met this Year

The US dollar is trading with a softer bias in tight ranges. The euro and sterling have been confined to yesterday’s ranges, while the greenback briefly traded above JPY113.00 for the first time in two months. The South African rand and Turkish lira are leading the most emerging market currencies higher. Asian equities moved higher, led by Hong Kong, which returned from yesterday’s holiday.

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FX Daily, September 25: Greenback Remains at the Fulcrum

The major currencies are mixed in quiet turnover. Most of the European currencies are firmer, while the dollar-bloc currencies, yen and Swiss franc are softer. Emerging market currencies are steady to higher, though there are a few exceptions in Asia, where the Indonesian rupiah and the Chinese yuan are off about 0.3%, while the Indian rupee and Malaysian ringgit are around 0.2% lower.

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FX Weekly Preview: Next Week’s Drivers

It is a testament to the Federal Reserves communication and the evolution of investors’ understanding that we can say that the rate hike that the central bank will deliver is not as important as what it says. A rate hike is a foregone conclusion. According to the CME’s model, there is about an 85% chance of December hike discounted as well.

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Portfolio Re-Balancing and the Dollar

Boosted by tax reform, deregulation, and strong earnings growth, US equities have motored ahead, leaving other benchmarks far behind. As the Great Graphic here shows, most of the other benchmarks are lower on the year. The S&P 500 (yellow line) is up 8.8% for the year before the new record highs seeing seen now, while the Dow Jones Stoxx 600 from Europe (purple line) is still off 1.7%.

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FX Daily, September 20: The Mixed Performance Makes it Difficult to Talk about The Dollar

Sometimes the dollar is the key mover, but sometimes, like today, it seems to be the fulcrum, reflecting disparate moves among other currencies.  While the euro is at two-month highs, the yen is near two-month lows.   The euro is bouncing off two-month lows and the 100-day moving average against sterling.   Most emerging market currencies are advancing against the dollar today. 

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FX Daily, September 19: Dollar Trades Heavily as Emerging Markets Follow China

One would not have a clue looking at global equities that there has been a sharp escalation in trade tensions in the past 36 hours. As was well tipped the US imposed a 10% tariff on $200 bln of Chinese goods and indicated that the tariff will rise to 25% at the start of next year. President Trump also threatened to quickly follow up with another tariff on $267 bln of Chinese goods it retaliated.

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Dollar Slips, though Emerging Markets Trade Heavily

The US dollar is beginning the new week on a soft note, as China threatens not to accept the invitation for trade talks in Washington if the US imposes new tariffs on $200 bln of its goods, which the Wall Street Journal reports could come as early as today. Meanwhile, the MSCI Emerging Markets Index is giving back half of the 2.5% rally seen in the second half of last week.

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FX Weekly Preview: Dollar Pullbacks Remain Shallow as Rate Differentials Widen

The trajectory of monetary policy in the US and Europe has been fairly clear. There is practically no doubt that the Fed will hike rates on September 26. Despite softer than expected PPI and CPI figures, the market has become more confident of another move in December. The Federal Reserve’s balance sheet unwind reaches its maximum velocity of $50 bln a month in Q4.

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FX Daily, September 14: Dollar Losses Extended

The US dollar remains on the defensive after retreating yesterday.  Its losses against the most of the major and emerging market currencies are being extended today.  The combination of softer US inflation coupled with a less dovish than expected ECB, a Bank of England lifting growth forecasts, while warning that a Brexit without an agreement could spur higher mortgage rates, and a more aggressive rate hike by Turkey conspired to force the dollar lower. 

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FX Daily, September 13: Vulnerable To Disappointment

There is an eerie calm in the markets ahead of the highlight for the day and week. The central banks of the eurozone, UK, and Turkey hold policy meetings, and the US reports August CPI. The greenback is a mostly firmer, with the Australian dollar as the notable exception. On the one hand, we would note that is it higher for the fourth consecutive sessions, after finding some support near $0.7100 earlier in the week. 

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FX Daily, September 12: Dollar Chops in Narrow Ranges

Eurostat confirmed that EMU industrial output fell for a second consecutive month in July. The 0.8% decline was larger than expected and is the third decline of such a magnitude in four months and weighed on the euro. German and Spanish industrial output had surprised on the downside last week, and Italy matched suit today with a report showing a 1.8% contraction, much larger than expected, and bringing the year-over-year rate to -1.3% (workday adjusted).

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Great Graphic: Did the CRB Bottom?

The CRB index has been trending lower since late May. It fell nearly 10% to retrace 50% of the rally come June 2017. This Great Graphic shows the 4 1/2 month trendline. It had been violated in late August but fell back under it at the end of last week.  

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FX Daily, September 11: Dollar May Prove Resilient if it is Turn Around Tuesday

The euro and sterling extended their recovery from the US hourly earnings lows seen before the weekend. However, the move stalled in the European morning, after the UK reported better than expected earnings itself. Sterling approached the 61.8% retracement of the decline from the July high (~$1.3365) found just below $1.31. It has been correcting higher since reaching almost $1.2660 on August 15.

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Cool Video: What Earth Really Looks Like

Here is the challenge:  Representing a three-dimensional object in two-dimensions.  It is impossible to do without distortions.  Those distortions can reflect cultural biases as well as the function of the map, such as for navigation purposes.  

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FX Daily, September 10: Initial Extension of Euro and Sterling Losses Stall

The US dollar’s pre-weekend gains were extended against most the major currencies, but the euro, sterling, and Australian dollar have recovered in the European morning.  Emerging markets currencies are mixed. The Indian rupee is the weakest(of the emerging market currencies (~-0.8%) following the widening of the Q2 current account deficit at the end of last week and ahead of the August trade deficit which is expected to show the impact of rising oil prices and the past currency depreciation. 

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Great Graphic: Is that a Head and Shoulders Bottom in the Euro?

EUR Curncy, 6 month chart

The euro recorded the low for the year so far on August 15 near $1.13. We had been anticipating a corrective phase for a couple days before the low was recorded. Recall that the previous Friday, August 10, all the major currencies, but the Japanese yen and Canadian dollar were beyond their Bollinger Bands. The euro recovered toward $1.1735 on August 28, stopping shy of our initial objective of $1.1750.

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Jump in Hourly Earnings is Key to US Jobs, while Canada adds 40k Full-Time Positions

The 201k rise in US non-farm payrolls edged above the median forecasts, but the 50k downward revision to the past two-months removes the gloss.   It is the first August report in seven years that the initial estimate was above the Bloomberg median.  The most important part of the report was the 0.4% jump in hourly earnings, lifting the year-over-year rate to a new cyclical high of 2.9%.

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FX Daily, September 7: Emerging Markets Stabilize While Euro Shrugs Off Disappointing Data

The global capital markets are finishing the week on a more stable note than it began.  Indeed, since the middle of the week, many of the besieged emerging market currencies, like the South African rand, Turkish lira,  and Argentine peso have posted some corrective upticks.  Today, the MSCI Emerging Market Index is snapping a seven-day slide register a modest gain, ahead of the Latam session.  

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FX Daily, September 6: Fragile Calm Weighs on Greenback

The global capital markets are calmer today.  This is not preventing the MSCI Emerging Market Index from extending its drop into the seventh consecutive session, but there has been a respite in the sell-off of emerging market currencies, where the Mexican peso, South African rand, Turkish lira, and Indonesian rupiah are modest, modest gains.  At the same time, the Philippine peso, Korean won, and Indian rupee continued to weaken.  

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FX Daily, September 05: Continuing EM Pain Helps the Dollar, but does Little for Yen

The dollar is posting gains against most of the emerging market and major currencies. The MSCI Emerging Markets Index is off 1.6% and extending the drop to a sixth consecutive session. Indonesia’s bourse saw the largest decline (~3.75%) in the region. In part, it reflects concern that the rupiah’s weakness (falling now nine of the past 10 sessions) will boost corporate debt servicing costs.

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Cool Video: Emerging Markets Continue to Sell-Off

Marc Chandler

I had the privilege of being on the Bloomberg set with Tom Keene and Francine Lacqua earlier today. Lakshman Achuthan, co-founder of ECRI also joined us for the discussion. This 6.5 min video clip captures the essence of the discussion. The US dollar was rallying against all the major and most EM currencies.

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FX Daily, September 04: Dollar Gains Broadly

The US dollar is rising against all the major and emerging market currencies today. The signals from the White House suggest strong pressure will be exerted on Canada to sign on to NAFTA 2.0 or risk losing part of its auto sector, which of course is primarily the production of US brands. At the same time, the US is in no mood to negotiate with Europe or China.

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The Big Picture 18-24-Month Outlook: Some Preliminary Projections

The winding down of the North’s summer provides a suitable time to consider not the near-term outlook, which many investors do on a daily basis, but to reflect on where we are heading down the road a bit. What will the next 18-24 months hold? Of course, we harbor no illusions of prescient vision and accept the hazards of the assignment and so should the reader.

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FX Daily, August 31: Month-End Adjustments and Tentative Stabilization in Emerging Markets Ease Demand for Dollars but Not Yen

The dramatic price action seen yesterday among several emerging market currencies is eased today, but here at month-end, demand for risk-assets is tentative at best. The macro backdrop, including the increase in US core inflation, expectations for continued hikes by the Federal Reserve, and unambiguous signals that trade tensions will increase in the coming weeks dampens the risk appetite.

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FX Daily, August 30: Brexit Optimism Underpins Sterling

The US dollar is mostly firmer, while global equities are softer and bonds little changed.  The Turkish lira and South African rand remain under pressures.  However, there does not appear to be an overall theme in today’s markets.  

Disappointing data from Australia and New Zealand has seen the Antipodean currencies move lower.  New Zealand’s business confidence fell to a ten-year low, and this sent the Kiwi tumbling.  Its nearly 0.9% fall leads the majors.  It is followed by the Australian’s dollar’s 0.25% loss in the wake of building approval (-5.2% vs. the median forecast of -2.0%) and capex (-2.5% vs. the median forecast of a 0.6% increase)  misses.  The Aussie held yesterday’s low near $0.7275.  Last week’s low was near $0.7240.  

Japan reported that July

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FX Daily, August 29: Dollar Finds Support, but Downside Correction May Not be Over

The US dollar has steadied after pulling back in recent days, but the downside correction does not appear complete, and month-end flows are still a risk to picking a dollar-bottom. The Australian dollar is the weakest of the majors. The main drag is paradoxically Westpac, one of Australia’s largest banks, raised the variable rate mortgage by 14 bp to 5.38%. Others are expected to follow.

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FX Daily, August 28: Greenback Remains On Defensive

Corrective forces continue to weigh on the US dollar. Sometimes the narratives drive the price action and sometimes the price action drives the narratives. Currently the latter appears to hold sway. The dollar’s downside correction began around the middle of the month, well before Powell’s August 24 Jackson Hole speech.

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FX Daily, August 27: A Dog Day of Summer

Last week’s dollar losses were initially extended in Asia before it came back bid. The euro briefly poked through $1.1650 for the first time in three weeks. However, the gains were sold into, and the euro finished the Asian session near $1.16, where there is a 782 mln euro option expiring, and 2.4 bln euros struck at $1.1625.

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FX Weekly Preview: Macroeconomic Considerations

The force that had pushed the US 10-year Treasury yield to 3% and the dollar above JPY113 at the start of the month, and the euro to $1.13 a couple of weeks ago has dissipated. The 10-year yield is near 2.80%. The dollar was near two-month lows against the yen a week ago, and the euro was back toward the middle of its previous $1.15-$1.18 trading range.

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5 Things Investors Should Know About US Strategic Petroleum Reserves

US Department of Energy announced yesterday offered for delivery between October 1 and November 30, 11 mln barrels of sour crude oil from the Strategic Petroleum Reserves. The move has nothing to do with operationalizing President Trump’s complaint that oil prices were too high. Instead, the sales are part of the fiscal compromise in 2015 budget legislation and the health care act of 2016.

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Merkel, European Autonomy, and the ECB

Merkel has again shown herself to be more wily than most. While pundits, investors, and politicians anticipated she would push hard for a German to replace Draghi as ECB President when his term ends next October. After all, it is German’s turn at the helm, and its interests were ridden roughshod over by the extraordinary and prolonged monetary policy.

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FX Daily, August 24: Greenback Marks Time Ahead of Powell

The US dollar is paring some of yesterday’s gains in quiet turnover ahead of Fed Chief Powell’s speech at Jackson Hole, the week’s last highlight. The euro and sterling are trading inside yesterday’s ranges, which the dollar has extended its gains against the yen to reach a two-week high near JPY111.50.

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FX Daily, August 23: Dollar Rebounds

After correcting lower since the middle of last week, and pushed faster if not further by President Trump’s comments, the US dollar is rebounding against most of the major and emerging market currencies today. After an initial wobble on the back of the FOMC minutes, the greenback’s recovery began in earnest.

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Three Things that may Disappoint Investors

There are three areas that we suspect that many investors are vulnerable to disappointment. NAFTA, trade talks with China, and Powell speech at Jackson Hole on Friday. With problems elsewhere, the Trump Administration has been playing up the likelihood of an agreement as early as today with Mexico, which would be used, apparently to deliver a fait accompli to Canada.

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Cool Video: Bloomberg TV Clip-Dollar Developments

Bloomberg Cool Video

The US dollar was sliding as I joined Vonnie Quinn and Shery Ahn on the Bloomberg Markets show. I tried making the case, as I have in recent posts, that the dollar’s rally in the first half of the month had left it over-extended. Most of the major currencies were outside of their Bollinger Bands a week ago and had begun correcting since August 15.

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Great Graphic: Head and Shoulders Top in Dollar Index

This Great Graphic depicts what appears to be a head and shoulders top in the hourly bar chart of the Dollar Index. The neckline is found near 96.00 and rotating the pattern along it produces a measuring objective near 95.00. The bearish pattern was formed in the last few days, and the Dollar Index was resting near the neckline before Trump’s comments gave it the push.

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FX Daily, August 21: Trump Comments Hit Dollar, Little Impact on Rates

The US dollar is broadly lower following President Trump’s comments yesterday, criticising Fed policy and reiterating his previously made claim that China and the EU are manipulating their currencies. We suggested that last week’s presidential tweet that identified strong capital inflows into the US may not have been written by President Trump.

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FX Daily, August 20: Greenback Consolidates Pre-Weekend Pullback in Quiet Turnover

The US dollar is slightly firmer against most of the major currencies, as the light participation and lack of fresh news see a consolidative tone emerge after the pullback at the end of last week. Although markets in Turkey are closed for a nearly week-long holiday, it has not prevented the lira from weakening. After closing a little below TRY6.02 before the weekend, the greenback has moved to TRY6.15 in the European morning.

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Capital Flocks to the US

The US policy mix gets a privileged place in our understanding of what is the dollar. Tighter monetary policy and looser fiscal policy could be the closest thing to an elixir for currencies.  It is the policy mix that the US is pursuing.  

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FX Daily, August 17: Dollar Limps into the Weekend

The US dollar is trading heavily against most of the world’s currencies today.  The main exceptions come from the emerging markets where the Turkish lira, Russian ruble, and Mexican peso are the chief exceptions, and their losses are modest.  This week’s dollar gains are being pared in largely corrective activity and amid a light news stream. 

The threat of more sanctions on Turkey if it does not release the American pastor is helping the dollar recoup yesterday’s losses and puts it back near TRY6.0.  Turkey has adjusted its policies to make it harder to short the lira, and Qatar signaled it would invest $15 bln.  However, the unorthodox policies have not been addressed, and even if the lira were to stabilize here, the effect of the dramatic slide would work its way

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Great Graphic JPY Struggles at Trendline

This Great Graphic is a weekly bar chart of the dollar-yen exchange rate.  It shows a three-year downtrend line (white line).  The US dollar had popped above it last month, but this proved premature and has not closed about it for a month.  The trendline is found near JPY111.55 now.

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FX Daily, August 15: Lira Rallies on Cut in Swaps, but Fails to Dent Dollar Demand

The Turkish lira is extending yesterday’s recovery today on the back of actions by officials that are aimed at limiting foreign access to the lira to short. Without introducing new capital controls, regulators halved the amount of swap transactions banks can do to 25% of shareholder equity. This is meant to make it more difficult to access lira in the offshore swaps market, which is an important channel.

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Cool Video: CNBC Discussion on Turkey

I had the opportunity to join Professor Hanke to discuss the crisis in Turkey. The professor sketched out his view expressed in a recent op-ed piece in the Wall Street Journal, arguing that Turkey is best served by adopting a currency board, anchoring the lira to hard currency, like the euro or dollar, or gold. 

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FX Daily, August 14: Brief Respite but Little Relief

Corrective pressures grip the capital markets today, helped by the easing of the selling pressure on Turkey, but its more a respite than a relief as no new policy initiatives are behind the lira’s upticks. The implication of this is that it is unlikely to last. In fact, the dollar’s low in early Europe a just above TRY6.41 after trading a little above TRY7.23 yesterday may be about the most that can reasonably be expected.

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Great Graphic: Possible Head and Shoulders Top in Euro

Euro BGN Currency

The euro appears to have carved out head and shoulder top. As this Great Graphic depicts, the euro was sold through the neckline at the end of last week and is 1% below it today. It is not unusual for the neckline to be retested. It is found near $1.15. It also dovetails with our near-term caution given that the euro is likely to close below its Bollinger Band for the second consecutive session (~$1.1440).

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FX Daily, August 13: Turkey Drives Risk-Off, but Pressure Abating

The failure of Turkey to grab the bull by the horns, so to speak, and come to grips with the situation saw the dollar soar above TRY7.23(from TRY6.43 at the end of last week) and to ZAR15.55 (from ZAR14.09). The Mexican peso, the strongest currency this year, and which has been partially protected by prospects of a new NAFTA agreement has suffered as well.

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FX Weekly Preview: Testing the Dollar’s Breakout

The US dollar surged last week, with the Dollar Index rising 1.25%, the most since April. The dollar is being boosted by two drivers. The first is the policy mix and interest rate divergence. The other is the intensification of pressure on emerging market. Turkey has a disastrous combination of more fundamentals, large short-term foreign currency debt obligations, unorthodox policies, and the lack of credibility.

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The Yin and Yang of the US-China Relationship

Chimerica always seemed like an oversimplification of a complex and dialectic relationship between the US and China.  However, it did express an underlying truth, that China’s rise over the last 40 years has been predicated on Deng Xiaoping’s political and economic reforms and, importantly, the world of free-trade (a reduction in tariff barriers to trade) promoted by the United States.  

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FX Daily, August 10: The Dollar Muscles Higher as Turkey Melts Down

The US dollar has surged. The main impetus comes from the dramatic slide in the Turkish lira. After moving above TRY5.0 yesterday, it reached TRY6.30 today before stabilizing a little below TRY6.0 as the European morning progressed. The trigger seemed to be the lack of credibility of the government’s response as investors await officials to elaborate on the outline of the “new economic model” provided yesterday.

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US-Japan Trade Talks

The withdrawal of the US from the Trans-Pacific Partnership trade agreement lift it exposed on two fronts. First, the TPP was going to modernize the NAFTA. Without, the US remains locked in protracted negotiations. A breakthrough in talks with Mexico has been reportedly imminent for weeks.

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Some Initial Consequences of Trade Tensions

The Trump Administration argues that other countries have been taking unfair advantage of the US on trade for years, and what many are calling a trade war is really only the US finally saying enough. The US has taken many several countries, including China, to the WTO for trade violations and wins the vast majority of cases it has brought.

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FX Weekly Preview: Dog Days of August Begin

With most of the major central bank meetings and important economic data out of the way, the dog days of August are upon us. In terms of drivers, it means that players will have to look elsewhere for inspiration and it means that market liquidy is likely not at its best.

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Great Graphic: Is Something Important Happening to Oil Prices?

Oil prices are weaker for the third straight day and are off in four of the past five sessions, the poorest run in two months. Supply considerations may threaten a year-old trend line. OPEC and non-OPEC, essentially Saudi Arabia and Russia are making good on their commitment to boost output, and US oil inventories unexpectedly rose.

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Fed Looks to September

There was little doubt in the market’s collective mind that the Federal Reserve, which hiked rates in July, would stand pat today. It did not disappoint. The statement itself was almost identical. Growth was said to be “strong” instead of “solid,” for example, a nuance to be lost on most observers. It recognized that the unemployment rate stabilized after falling.

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FX Daily, August 01: Trade and Japan Drive Markets Ahead of Stand Pat Fed

Investors recognize the risks to growth posed by the tariffs and counter-tariffs being imposed, but the way the US is going about it is also disconcerting. Within a few hours of signals that the US and China were looking to re-engage in high-level talks, which have not taken place for two months according to reports, the US signaled that the 10% tariff on $200 bln of Chinese goods could now face a 25% tariff instead.

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Tensions Beyond Trade

Chinese officials do not seem to appreciate the extent of its isolation. The disruption from the US as Trump positions the US as a revisionist power-one that wants to alter the world order, which it was instrumental in constructing, may have obscured the fact that China’s practices are a source of frustration and animosity broadly and widely.

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FX Daily, July 31: BOJ Prepares for QE Infinity

The Japanese yen has been sold following the adjustments to policy and outlook by the BOJ that will allow the unconventional policies continue for an “extended period of time.” Cross rate pressure and month-end demand have lifted the euro and sterling through yesterday’s highs.

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Great Graphic: USD Pushes Below CAD1.30

For the first time since mid-June, the US dollar has traded below CAD1.30. The greenback is weaker against all the major currencies. However, for the most part, it is still in well-worn ranges, which makes the breakdown against the Canadian dollar even more notable. It is not clear that today’s break will be sustained. Indeed, we lean against it.

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FX Daily, July 30: Equities, Bonds, and the Dollar Start Week Softer

The week’s big events lie ahead. It is seen as the last important week before the dog days of summer when many participants will take holidays. The BOJ’s two-day meeting concludes tomorrow. Speculation that the BOJ is looking for ways to tweak its program continues to spur a small taper-lite tantrum in Tokyo.

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FX Weekly Preview: Three Central Bank Meetings and US Jobs data

The week ahead sees three major central bank meetings and the US employment report. It will likely be the most important work before a hiatus that runs through the end of August. Of course, and perhaps more than ever, market participants are well aware that the US President’s communication and penchant for disruption is a bit of a wild card.

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FX Daily, July 27: Greenback Remains Firm Ahead of Q2 GDP

The US dollar is trading firmly in Europe after consolidating yesterday’s gains during the Asian session and ahead of the first look at Q2 GDP. Yesterday’s economic reports, including durable goods orders and inventory data, saw the Atlanta Fed’s GDPNow tracker lower its forecast to 3.8% from 4.5%.

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FX Daily, July 26: Equities like EU-US Trade Truce more than the Euro

The markets generated a collective sigh when Juncker and Trump announced that there would be no new tariffs while new trade negotiations took place.  This was particularly important because Trump reportedly wanted to press ahead with a 25% tariff on car imports.  It was also announced that the EU would buy more soy and liquid natural gas from the US. 

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Great Graphic: US 2-year Premium Grows and Outlook for G3 Central Banks

Two-year differential between the US and Japan

A cry was heard last week when President Trump expressed displeasure with the Fed’s rate hikes. Some, like former Treasury Secretary Lawrence Summers, claimed that this was another step toward becoming a “banana republic.” Jeffrey Sachs, another noted economist, claimed that “American democracy is probably one more war away from collapsing into tyranny.”

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FX Daily, July 25: Narrow Ranges Prevail

The US dollar is trapped in narrow trading ranges. That itself is news. At the end of last week ago, the US President seemed to have opened another front in his campaign to re-orient US relationships by appearing to talk the dollar down. Contrary to fears, and media headlines of a currency war, the dollar is fairly stable.

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Great Graphic: Is the Euro’s Consolidation a Base?

EUR/BGN, daily

Speculators in the futures market are still net long the euro. They have not been net short since May 2017. In the spot market, the euro approached $1.15 in late-May and again in mid-June. Last week’s it dipped below $1.16 for the first time in July and Trump’s criticism of Fed policy saw it recover. Yesterday it reached $1.1750 before retreating. On the pullback, it held the 61.8% retracement of the recovery (~$1.1640).

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Cool Video: Bloomberg Television–Dollar Outlook

The issue is the dollar’s outlook. The greenback had looked to be on the verge of breaking out higher before the US President expressed disapproval with the Fed rate hikes and, then the following day, aggressively accused the EU and China of manipulating their currencies.

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FX Weekly Preview: It was Supposed to be a Quiet Week

It was supposed to be a quiet week. The economic data and event calendar was light. There were three features, and none would likely disrupt the markets much. The first two are in Europe. The eurozone flash PMI for July, the first insight into how Q3 has begun. The PMI is expected to paint a mostly steady economic activity.

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Euro, Yen, and Equities: Reviewed

US equities and the dollar appear to be moving higher together.  The greenback is near its best level this year against most of the major and emerging market currencies.  The Chinese yuan is not an exception to this generalization.  At the same time, the S&P 500 is at its best levels since the downdraft February, and the NASDAQ set a new record high earlier in the week. 

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FX Daily, July 20: Dollar Consolidates after Trump Wades In

The US dollar is little changed but mostly softer as the week draws to a close. The market is digesting the implications of yesterday’s comments by President Trump about interest rates and foreign exchange, and without fresh economic data, are content to go into the weekend. Since Trump’s comments yesterday, the euro has not been below $1.1625 nor above $1.1680.

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FX Daily, July 19: Greenback Extends Gains

The US dollar is extending its recent gains against most of the world’s currencies.   We continue to see the most compelling case for the macro driver being the diverging policy mixes.  There are also more immediate factors too.  The surprisingly poor UK retail sales report, for example, managed to do what the Brexit chaos and softer than expected CPI fail to do. 

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FX Daily, July 18: Greenback Extends Gains-For Now

After softening in Europe yesterday, the dollar recovered in the North American session with the help of assurances by Fed Chair Powell who reaffirmed the path gradual path despite clear recognition that tariffs threaten wages and growth.  The greenback has extended those gains today and is higher against all the emerging market currencies, expected the Turkish lira, which is slightly firmer.

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Great Graphic: Fed Raising Rates, but Yields Still Negative

3-month US Treasury

The yield on the 3-month US Treasury bill is pushing above 2% today for the first time since 2008. The yield had briefly dipped below zero as recently as late 2015. Although today’s yield seems high, this Great Graphic shows the nominal generic three-month yield going back to 1990. Then the three-month bill yielded 8%. The peak in the last cycle (2006-2007) was a little above 5%.

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FX Daily, July 17: Dollar on Back Foot Ahead of Powell

The US dollar eased in Asia session and the European morning. The greenback had appeared technically vulnerable, and the economic news stream is light. Sterling, unlike most of the other major currencies, remains within yesterday’s range. Yesterday’s high, a little above $1.3290, maybe reinforced a little today by the GBP245 mln $1.33 option that is expiring. Brexit concerns may also be acting as a drag.

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Great Graphic: Two-year Rate Differentials

Two-year interest rate differential between the US and four countries

Given that some of the retail sales that were expected in June were actually booked in May is unlikely to lead to a large revision of expectations for Q2 US GDP, the first estimate of which is due in 11 days.  Before the data, the Atlanta Fed’s GDPNow projects the world’s biggest economy expanded at an annualized pace of 3.9% in Q2. 

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FX Daily, July 16: Dollar Softens a Little as Market Awaits Developments

The US dollar is slightly softer against most of the major currencies but is in narrow ranges ahead of today’s key events, which include US retail sales and the debate in the UK parliament over Brexit.  The yen is the main exception.  The local markets are closed for a public holiday, and the yen did initially strengthen (the dollar eased to ~JPY112.10) but surrendered those gains and consolidating its biggest loss last week in 10 months.

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Great Graphic: Two Stories for Two Trend Lines

The Dollar Index made a marginal new high for the year at the end of June a touch below 95.55. It fell through the start of this week when it reached nearly 93.70. With the earlier gains, the Dollar Index briefly traded above the 61.8% retracement of the pullback (~94.85). A move now below 94.20 would be disappointing.

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Great Graphic: Is Mr Market Thinking About the First Fed Cut?

EDZ0 Comdty - EDZ9 Comdty, Jan 2017-Jul 2018

The US economy is among the strongest among the large economies. Goosed by the never-fail elixir of tax cuts and spending increases, the US economy is accelerating. Nevertheless, we continue to see the fiscal boost as short-lived, and a recent Fed paper suggested that fiscal stimulus in an upswing may not have the same multiplier as during a downturn.

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FX Daily, July 13: Trump Trips Sterling, but Greenback Enjoys Broad Gains

President Trump weighed in on Brexit and spurred the largest drop in sterling in more than two weeks.  Trump encouraged Brexit, but he indicated he “would have done it much differently” and that he “actually told Theresa May how to do it, but she did not listen.”  Trump cautioned that May’s plan would mean it would still be too close to the EU and this would “kill” a free-trade deal with the US.  In effect, Trump backed the harder Brexit camp position.

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FX Daily, July 12: Dollar Remains Firm as Risk Returns

The US dollar rallied yesterday as the escalating trade tensions between the world’s top two economies choked off the animal spirits and a marked down in equities and risk assets.  It remains firm today even as risk has come back.  Equities are mostly higher today and bonds lower.  Emerging market currencies, from Turkey to South Africa are firmer, as is the Chinese yuan. 

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FX Daily, July 11: Escalating Trade Tensions Set Tone for Capital Markets

The US took the first step in making good its threat to put a 10% tariff on $200 bln of Chinese goods in response to the PRC retaliating for the 25% tariff on $34 bln of its exports. The US provided a list of products that will get the new tariffs after the public comment period is completed at the end of next month. This time the list included numerous consumer goods, like digital cameras, baseball gloves, but have left off popular products, like cell phones, tablets, and personal computers. 

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FX Daily, July 10: May Survives to Fight Another Day, but Sterling’s Recovery Falters

The political obituary of UK’s May, who many see as an “accidental” Prime Minister, has been written many times in the past year and a half only to be withdrawn.  Again, it looked like the resignation of two ministers, and a couple of junior ministers was going to spur a leadership challenge. While this still may come to pass, the hard Brexit camp, which has huffed and puffed, simply does not appear to represent a majority of the Tory Party, and possibly the broader electorate. 

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Central Bank Investment Strategies

A survey of central banks and sovereign wealth funds by Invesco sheds light on their investment plans. The traditional separation of markets and the state may be helpful for ideological arguments, but the real situation is more complicated.  Central banks and their investment vehicles (sovereign wealth funds) are market participants.  In some activities, such as custodian, central banks compete with the private sector.

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FX Daily, July 09: Possibility of a Soft Brexit Excites Sterling (too Early?)

After a little wobble, sterling has responded favorably to the resignation of the UK Brexit team led by David Davis. The idea is that a path to a softer Brexit is good for sterling.  In fairness, it is a bit early to reach this conclusion, and the softer dollar tone puts wind in sterling’s sale. There is a GBP244 mln sterling option at $1.3375 that expires today. The June highs were set in the $1.3450-$1.3470 area.  

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FX Weekly Preview: Macro Considerations for the Capital Markets

The triumphalism that followed the fall of the Berlin Wall nearly three decades ago has evaporated.  The Great Financial Crisis and inexorable widening of income and wealth inequalities within countries undermined claims of moral and economic superiority.  Liberal democracies are fighting a rearguard action and the rise of illiberal regimes. 

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FX Daily, July 06: Dollar Slips After Tariffs and Before Jobs Data

The first set of US tariffs aims specifically at China were implemented, and the retaliatory actions were also launched. The tariffs cover hundreds of goods, though the initial amount of trade covered is relatively small at $34 bln. Tariffs on another $16 bln are in the pipeline and could be put into effect in a few weeks. The US is threatening to ramp up its response by imposing a tariff on another $200 bln of Chinese goods, though the details have not been announced.

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FX Daily, July 05: Dollar is Mixed on Eve of US Jobs and Tariffs

The US dollar is softer against most of the major currencies and mixed against the emerging market currencies.  European currencies firmer, with the continued recovery of the Swedish krona on the back of a more hawkish central bank, and the euro poking through $1.17 for the first time in over a week with the help of strong factory orders report from Germany.  Central and East European currencies are leading among emerging markets.  Asian equities continued to move south while European bourses are moving higher. 

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FX Daily, July 03: Markets Trying to Stabilize

The global capital markets are trying to stabilize. US equities recovered from early losses yesterday but this was not enough to stop Asian equities from extending recent losses. The MSCI Asia Pacific Index slipped 0.2% for the sixth decline in the past seven sessions, However, several local markets, including China, Australia, and Korea advanced.

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FX Daily, July 02: Third Quarter Begins With a Thump

The window dressing ahead of the end of Q2 failed to signal a turn in sentiment. Equity markets have taken back those gains and more. The US dollar is broadly firmer, though it was coming off its best levels near midday in Europe, and the three-basis-point slippage puts the US 10-year yield at 2.83%, its lowest in more than a month.

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FX Weekly Preview: Trade and Data Driving Markets

US President Trump is intent on disrupting the post-WWII arrangement that prioritized and ideological conflict over economic rivalries. Last week, it was reported that Trump told his counterparts at the G7 summit that NATO was as bad as NAFTA. NATO’s annual meeting is July 12.

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FX Weekly Preview: Trade Tensions and EU Summit Highlight Q2’s Last Week

We argue there are three major disruptive forces that are shaping the investment climate: the US policy mix in relative and absolute terms, the escalation of trade tensions, and immigration. In the week ahead, trade issues may eclipse the US policy mix, and immigration will compete with the economic and financial agenda at the European heads of state summit at the end of the week.

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FX Daily, June 22: BOE Spurs Dollar Pullback

The Bank of England’s hawkish hold yesterday, spurred by three dissents in favor of an immediate hike, changed the near-term dynamics in the foreign exchange market.  Both the euro and sterling fell to new lows for the year before reversing higher.  Yesterday’s gains are being extended today. 

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FX Daily, June 21: Dollar Driven Higher

The half-hearted and shallow attempts by the currencies to recover appear to be emboldening the dollar bulls today,  The greenback is higher against all major and emerging market currencies today.  Demand for dollars is strong enough to offset the broader risk-off environment that is pulling stocks and core yields lower that is usually supportive of the yen. 

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FX Daily, June 20: Fragile Stability

The day began out with equity losses in Asia before a sharp recovery, perhaps initiated in China. The MSCI Asia Pacific Index was up a little more than 0.5%. The Shanghai Composite fell more than 1% before closing 0.25% better.

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FX Daily, June 19: America First Clashes With Made in China 2025

The escalation of trade tensions between the world’s two largest economies is scaring investors, who are liquidating equities and buying core bonds.  The dollar and yen are the strongest of the major currencies.  The Swiss franc is mostly steady as it too is benefiting from the unwinding of risk trades.

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FX Daily, June 15: Dollar Slips While Escalating Trade Tensions may Roil Markets

The Dollar Index edged higher to its best level this year before turning down as market attention shifts from central banks to trade tensions. Reports confirm that the US will go ahead with the 25% tariff on $50 bln of Chinese goods and provide some specificity today. The final list is expected to be similar to the goods that had been identified in the preliminary list, with an emphasis on electronic goods, apparently on ideas that they may have the largest multiplier effect and the US can challenge some of the areas China has targeted under Made in China 2025.  

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FX Daily, June 14: Dollar Punished Ahead of ECB

The US dollar is slumping against all the major currencies in the aftermath of the hawkish Federal Reserve. In fact, the inability of the greenback to hold on to the gains scored in the initial reaction to the Fed’s hike, optimism on the economy, and the signal of hikes in September and December, foretold today’s push lower.

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FX Weekly Preview: Busy Week Ahead

The week ahead is eventful. The Federal Reserve, the European Central Bank, and the Bank of Japan hold policy meetings. This would make for a busy week by themselves, but there is more. Trade tensions are likely to escalate further, if the US, as scheduled provides a list of $50 bln of Chinese goods that will face another 25% tariff for intellectual property violations.

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Dollar and Yen Rise Amid Heightened Anxiety

With what promises to be an acrimonious G7 meeting, from which the isolated US President will depart early, and a broadening pressure in emerging markets, the US dollar turned better bid late yesterday and is recovering further today.

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Europe’s Woes Multiply

The Markit group that provides many of the PMI surveys noted with today’s reports that the eurozone outlook has “darkened dramatically.” This makes for a poor backdrop for the ECB, which meets next week. However, with price pressures recovering from the Easter-related distortions, the ECB is still on track to finish its asset purchases at the end of the year. This seems largely taken for granted.

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Greenback Corrects Lower

The consensus narrative is that with rising inflation it is understandable that next week’s meeting is live and that the confirmation of such has lifted the euro to ten-day highs, dragging the dollar broadly.  However, to accept this is to accept the debasement of language.  Until now, we dubbed central bank meeting that could result in action as “live.”  For example, given that the Fed has not changed interest rates since the hiking cycle began in December 2015 outside of a meeting with a pre-scheduled press conference. 

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More Color on Japanese Capital Flows and the Euro

The euro put in a low on May 29 a little above $1.15. That is nearly a 10.5 cent decline since the three-year high was set in mid-February. The thing that is difficult for investors and analysts to get their head around is that the speculators in the futures market, who as seen as proxies for trend-followers and momentum traders, continue to carry large euro exposure.

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FX Daily, June 5: Sterling Jumps Ahead, While US Equities Have Small Coattails

The British pound is benefiting from the stronger than expected service and composite PMI readings, which among other things are serving as a distraction from the government’s seemingly tortured approach to Brexit and the sales of part of its stake in RBS for a GBP2 bln loss.  Financials are a drag on the FTSE 100 today (~-0.5% while other major bourses are higher).

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FX Weekly Preview: Macro Matters Now, Just Not the Data

The main concerns of investors do not arise from the high-frequency data that are due in the coming days. Last week, the somewhat firmer than expected preliminary May CPI for the EMU failed to bolster the euro. The stronger than expected US jobs data, even if tipped by the President of the United States, and the pendulum of market sentiment swinging back in favor of two more Fed rate hikes this year did not trigger new dollar gains.

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FX Daily, May 30: Italian Reprieve, Euro Bounces, Trade Tensions Rise

After what could be described as a 15-sigma event yesterday in the Italian bond market, a reprieve today has seen the euro recover a cent from yesterday’s lows. While the political situation in Italy is worrisome, many observers suspect that the new banking rules exacerbated the illiquidity that explains outsized moves.

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What Happened Monday?

Italian politics dominated Monday’s activity. Initially, the euro reacted positively in Asia to news that the Italian President had blocked the proposed finance minister. A technocrat government would be appointed to prepare for new elections.

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FX Daily, May 25: US Dollar Loses Momentum Ahead of the Weekend

The euro and sterling were sold through yesterday’s lows in Asia, but rebounded in Europe, with the help of mildly constructive data in the form of the German IFO and details of UK Q1 GDP. The IFO climate measure matched the April reading and thereby snapped a five-month slide. The expectations component slipped, but the current assessment improved.

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FX Daily, May 24: Greenback Pushes Lower

The US dollar is pulling back after recording new highs for the year against the euro and sterling. The greenback is lower against nearly all the major currencies, but the Canadian dollar. It is also softer against most of the emerging market currencies. The chief exception is the Turkish lira. Yesterday’s 300 bp rate hike could only stem the rot momentarily and the lira’s 2.3% decline today, wipes out 2/3 of the annual rate increase.

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Great Graphic: Euro-Swiss Shows Elevated Systemic Risk

The Swiss National Bank’s decision in January 2015 to remove the cap on the Swiss franc (floor on the euro) that it has set at CHF1.20 is seared into the memory of a generation of foreign exchange participants. It is not exactly clear where the euro bottomed in the frenzied activity that followed the SNB’s surprise move. Bloomberg records the euro’s low near CHF0.8520.

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Italy Defies Gravity and Risk to Fiscal Rectitude

Italian asset markets continue to fare better than many expected. The political uncertainty following the March election has been followed by confidence that the Five Star Movement and the (Northern) League will be able to put together a government in the coming days. If so, Italy would have taken half the time Germany did to cobble a government together after inconclusive elections.

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FX Weekly Preview: Dollar Power

There are several trends in the capital markets at a high-level. The euro and yen’s decline has coincided with sustained rallies in European and Japanese equity benchmarks. Emerging market equities and currencies have been trending lower.

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FX Daily, May 18: EUR/CHF Continues the Collapse

The US dollar is mostly firmer. US yields have stabilized. Asian equities were mostly higher, while European bourses are struggling. Oil prices are steady. There have been a number of sustained trends in the markets that we have been monitoring. The euro, for example, has fallen each day this week. It recorded its low for the year on Wednesday near $1.1765.

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FX Daily, May 17: US Rates Edge Higher, while Dollar Turns Mixed

The Britsh pound was a cent from yesterday’s lows on a press report that claimed the UK cabinet had agreed on seeking to stay in the customs union with the EU beyond the two-year transition period. The report suggested that the UK wanted to still negotiate other trade deals, which would seem to be a Trojan Horse.

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FX Daily, May 16: US Yields Soften After Yesterday’s Surge

The US dollar is mixed today after the Dollar Index rose to new 2018 highs yesterday.  It is being driven by rising US rates, which also punishes short dollar positions. The US 10-year yield rose seven basis points yesterday to nearly 3.10%.  It is consolidating near 3.06% now.  Many see the yield rising toward 3.20%, which would match the mid-2011 high.

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FX Daily, May 15: Firm US Rates Underpin Greenback

US 10-year rates are again probing the air above 3%, and this is encouraging a push back toward JPY110, with the euro slipping toward $1.19.  Asian equities fell, with the MSCI Asia Pacific shedding 0.8%, the most in nearly a month, snapping a three-day advance. China and India were able to buck the regional move. China’s economic data was mostly softer than expected and is consistent with a gradual turn in the cycle as the Lunar New effect fades.

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FX Daily, May 14: US Dollar Slips in Quiet Turnover

The US dollar is sporting a softer profile against most of the major and emerging market currencies to start the new week. It already seemed to be tiring in the second half of last week. With today’s mild losses, Dollar Index is off for a fourth consecutive session, the longest losing streak in over a month. The US and China appear to have taken measure to diffuse the trade tensions between the world’s two largest economies.

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FX Daily, May 11: Dollar Momentum Sapped, Near-Term Pullback Likely

The US dollar pulled back following yesterday’s slightly softer than expected CPI report and this likely marks the beginning of a new phase, with the dollar moving lower. Investors have learned over the past two weeks that neither wages nor consumer prices are accelerating. There is little reason in the recent string of data or official comments to suggest a more hawkish path for monetary policy (e.g., four rate hikes this year).

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FX Daily, May 10: Kiwi Tumbles on Dovish RBNZ, While Sterling Goes Nowhere Ahead of BOE

The US dollar is consolidating in narrow trading against most of the major currencies as participants digest several developments ahead of what was expected to be the highlight today, the BOE meeting and US April CPI. The greenback’s consolidation is giving it a heavier bias against most of the major currencies. The recently strong upside momentum has stalled, but the losses are modest and the euro and sterling are inside yesterday’s ranges.

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FX Daily, May 09: Oil Prices Surge and Dollar Gains Extended Post Withdrawal Announcement

The US dollar is broadly higher as the 10-year yield probes above 3.0%. Disappointing French industrial production and manufacturing data for March provided additional incentive, as if it were needed, to extend the euro’s losses. The euro dipped below $1.1825. The single currency is off a cent this week after falling nearly two last week. A 38.2% retracement of the euro’s gains since the beginning of last year is found a little above $1.1700 and represents the next important target.

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FX Daily, May 08: Dollar Races Ahead

The US dollar’s surge continues. The Dollar Index is testing the space above 93.00. A month ago it was below 90. It does not appear to require fresh developments. The market continues to trade as if there are short dollar positions that are trapped at higher levels and the briefest and shallow pullbacks are new opportunities to adjust positions.

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FX Daily, May 07: Greenback Starts Week on Firm Note

The US dollar recovered from a softer tone in early Asia and is higher against nearly all the major and emerging market currencies as North American market prepare to start the new week. The news stream is light and investors remain on edge geopolitical concerns remain elevated. Oil prices are extending gains, and WTI is above $70 a barrel for the first time since November 2014. Alongside an inverse yield curve, a jump in oil prices typically proceeds economic downturns.

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FX Weekly Preview: Geopolitics Becomes More Salient as Monetary Policy Plays for Time

Say what one will, US President Trump is vigorously projecting what he believes are American interests. There is virtually no sign of the isolationism that many observers had anticipated. Indeed, as we have argued, the America First rejection of the League of Nations that Trump harkens back to was not isolationist as much as unilateralist. And the same is true of the Trump Administration.

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Look Past Disappointing Jobs Data, Luke

The US jobs report was broadly disappointing. However, the Federal Reserve will look through it and investors should too. A June hike is still by far the most likely scenario. The US created 164k net new jobs in April, and when coupled with the 32k upward revision in March, it was near expectations.

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FX Daily, May 04: US Jobs-Not the Driver it Once Was

The US dollar fell last month in response to the disappointing non-farm payroll report. However, in general, the jobs report is not the market mover that it was in the past. With unemployment is at cyclical lows of 4.1% and poised to fall further. Weekly jobless claims and continuing claims at or near lows in a generation, though over qualification is more difficult than previously.

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FX Daily, May 03: Respite to Dollar Short Squeeze

The Australian dollar is higher for a second session. It has been helped today by stronger than expected data in the form of a larger than expected March trade surplus (A$1.57 bln vs. expectations for A$865 mln) and building permits up more than twice as expected (2.6% vs. 1.0%). Today is the first session since April 19 that the Australian dollar has risen above the previous day’s high. Initial resistance is seen near $0.7550 and then $0.7580.

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FX Daily, May 02: Confident Fed Key to New Found Respect for the Dollar

There is a brief respite in the powerful short squeeze that has fueled the dollar’s dramatic recovery. The greenback which was nearly friendless a month ago now has many suitors. It is higher on the year against all the major currencies but the yen (~2.6%), the Norwegian krone (~1.6%) and sterling ~0.9%). It is virtually flat against the euro.

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FX Daily, May 01: Little Help on May Day

Most of the world’s financial centers are closed for the May Day holiday, but the lack of participation has not prevented the extension of the US dollar’s recovery. The Dollar Index has traded above its 200-day moving average for the first time in a year.

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FX Daily, April 30: Merger Monday

Three large corporate deals were announced. T-Mobile appears to have finally figured a way to secure Sprint. It is a $26.5 bln equity tie-up. Marathon Petroleum is reportedly taking Andeavor for $20 bln in cash and stock. Sainsbury is reportedly in advanced talks to buy Walmart’s Asda chain for GBP7.3 bln (~$10 bln) in an equity and cash transaction.

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FX Weekly Preview: Next Week in Context

A year ago, the Dutch and French elections signaled that UK referendum to leave the EU and the US election of Trump did not usher in a populist-nationalist epoch, such as the one that proceeded the last great financial crisis. The euro gapped higher and did not look back.

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FX Daily, April 27: Dollar Puts Finishing Touches on Best Week Since November 2016

The US dollar’s recent gains have been extended, and it is having one of its best weeks since November 2016. The Dollar Index is up 1.7% for the week, as US session is about to start. Though it took this week’s gains to change market’s narrative, the fact of the matter, as we have pointed out is that April is the third consecutive month in which the Dollar Index fell in only one week. That translates into rising 10 of the past 13 weeks.

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FX Daily, April 26: Euro Remains Soft Ahead of Draghi

The euro made a marginal new low early in European turnover and held barely above the spike low on March 1 to $1.2155. So far, today is the first session since January 11 that the euro has not traded above $1.22. The euro stabilized as the European morning progressed, but there seems to be little real buying interest it ahead of Draghi’s press conference following the ECB decision.

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Oil: Supply and Demand Drivers

Oil prices have recovered more than 50% of the decline since the mid-September peak. The next retracement objectives are found near $82 a barrel for Brent and $76.5 for WTI basis the continuation futures contract. The immediate consideration is that supplies have tightened.

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FX Daily, April 24: Stalled US Rates Steal Greenback’s Thunder

The US dollar looked set to launch a new leg higher, but rates stalled, which in turn is unleashing some mild corrective pressures. The US two-year yield has been unable to extend its increase beyond 2.50%, while the 10-year rate has stalled within a whisker of the 3% psychological threshold. The greenback’s momentum did indeed carry it, but by late morning on the Continent, a consolidative tone was evident.

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Great Graphic: Aussie Tests Trendline

It is not that the Australian dollar is the weakest currency this month. Its 0.4% decline puts it among the better performers against the US dollar. However, it has fallen to a new low for the year today. The losses have carried to a trendline drawn off of the early 2016 low near $0.6800.

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FX Daily, April 23: Rising Rates Help Extend Dollar Gains

The new week has begun much like last week ended, with rising rates helping to extend the dollar’s recent gains. The US 10-year yield is flirting with the 3.0% threshold. The two-year yield is firmer, and, like in the second half of last week, the US curve is becoming a little less flat. The market, as we had anticipated, was not so impressed with North Korea’s measures, and Korea’s Kospi edged lowed, and the region-leading KOSDAQ fell a little more than 1% (still up 10% year-to-date).

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FX Weekly Preview: Markets and Macro

Worries about a trade war appear to have eased, at least for the moment, but that does not make investors worry-free. The concerns have shifted toward rising US interest rates, perhaps more than anything else, but general anxiety seems elevated.

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FX Daily, April 20: The Greenback is Alive

The US dollar is set to finish the week on a firm note. It reflects rising US yields, where the 10-year is above 2.90% for the first time since February and the widening two-year different between the US and Germany, which is holding just below 300 bp. It is the fourth consecutive advancing session for the Dollar Index, which is near a two-week high.

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FX Daily, April 19: Markets Calm But Lack Immediate Focus

A light news stream and less trade rhetoric lend the equity markets a positive impulse amid a strong US earnings season while leaving the dollar narrowly mixed. The MSCI Asia Pacific Index rose 0.5% and is up 1% for the week with one session left. It would be the second consecutive weekly advance. The Dow Jones Stoxx 600 has edged higher for a third consecutive session. It is up about 0.7% for the week, and if sustained, would extend the advance for a fourth consecutive session.

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FX Daily, April 17: Dollar Recovers from Further Selling as Turnaround Tuesday Unfolds

After the retreating in the North American session yesterday, despite a rebound in retail sales after three-months of declines, the greenback has been sold further in Europe and Asia. The euro edged through last week’s high near $1.24, and sterling rose through the January high to reach its best level since the mid-2016 referendum. Sterling rose through $1.4375 before the easing after the employment report.

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FX Daily,April 16: Market Struggles for Direction

The Syrian strike over the weekend, and the official indication that “mission accomplished” and that was a limited one-off strike has spurred little market reaction. There is one more loose end, as it were, and that is that the US has indicated it will announce additional sanctions on Russia for its involvement in Syria’s chemical weapon use. The ruble is volatile but slightly firmer to start the week, and while dollar-bond yields are firmer, the ruble benchmark is steady.

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FX Weekly Preview: Still Looking for Terra Firma

The weekend strike by the US, British and French forces against Syria appear to have been conducted in ways that minimize the risks of escalation by Russia. The limited nature of the strike and objectives suggest that the impact on the constellation of forces in Syria will be minimal. There is unlikely to be much of an impact in the global capital markets, though thin markets in early Asia could see a knee-jerk effect.

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Great Graphic: Loonie Takes Big Step toward Technical Objective

For a little more than two weeks, we have been monitoring the formation of a possible head and shoulders top in the US dollar against the Canadian dollar. The neckline broke a week ago. It is not uncommon for the neckline to be retested after the break. That was what happened yesterday. The US dollar recorded an outside down day yesterday.

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FX Daily, April 13: Markets Struggle to Find Footing while News Stream Improves

It had looked to many investors that world was headed for a trade war and an escalating risk war in Syria. But now it seems less clear. US President Trump’s rhetoric on trade took a more constructive tone, and a divided Administration leaves Syria in a bit of a limbo. US equities rallied yesterday, and Asia and European bourses are advancing today, but the conviction may not be particularly strong.

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Great Graphic: Aussie-Kiwi Approaches Trendline

Today is the fifth consecutive session that the Australian dollar has weakened against the New Zealand dollar. It has now fallen to test a three-year old trendline that we show on the Great Graphic, composed on Bloomberg. The last leg down in the Aussie actually began last October, and through today’s low, it is off by a little more than 7%.

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FX Daily, April 11: Mr Market Waits for Other Shoe to Drop

Between Syria, trade tensions, and the US special investigator into Russia’s attempt to influence the US election, market participants are cautious as they wait for another shoe to drop. The US equity market recovery yesterday has short coattails as markets in Asia and Europe struggle. Bond yields are mostly softer, and the US 10-year note yield is dipping back below 1.80%.

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Understanding the Latest International Reserve Figures

At the end of every quarter, the IMF publishes the most authoritative reserve data with a three-month lag. On Good Friday, the IMF published Q4 17 reserve holdings. A recent article on Bloomberg played up an economist’s forecast that euro reserves would increase by $500 bln over the next couple of years. A review of the reserve data may help us evaluate such a claim, which if true, could have important implications for international investors.

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FX Daily, April 10: XI’s Day, but Not So Good for Putin

It did not look so good. The S&P 500 fell about 1.65% in the last couple hours of trading yesterday paring its gains. Press reports indicated that President Trump’s lawyer’s office, house and hotel were the subject of search warrants. A Bloomberg report citing people who knew said that China would consider devaluing the yuan.

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US Jobs Data Optics Disappoint, but Signal Unchanged

The US jobs growth slowed in March more than expected, but the details of the report suggest investors and policymakers will look through it. The poor weather seemed to have played a role. Construction jobs fell (15k) for the first time since last July, and the hours worked by production employees and non-supervisory worker slipped.

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FX Daily, April 09: Asian and European Equities Shrug Off US Decline

US shares slumped before the weekend amid concern that Trump Administration was prepared to escalate the trade tensions with China. However, cooler heads are prevailing, and there is a recognition that the conflict is still in the posturing phase. No sanctions have gone to into effect. As the Economist points out, nearly 100 of the Chinese products the US proposed slap a tariff on are not currently being exported to the US. The US has a 60-day public comment period, and China has not given a date for implementations, but will take its cues from the US.

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Great Graphic: Has the Dollar Bottomed Against the Yen?

The US dollar appears to be carving a low against the yen. After a significant fall, investor ought to be sensitive to bottoming patterns. The first tell was the key reversal on March 26. In this case, the key reversal was when the dollar made a new low for the move (~JPY104.55) and then rallied to close above the previous session high.

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FX Daily, April 06: Trade Trumps Jobs

Trade and equity market volatility, which are not completely separate, continue to dominate investors’ interest. Many had come around to accept that while trade tensions were running high, it was likely to be mostly posturing. This conclusion may have helped lift the S&P 500 around 3% over the past three sessions.

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FX Daily, April 05: Investors Find Comfort in Brinkmanship Blinks

Global equity markets are higher, following the stunning recovery in the US yesterday, where the S&P 500 rallied 76 points or 3% from its lows to it highs, near where it finished. The outside up day is seeing following through today. Without China and Hong Kong, which are on holiday, the MSCI Asia Pacific Index snapped a three-day down draft and closed 0.55% higher.

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FX Daily, April 04: Trade Specificities Rattle Markets

Late yesterday, the US announced that specific tariffs and goods that would be targeted for intellectual property violations. China had warned of a commensurate response and earlier today made its announcement. This sent reverberations through the capital markets, driving down equities, corn and soybean prices (subject to Chinese tariffs). The US dollar was sold, especially against the yen, euro, and sterling.

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FX Daily, April 03: Markets in Search of Footing

The sell-off in US tech shares dragged the market lower. The S&P 500 fell for the sixth session of the past eight and closed below the 200-day moving average for the first time in a couple of years. The sell-off in Asia and Europe is more muted. The MSCI Asia Pacific Index slipped less than 0.1%. The Hang Seng, an index of H-shares, and Korea’s KOSDAQ managed post gains.

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Cool Video: Bloomberg Double Feature

BBG Video

Many are still celebrating the Easter holiday today, but not Tom Keene and Lisa Abramowicz and the Bloomberg team. They hosted me on Bloomberg TV today. As is often the case, the discussion was broad, covering the pressing economic and financial issues.

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FX Daily, April 02: Monday Blues

The US dollar drifted a little lower in Asia to start the week while equities had a slightly heavier bias. The MSCI Asia Pacific Index slipped 0.1%. European bourses are mostly closed for the extended Easter holiday, while the S&P is set to start the new quarter about 0.3% lower. Although the subdued price action may not reflect it, there have been several new economic reports and developments.

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FX Weekly Preview: The Start of Q2

The chief uncertainty has shifted from monetary policy and macroeconomics to the increase of volatility in the stock markets and the prospects of a trade war. Some of the major benchmarks, including the S&P 500, the MSCI Asia Pacific Index, the MSCI Emerging Markets Index, and Shanghai Composite held above the February lows in the retreat during the second half of March.

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Great Graphic: EMU Inflation Not Making it Easy for ECB

Germany, Italy, Fance and Spain HICP, March 2012 - 2018

The Reserve Bank of New Zealand is credited with being the first central bank to adopt a formal inflation target. Following last year’s election, the central bank’s mandate has been modified to include full employment. To be sure this was a political decision, and one that initially saw the New Zealand dollar retreat.

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FX Daily, March 28: Three Developments Shaping Month-End

Today may be the last day of full liquidity until next Tuesday, after the Easter holidays. We identify three developments that are characterizing the end of the month, quarter, and for some countries and companies, the fiscal year. Equity market sell-off, bond market rally, and the continued rise in LIBOR.

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FX Daily, March 27: Global Equities Follow US Lead, Dollar Steadies

We argued that the talk of trade war was exaggerated. The confrontation, strong demands and a climb down is the Art of the Deal, and is part of the way the Trump Administration negotiates. We see striking parallels between the policymakers and tactics with the Reagan Administration’s attempt to pry open Japanese markets.

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FX Daily, March 26: Equity Meltdown Aborted, Dollar Eases

After a poor start in Asia, equities recovered. The MSCI Asia Pacific initially extended last week’s losses and fell to its lowest level since February 12 before recovering to finish near its highs, 0.4% above last week’s close. European markets followed suit. They did not have to take out last week’s lows. The Dow Jones Stoxx 600 is up about 0.4% in late morning turnover.

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FX Weekly Preview: The Investment Climate

The investment meme of a synchronized global upturn has been undermined by the recent string of US and European economic data. The flash March eurozone composite reading fell to 55.3, the lowest reading since January 2017. Although Q4 17 US GDP may be revised higher (toward 2.8% from 2.5%) mostly due to greater inventory accumulation, the curse of weak Q1 GDP appears to be showing its hand again, with forecasts now coming in below 2%.

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Cool Video: Let’s Not Declare Trade War Yet

Trade tensions have risen. No doubt about it, but to consider this a trade war is premature. We should not pretend that this is the first time that the US adopted protectionist measures that ensnarled are military allies. We have been to this dance before.

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FX Daily, March 22: Dollar Trades Off

The US dollar has not recovered from the judgment that yesterday’s that Fed was not as hawkish as many had anticipated. There was no indication that officials thought they were behind the curve or prepared to accelerate the pace of hikes. Powell is comfortable with the broad policy framework that has been established but seemed to have little time for the summing up of the individual forecasts (dot plot).

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FX Weekly Preview: The Fed and More

The most significant event in the coming week is the first FOMC meeting under the Chair Powell. At ECB President Draghi’s first meeting he cut interest rates. He cuts rates at his second meeting as well, underwinding the two hikes the ECB approved under Trichet. At BOJ Governor Kuroda’s first meeting, an aggressive monetary policy was announced that was notable not only in its size, but also in the range of assets to be purchased under the Qualitative and Quantitative Easing (QQE).

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Great Graphic: Potential Topping Pattern for Euro

EUR/BGN Currency Oct 2017 - Apr 2018

The euro appears to be potentially carving out a topping pattern. Recall that after correcting lower last September and October, the euro rallied for three months through January before weakening 1.75% in February. That was its biggest decline since February 2017. The euro’s high print was actually on February 16 near $1.2555, when it posted a key reversal, which is when it makes a new high for the move and then closes below the previous day’s low.

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FX Daily, March 13: Non-Economic Developments Dominate Ahead of US CPI

Many see the eruption of the scandal that threatens senior government officials as yen positive because it weakens those that ostensibly want to depreciate the yen through monetary policy. The scandal involves falsifying documents to conceal a sweetheart deal. The government sold of state-owned land to a school-operator, reportedly with connections to Prime Minister Abe’s wife at an incredibly low price.

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FX Weekly Preview: Another Goldilocks Moment

Spring is around the corner in the Northern Hemisphere, and with it, a sense of a Goldilocks moment. Growth is sufficiently strong to see employment grow and absorb the economic slack. In the US, the participation rate of the key 25-54 aged demographic group has risen and now stands at 89.3%, the highest since 2010.

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FX Daily, March 09: Today is about Jobs, but Not Really

The US Administration has softened its initial hardline position of no exemptions for the new steel and aluminum tariffs. There is little doubt that the actions will be challenged at the World Trade Organization and the idea that national security includes the protection of jobs for trade purposes will be tested. At the same time, US President Trump has agreed to meet North Korea’s Kim Jong Un.

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FX Daily, March 08: Euro Slips Ahead of the ECB Meeting

Expectations that the European Central Bank would change its forward guidance in a substantive way had been one of the factors behind the euro’s appreciation. However, more recently, the anticipation has slackened. The last meeting took place around the same time that many perceived US Treasury Secretary Mnuchin as having abandoned the strong dollar policy.

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FX Daily, March 07: Renewed Threat of Trade War Makes Investors Angry

In response to the resignation of one of the few “globalist” advisers in the US Administration, the resignation Cohn has sent ripples through the capital markets. Stocks have been marked down across the world. The prospects of a trade war are also not good for growth and it may be adding to the pressure on yields.

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FX Daily, March 06: Resiliency Demonstrated

The resiliency of the status quo is again on display. After much chin wagging and finger pointing after the Italian elections and the modest decline in Italian assets, they have bounced back today. Italian bonds and stocks are participating in today’s advance. Italian equities were off 0.5% yesterday and are up a 1.1% near midday in Milan. Italy’s 10-year yield rose three basis points yesterday is off five today.

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Great Graphic: Is the Canadian Dollar a Buy Soon against the Mexican Peso?

This Great Graphic composed on Bloomberg shows the Canadian dollar against the Mexican peso since the start of last year. There have been three big moves. The Canadian dollar trended lower against the peso as it corrected from the sharp sell-off induced in great measure to the candidate Trump’s rhetoric against Mexico. However, shortly before the inauguration, the peso began recovering continued through H1 17.

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FX Daily, March 05: Italian Election Weighs on Italian Assets, but Little Systemic Risk Seen

The US dollar is narrowly mixed. The Japanese yen remains firm. The dollar appears stuck in a narrow range. Near JPY105.20 the seems to be some short-covering pressure in front of JPY105. On the top side, the greenback is encountering offers in front of JPY105.80. Sterling is firm against the dollar as it recovers against the euro. Before the weekend, the euro reached GBP0.8950, its best levels since last November. The euro is testing GBP0.8900 that was previously resistance. The dollar-bloc currencies continue to trade heavily.

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FX Weekly Preview: Thumbnail Sketch Four Central Bank Meetings and US Jobs Data

The German Social Democrats have endorsed the Grand Coalition, ending the period of political uncertainty and paralysis in Germany since the last September’s election. The polls have suggested nearly 60% of the SPD would support joining the government and the actual outcome looks to be closer to 66%. In 2013, when the SPD had a similar vote, three-quarters favored a Grand Coalition. Among the differences is that the SPD public support has waned, and now, according to some polls, is at risk of slipping into third place behind the AfD.

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FX Daily, March 02: Markets Unanchored?

The announcement of the US intention to impose tariffs on imported steel and aluminum on national security grounds has sent ripples through the capital markets. Yet there is certainly more going on here than that. The tariffs, justification, and magnitude have indicated and expected. After reversing lower on Tuesday and selling off on Wednesday, equity investors hardly needed a fresh reason to sell on Thursday.

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FX Daily, March 01: USD Snaps 3-Month Slide, Firm Ahead of Powell Part II

The US dollar rebounded last September and October before the downtrend resumed in November, and lasted through January. The dollar gained broadly last month, except against the yen, which rose almost 2.4% in February. This pattern is evident today, the first trading day of March. The dollar is extending its gains against most currencies but is only managing to consolidate in a narrow range against the yen.

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FX Daily, February 27: Markets Tread Water; Powell is Awaited

The capital markets seem unusually subdued. The US dollar is mostly slightly firmer, except against the euro and Swiss franc among the majors. The MSCI Asia Pacific Index managed to eke out a small gain (0.2%), for a third advancing session, without the help of China, Taiwan, Korea or India. It was really a Japanese story. The Nikkei rallied 1.1%, while excluding Japan the MSCI benchmark was off 0.25%.

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FX Daily, February 26: Dollar Slides as Equities Extend Recovery

The US dollar has begun the new week on heavy footing. It is being sold against virtually all the currencies, major and emerging market currencies. There is one exception, and although the local market is not open, the Mexican peso is under some pressure that could be linked to a dispute between the President of Mexico and the US that prompted the former to cancel a visit to the latter.

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FX Weekly Preview: Three Drivers in the Week Ahead: Data, Speeches, Politics

There are three distinct classes of drivers in the week ahead. The first is high frequency data. The most important of the economic reports include the preliminary estimate of the February inflation in the euro area, the US January income, and consumption data alongside the Fed’s preferred inflation measure, the core PCE deflator, and Japanese retail sales and industrial production figures.

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FX Daily, February 23: Dollar Firms; VIX Set to Close Lower for Second Week

A light economic schedule in North America may help the markets close the week on a quiet note. Perhaps if there is one number that captures this sense, it may be the VIX. It is soft and barring a new disruption today, it is poised to close lower for the second consecutive week, for the first time this year. The US dollar is steady to higher today and barring a reversal, will close stronger on the week against the major currencies.

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FX Daily, February 22: All Eyes on Equities

The dramatic reversal of US shares yesterday in the last hour of trading has once again pulled the proverbial rug beneath the feet of investors. The turn down, moreover, occurred near important technical levels, seemingly adding to the significance. Global equities have followed suit.

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FX Daily, February 21: Markets Mark Time

The economic data stream is picking up, but there is an uneasy calm in the markets. It is almost as if the dramatic drop in stocks has left many with a sense of incompleteness, like waiting for another shoe to drop. The price action has not clarified the situation very much. The equity markets are stalling in front of important chart points as are yields and the dollar.

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Great Graphic: S&P 500 vs Euro Stoxx 600 and Exchange Rates

SPX Index, Nov 2016 - Feb 2018

Today is an important day for equities. After a sharp sell-off earlier this month, stocks staged a recovery last week. The recovery has stalled near retracement objectives, which could be a potential turning point in the market. The Dow Jones Stoxx 600 peaked on January 23 and dropped about 9% through February 9. Through yesterday, it recovered 38.2% of its decline, poking a little above 381.00.

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Cool Video: Bloomberg Interview-Rates, Dollar, and Equites

Bloomberg Tv

In large gatherings of people, from airplanes to theater to conferences, we are often told to know the closest exit. The same is true for investing. No matter one’s confidence when they buy a security, someone is just as convinced on the other side who is selling the security. Well into this 4.5-minute interview (click here for the link) on Bloomberg’s “What’d You Miss” show, Lisa Abramowicz asks the always important question. How will I know I am wrong?

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FX Daily, February 20: Dollar Trades Higher, but Stocks Challenged at Key Chart Point

The dollar is finding better traction today, building on the upside reversal seen before the weekend. The news stream has been light and it seems like primarily an issue of positioning rather than a change in sentiment or the consensus narrative. The focus has shifted from monetary policy and idea that the ECB and BOJ are exiting their extraordinary monetary policy to return of the twin deficit problem in the US.

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FX Daily, February 19: Monday Market Update

The US dollar is narrowly mixed in uneventful turnover. Of note, the dollar selling seen in Asia last week slacken today and the greenback moved above the pre-weekend highs seen in the US. It is the first time in eight sessions, the dollar has risen above the previous day’s high against the yen. Europe seems to be losing interest though, with the dollar near JPY106.60.

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FX Weekly Preview: Four Key Numbers in the Week Ahead

The US markets are closed on Monday, and many parts of Asia will continue to celebrate the Lunar New Year. The economic schedule is fairly light, and market psychology appears fragile after the dramatic activity in equities and what appears to be shifting macro-relationships. To help navigate the challenging investment climate, we identify four “numbers” that can illuminate the path ahead.

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FX Daily, February 16: Worst Week for the Dollar since 2015-2016, While Stocks Continue to Recover

Nearly all the major currencies have risen at least two percent against the US dollar this week. The Canadian dollar is an exception. It has risen one percent this week ahead of today’s local session. Sterling is becoming another exception after disappointing retail sales. It is up just shy of two percent. The Dollar Index is off 2.3% on the week, which would be the biggest weekly loss since 2015.

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Great Graphic: Bears Very Short US 10-Year Ahead of CPI

The US reports January CPI figures tomorrow. The market seems especially sensitive to it. The main narrative is that it is an inflation scare spurred by the jump in January average hourly earnings that pushed yields higher and unhinged the stock market. This Great Graphic comes from Bloomberg and is derived from data issued by the Commodity Futures Trading Commission (CFTC).

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FX Daily, February 15: Stocks Jump, Bonds Dump, and the Dollar Slumps

The significant development this week has been the recovery of equities after last week’s neck-breaking drop, while yields have continued to rise. The dollar has taken is cues from the risk-on impulse from the equity market and the sales of US bonds more than the resulting higher yields. Asia followed US equities higher.

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FX Daily, February 14: Investors Remain Uneasy even as Equities Stabilize

There is an unease that continues to hang over the market. It is as if a shoe fell last week, and most investors seem to be waiting for the other shoe to drop. It is hard to imagine the kind of body blow that the equities took last week without some kind of follow through and knock-on effects. Moreover, the focus today on US CPI may prove for nought.

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Great Graphic: Stocks and Bonds

The relationship between stocks and bonds does not appear to have changed much. It is difficult to eyeball correlations. Question the meaning of a chart that has two time series and two scales and.

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FX Daily, February 13: Tuesday’s Two Developments

There are two important developments today. First, the recovery in the global equity markets is being challenged. Second, the yen has strengthened across the board, and is now at its best levels against the dollar since last September’s low. The MSCI Asia Pacific Index extended Monday’s recovery with another 0.5% gain. However, looking closer, the momentum faltered.

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FX Daily, February 12: Equity Markets Find Firmer Footing, Dollar Softens

The most important development today has been the stability in the equity markets after last week’s meltdown. The recovery from new lows in the US before the weekend set the tone for today’s moves. Tokyo markets were on holiday, and the MSCI Asia Pacific Index excluding Japan snapped a seven-day slide with a nearly 0.6% gain.

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FX Weekly Preview: Recovering from Too Much of a Good Thing?

Too much of a good thing is bad. That, in a nutshell, is an important insight that Hyman Minsky offered about the financial sector, but has broader application. The low volatility that has been a characteristic of the capital markets for the past few years spurred financial innovation to profit from it.

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FX Daily, February 09: Equity Sell-Off Extends to Asia, but More Muted in Europe

The 100-point slide in the S&P 500 and the 1000-point drop in the Dow Jones Industrials yesterday spurred more bloodletting in Asia. The 1.8% drop in the MSCI Asia Pacific Index (for a 6.7% loss for the week) may conceal the magnitude of the regional losses. At one point the CSI 300 of the large Chinese mainland shares was off more than 6% before closing off 4.3% (and 10% for the week). The H-shares index was down 3.9% and 12% for the week.

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Great Graphic: FX Vol Elevated, but Still Modest

With the substantial swings in the volatility of equities that have captured the imagination of journalists and punished investors who bought financial derivatives that profited from the low vol environment, we thought it would be helped to look at the implied volatility of the leading currencies against the US dollar. The Great Graphic looks at the three-month implied volatility for the euro (white line), the yen (yellow line), and sterling (green line) over the past year.

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FX Daily, February 08: Dollar Firms, While Equities Search for Stability

The swings in the equity markets are subsiding, bond yields are firm and the US dollar is extending its recovery. Although US equities closed lower, the MSCI Asia Pacific Index snapped a four-day drop by posting a 0.25% gain. However, the MSCI Emerging Markets Index is off nearly as much, though the range was modest. European markets are also lower, and the range for the Dow Jones Stoxx 600 is the smallest in more than a week.

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Great Graphic: Major Currencies Year-to-Date

This Great Graphic was created on Bloomberg. It shows five major currencies against the US dollar this year. To avoid giving a misleading impression, the currencies are index to start this year at 100 and all the currencies are quoted in the European style of how many dollars the currency purchases. These kinds of charts are not so much for trading, but they help illustrate the relative moves that can be masked by nominal price changes.

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FX Daily, February 07: Guns and Butter May Resolve US Legislative Logjam

After a volatile session in North America, the major equity indices closed higher. In fact, the 1.75% rise in the S&P 500 was the best since November 2016. Asian equities stabilized, and the MSCI Asia Pacific Index was able to eke out a small gain. The European markets are moving higher is also posting early gains and the Dow Jones Stoxx 600 is about 0.45%, which threatens to snap the seven-day slide. However, the main challenge now is that the S&P 500 are trading nearly 1% lower.

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Cool Video: Bloomberg Double Feature–BOE Meeting and the Yield Curve

Chandler

The Bank of England meets tomorrow. Although no one expects a move, it has little to do with the recent market volatility. The FTSE 100 is poised to snap a six-day 7%+ slide. The FTSE 250 fell for seven consecutive sessions through yesterday, shedding 5.75% in the process. The UK’s 2-year yield slipped about seven basis points from last week’s close to58 bp before recovering to 63 bp today, around the middle of this week’s range.

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US Trade Balance is Deteriorating, Despite Record Exports

The US trade deficit swelled in December, and the $53.1 bln shortfall was a bit larger than expected. It was the largest deficit since October 2008. For the 2017, the US recorded a trade deficit of goods and services of $566 bln, the largest since 2008. The deterioration of the trade balance may be worse than it appears. There has been significant improvement in the oil trade balance. In 2017, the real petroleum balance was just shy of $96 bln, the smallest in 14 years.

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FX Daily, February 06: Recovering US Equities Puts Floor Under Europe after Asia Tanks

After the dramatic fall in US equities, Asian equities followed suit. The MSCI Asia Pacific Index fell 3.4% following Monday’s slide of 1.7%. European bourses gapped lower and spent most of the morning moving higher, though large gaps remain. At its worst, the Dow Jones Stoxx 600 was off about 3.3%, and at the time of this writing, it is half as much. US equities initially extended yesterday’s losses, but the S&P 500 has turned higher in the European morning in very volatile activity.

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FX Daily, February 05: Dollar Consolidates while Equity Rout may be Ebbing

Asian equity markets were weighed down by losses in the US markets ahead of the weekend. The MSCI Asia Pacific Index was off 1.4% after the 1.0% pre-weekend loss. The Nikkei gapped lower and shed 2.5% and has fallen in eight of the past nine sessions. The notable exception in Asia was the Shanghai Composite. The 0.75% was led by the financial sector amid talk that a report later this week will show a strong jump in yuan lending from banks, which are pushing in as the shadow banking is squeezed out.

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FX Daily, February 02: A Note Ahead of US Jobs Report

The US dollar is sporting a firmer profile against all the major currencies after weakening yesterday. Frequently, it seems the Australian dollar leads the other currencies, and we note that it is making a new low for the week today. Briefly, in Europe, it slipped below its 20-day moving (~$0.7985) average for the first time since December 13.

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FX Daily, February 01: Fed’s Hawkish Hold Keeps Dollar Consolidation Intact

The Yellen Fed ended on a high note. She took over the reins the of Federal Reserve an implemented a strategic normalization process monetary policy, and helped engineer not only the first post-crisis rate hikes but also the beginning of unwinding its balance sheet. Most reckon she has done an admirable job at the Federal Reserve, not only in terms of the economic performance on her watch but also the nimble execution policy.

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FX Daily, January 30: Dollar and Bonds Stabilize; Equities not Yet

The US dollar is paring yesterday’s gains, and the 10-year Treasury yield has slipped back below the 2.70% level after pushing 2.73% briefly. European bonds have also eased, with yields one-two basis points lower. It is thus far a mild Turn Around Tuesday but suggests that the market psychology that has driven the dollar lower and yields higher persistently since mid-December have not been broken.

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FX Daily, January 29: A Brief Word

The US dollar is modestly firmer, but nothing to suggest a outright correction rather than consolidation. However, have a dramatic drop over the past month, much more than we think is justified by macroeconomic developments and interest rates, we think the dollar may have overshot.

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FX Weekly Preview: Market Confusion and New Inputs

Many investors are confused, and the official communication only fanned the confusion. Before turning to next week’s key events and data, let’s first spend some time, working through some of the confusion. There was no change in policy last week. The US did not suddenly become protectionist. It did put tariffs on solar panels and washing machines.

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Initial Thoughts on Draghi

ECB President Draghi was unable to arrest the US dollar’s slide and euro’s surge. But he did not try particularly hard. While many investors are a bit stumped by the pace and magnitude of the dollar’s slump, Draghi seemed to imply that it was perfectly understandable given the recovery of the eurozone economy.

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Did Mnuchin Signal a Policy Shift Today?

Did US Treasury Secretary Mnuchin signal a change in the US dollar policy? Probably not. As Mnuchin and President Trump have done before, a distinction was drawn between short- and longer-term perspectives. In the short-term, a weaker dollar says Mnuchin, is good for US trade and “other opportunities”. In the longer-term, Mnuchin explicitly acknowledged, “the strength of the dollar is a reflection of the strength of the US economy.”

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FX Daily, January 26: Trump-Inspired Dollar Short Squeeze Fades Quickly

It was dramatic. Following the BOJ and ECB’s rather mild rebuke of dollar’s depreciation, US President Trump cautioned that his Treasury Secretary comments were taken out of context, and in ant event, he, the President ultimately favored a strong dollar. The dollar, which had continued fall after Draghi’s post-ECB meeting comments, shot higher in the US afternoon in response to Trump’s comments.

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FX Daily, January 25: And Now, a Word from Draghi

With a backdrop of concern about US protectionism and a possible abandonment of the 23-year old strong dollar policy, and among the weakest sentiment toward the dollar in at least a decade, the ECB takes center stage. What a turn of events for Mr. Draghi, the President of the European Central Bank.

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FX Daily, January 24: Dollar Takes Another Leg Lower

North American session sold into the dollar’s upticks and Asia followed suit, taking the greenback to new multi-year lows against the euro and sterling while pushing it below the JPY110 level for the first time since last September. US trade action has become latest element of the narrative the seeks to explain the dollar’s slide and the decoupling of the greenback from interest rates.

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Great Graphic: Is Aussie Cracking?

AUD BGN Currency, Jul 2017 - Jan 2018

The Australian dollar bottomed in early December $0.7500 after having tested $0.8100 a couple of times in September. Since early December, however, the Australian dollar appreciated by nearly 6.5%. As it tested the $0.8000 area, the momentum faded.

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FX Daily, January 23: Dollar Stabilizes Near Recent Lows

The US dollar has come back better bid in late Asian activity. The session highlight was the BOJ meeting. BOJ maintained forecasts and policy. There was a small tweak to the inflation assessment, noting that prices were skewed to the downside, and said there was no change in inflation expectations. Last time it has said expectations were weakening. It also reiterated that there was no policy implication to the bond operations.

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FX Daily, January 22: Dollar Remains Heavy

The US dollar closed last week on a firm note, but it has been unable to build on its gains to start the new week. News that Germany’s SPD agreed to enter formal negotiations with Merkel’s CDU/CSU alliance saw the euro open in Asia around a half a cent higher. However, sellers emerged near $1.2275 but seemed to lose their nerve as the pre-weekend low near $1.2215 was approached.

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FX Weekly Preview: ECB and BOJ Meetings Could be Key to Dollar Direction

The US dollar has been marked lower since the middle of last month. It flies in the face strong growth, rising inflation expectations, and greater conviction that the Fed will continue to raise interest rates this year. Moreover, an oft-cited knock on the dollar, the widening current account, may be offset this year by the impact from US corporations repatriating earnings that have been kept offshore.

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FX Daily, January 19: Dollar Crushed as Government Shutdown Looms

The US dollar is broadly lower as the momentum feeds on itself. Asia is leading the way. The Japanese yen, Taiwanese dollar, Malaysian Ringgit, and South Korean won are all around 0.45% higher. Asian shares also managed to shrug off the weakness seen in the US yesterday. The MSCI Asia Pacific Index advanced 0.7%. It is the sixth consecutive weekly gain. The dollar’s drop comes as US yields reach levels now seen in year. The 10-year yield is at its highest level seen 2014, while yields from bills to three-year paper are at their highest level since 2008.

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FX Daily, January 18: Currencies Consolidate After Chop Fest

The US dollar rallied in the North American afternoon yesterday and the timing coincided with the release of the Fed’s Beige Book that saw several districts report wage and price pressures. The US 10-year yield moved toward toward 2.60%, and helped by speculation that as US companies repatriate earnings kept abroad that they may have to liquidate the investments, some of which are thought to be in Treasuries.

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China and US Treasuries

The US Treasury market was consolidating yesterday’s 7.5 basis point jump in 10-year yields when Bloomberg’s headline hit. The claim was that Chinese officials are “wary of Treasuries”. Yields rose quickly to test 2.60% and the dollar moved lower. It is difficult to determine the significance of the claim as the Bloomberg story does not quote anyone.

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FX Daily, January 17: Dollar Stabilizes After Marginal New Lows

After a shallow bounce in Asia and Europe yesterday, the dollar slipped lower in North American yesterday. Asia was happy to extend those dollar losses, and the greenback was pushed to marginal new lower in Asia, but has come back in the European session. The next result is a choppy but flattish consolidation compared with last week’s closing prices.

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Great Graphic: Treasury Holdings

Treasury Holdings

The combination of a falling dollar and rising US interest rates has sparked a concern never far from the surface about the foreign demand for US Treasuries. Moreover, as the Fed’s balance sheet shrinks, investors will have to step up their purchases.

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FX Daily, January 16: Dollar Given a Reprieve

After extending its recent slide yesterday, which the US markets were on holiday, the dollar is firmer against all the major currencies and most of the emerging market currencies. There does not seem to be macroeconomic developments behind the dollar’s stabilization, and the gains are quite minor, suggesting a pause in the downtrend rather than a reversal at this juncture.

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FX Weekly Preview: Drivers and Views

It is not easy to recall another week in which there were so many potential changes to the broad investment climate. The relatively light economic calendar in the week ahead may allow investors to continue to ruminate about some of those developments. Here we provide thumbnail assessments of the main drivers.

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Great Graphic: Euro Monthly

EUR/BGN Currency, 2002 - 2018

The euro peaked in July 2008 near $1.6040. It was a record. The euro has trended choppily lower through the end of 2016 as this Great Graphic, created on Bloomberg, illustrates. We drew in the downtrend line on the month bar chart. The trend line comes in a little below $1.27 now and is falling at about a quarter cent a week, and comes in near $1.26 at the end of February.

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FX Daily, January 12: Euro Jumps Higher

There is one main story today and it is the euro’s surge. The euro began the week consolidating it recent gains a heavier bias, but the record of last month’s ECB meeting surprised the market with its seeming willingness to change the forward guidance early this year in a more hawkish direction. This spurred a 0.7% gain in the euro back above $1.20. The euro stayed bid in Asia, but took another leg up (~0.75%) in response to reports that a preliminary deal was struck between the CDU/CSU and the SPD in Germany to begin negotiations on another grand coalition.

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Is the BOJ Tapering?

The G3 central banks are in flux. The Federal Reserve is gradually raising rates and allowing the balance sheet to shrink by not fully reinvesting the maturing proceeds. The ECB will purchase half as many bonds in the first nine months of 2018 as it did in the last nine months of 2017.

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FX Daily, January 11: Capital Markets Calmer, Greenback Consolidates

As market participants were just getting their sea legs back after the start of the year, it was hit by a one-two punch of ideas that BOJ policy was turning less accommodative and that Chinese officials were wary of adding to their Treasury holdings. Then late yesterday, a news wire reported that Canada suspected the US was going to withdraw from NAFTA.

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Cool Video: Bloomberg TV Clip on Central Banks

Bloomberg Video

I joined Alix Steel and David Westin on the Bloomberg set earlier today. Click here for the link. In the roughly 2.5 minute clip, we talk about the US and and the monetary cycle in Europe. In the US, Q4 was another quarter of above trend growth. The Atlanta Fed says the economy is tracking 2.7%, while the NY Fed puts it at 4.0%.

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FX Daily, January 10: Yen Short Squeeze Extended

Sparked by fears that the BOJ took a step toward the monetary exit by reducing the amount of long-term bonds it is buying, there is an apparent scramble to cover previously sold yen positions. The dollar finished last week near JPY113.00. It fell to about JPY112.35 yesterday, near the 50% retracement of the greenback’s bounce from the late-November lows near JPY110.85.

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FX Daily, January 09: Dollar Correction Extended

The US dollar’s upside correction that began before the weekend has been extended in Asia and Europe today. The main exception is the Japanese yen. The yen’s modest gains have been registered despite the firmness in US rates and continued advance in equities; both factors associated with a weaker Japanese currency.

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FX Daily, January 08: Dollar Posts Modest Upticks to Start the New Week

The US dollar is enjoying modest but broad-based gains after trading firmly at the end of last week despite the slightly disappointing jobs report. The dollar’s upticks are understood to be corrective in nature. The Canadian dollar appears to be protected by the increased prospects of a rate hike next week after its stellar employment report.

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Italian Election–Two Months and Counting

italy

Germany does not have a government, though the election was more than three months ago. Spain, Portugal, and Ireland have minority governments. Austria is the first government since the financial crisis to include the populist right. The EU is trying to press the Visegrad group of central European countries to conform to the values of Western European members.

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FX Daily, January 05: Dollar Given Reprieve Ahead of Employment Report

As the US dollar finished last year, so too did it begin the New Year, and after extending its losses, the bears have paused. Technical factors had been stretched, but it appears to have been old-fashioned macroeconomic considerations to have helped the dollar to move off the mat. Quickly summarized, these considerations are a larger than expected Australian trade deficit, slippage in Japan’s service sector PMI, a larger than expected drop in the UK’s BRC price index, and the lack of improvement in the flash eurozone December core CPI.

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Headline US Jobs Disappoint, but Earnings as Expected

The headline US non-farm payrolls disappointed, rising by 148k instead of the consensus of 180k-200k. However, the other details were largely as expected and are unlikely to change views about the trajectory of Fed policy or the general direction of markets. It is a very much steady as she goes story.

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Cool Video: Is the Third Major Dollar Rally Since Bretton Woods Over?

Video Bloomberg

To many, the question about the fate of the third major dollar rally since the end of Bretton Woods was resolved last year. The dollar fell broadly. It marked the end the greenback’s ride higher. However, I remain less convinced that this is really the case. And that is what I discuss in this three-minute clip from Bloomberg’s What’d You Miss.

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FX Daily, January 03: Dollar Stabilizes, but Sees Little Recovery

The US dollar is stabilizing but the tone remains fragile. The euro, which has advanced for five consecutive sessions coming into today is slightly lower. The euro had stalled yesterday as it approached last year’s high set in September near $1.2090. Yesterday was also the third consecutive close above the upper Bollinger Band, which is found today near $1.2060.

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The Past is Not Passed: 2017 Spills into 2018

The New Year may have begun in fact, but in practice, full participation may return only after the release of US employment data on January 5. The macroeconomic and policy tables have been set, though interpolating from the Overnight Index Swaps market, there is 45% chance the Bank of Canada hikes rates at its policy meeting near the middle of the month.

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Great Graphic: Progress

Progress 1990 - 2015

The world looks like a mess. While the economy appears to be doing better, disparity of wealth and income has grown. Debt levels are rising. Protectionism appears on the rise. Global flash points, like Korea, Middle East, Pakistan, Venezuela are unaddressed. At the same time, this Great Graphic tweeted by @DinaPomeranz, with a hat tip to @bill_easterly is a helpful corrective.

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FX Daily, January 2: Dollar Slump Accelerates

The US dollar’s slump seen in the final two weeks of 2017 is carried into today’s activity. The greenback’s sell-off extends to the emerging market currencies as well. The Hungarian forint is the strongest rising nearly 1%, ostensibly helped by the euro approaching last year’s high. However, our sense that fumes and momentum more than fresh news is pushing the dollar down is illustrated by the Korean won. It has gained nearly 0.9% today even though its manufacturing PMI fell below the 50 (49.9) boom/bust level for the first time in six months.

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Petro-Yuan? Really?

The launch of futures on Bitcoins was rushed so quickly through the regulatory channels that the anticipation was short-lived. And as the recent price action amply demonstrates, the existence of a derivative market has not tamed the digital token’s volatility. It is still the early days, but Bitcoin futures do not look likely to change the world.

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FX Daily, December 27: What Happened on Boxing Day?

There were several developments on the day after Christmas, while many markets remained closed and investors sidelined. One of the most important developments was the euro’s complete recovery from the flash crash of nearly three percent on Christmas day in the North American time zone.

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FX Daily, December 19: US Equities Set Pace, While Greenback Consolidates Inside Monday’s Ranges

US tax changes appear to be providing fuel for the year-end advance that has carried the major indices to new record highs. The coattails are a bit short, and while global equity markets are firm, they are unable to match the strength of US. Despite a heavier tone in Japan, Taiwan, and Korea, the MSCI Asia Pacific Index edged higher for the second session but remains around one percent below the record highs set in late November.

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FX Daily, December 18: Trade Tensions with China Set to Escalate

The two main legislative initiatives in the US this year, the repeal of the Affordable Care Act and the tax changes, are not particularly popular. However, the next items on the agenda appear to enjoy broader support. The infrastructure initiative is likely to be unveiled as early as next month. Before that, the US is poised to ratchet up the tension on China.

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FX Daily, December 15: Premium for Dollar-Funding is not Helping Greenback Very Much

The cross-currency basis swap continues to lurch in the dollar’s direction, especially against the euro, and yet the dollar is not drawing much support from it. The increasing cost reflects pressure for the year-end and does not appear to reflect systemic issues. Dollar auction by the ECB and BOJ do not show any strain. The dollar has a downside bias today against most of the major currencies. And is what is true of the day is true for the week. Without a recovery in North America today, the Dollar Index will snap a two-week advance.

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FX Daily, December 14: US Rates Bounce Back, but Dollar, Hardly

US interest rates have recovered the drop seen after the FOMC yesterday, but the dollar at best has been able to consolidate its losses and at worst, seen its losses extended. The Fed boosted its growth forecasts and lower unemployment forecasts. Yet its interest rate trajectory and inflation forecasts were largely unchanged. Yellen, as her recent predecessors have done, played down the implications of the flattening of the yield curve.

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FX Daily, December 13: Greenback Quiet Ahead of Five Central Bank Meetings

The Federal Reserve gets the balling rolling today with the FOMC meeting, which is most likely to deliver the third hike of the year. Tomorrow, four European central banks meet: Norway, Switzerland, the UK, and the ECB. The MSCI Asia Pacific Index rose nearly 0.3%, though Japanese and Indian shares were lower. In Europe, the Down Jones Stoxx 600 is paring yesterday’s gains (-0.2%) led by utilities and telecom. Consumer discretion and financials are firmer. The MSCI Emerging Markets Index is up 0.3% taking back half of yesterday’s loss.

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FX Daily, December 08: Brexit Talks Move to Stage II, While Greenback Remains Firm

Sufficient progress will be judged to have been made, and negotiations of the separation between the UK and EU will be allowed to enter the second stage. The formal decision will be made at next week’s EU summit. To be sure, “sufficient progress,” which the diplomatic-speak that does not mean that any agreement has really been reached, but rather that the UK has made a few concessionary signals.

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FX Daily, December 07: Equities and Oil Stabilize

Global equities are stabilizing today after the recent downside pressure. The MSCI Asia Pacific Index snapped an eight-day slump with a 0.4% gain, led by a rebound in Tokyo and India. European markets are firm, with the Dow Jones Stoxx 600 up around 0.25% near midday in London. All sectors are higher but telecom and real estate are performing best, while energy and health care are laggards.

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FX Daily, December 05: Sterling Sold on Negotiating Snafu, Aussie Bounces on Retail Sales and RBA

The US dollar is confined to narrow ranges against the euro and yen, straddling unchanged levels in the Asian session and the European morning. The action in elsewhere. The British pound is the weakest of the majors, paring 0.4% against the greenback, though around $1.3425, it can hardly be considered weak. A month ago, sterling was a few cents lower. Still, its gains reflected two things: broader dollar weakness and optimism on Brexit talks.

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FX Daily, December 04: US Dollar Marked Higher After Senate Passes Tax Reform

The US dollar opened higher in Asia and retained those gains through the European morning. The greenback has recouped most of the pre-weekend losses recorded in the wake of the indictment of a fourth former Trump Administration official by the special investigation into Russia’s involvement in last year’s election. However, two weekend developments seemed to blunt the impact of the guilty plea and admission of cooperation.

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Cool Video: Short Take on Bitcoins

I stopped by Bloomberg near midday to talk with Vonnie Quinn and Shery Ahn. We talked about many macro issues, but this clip that Bloomberg provided covers is the one topic that has overshadowed the big rally in US equities, tax reform and Matt Lauer: Bitcoins. In this two minute clip, I mention that despite Bitcoins capturing the headlines, most Americans are not and cannot be involved.

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FX Daily, November 30: US Dollar Comes Back Bid, but Brexit Hopes Underpin Sterling

The US dollar is broadly firmer. The rise in US yields yesterday has seen the greenback extend its recovery against the yen. It briefly pushed through JPY112.40, after dipping below JPY111.00 at the start of the week, for the first time since mid-September. Since the end of last week, been capped at the 200-day moving average against the yen, found near JPY111.70, but yesterday it pushed past. There are nearly $1 bln of options struck between JPY112.20-JPY112.65.

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FX Daily, November 29: Sterling Charges Ahead on Brexit Hopes

Prospects of a deal with the EU has sent sterling to its best level in two months against the dollar. It reached $1.3430 in early European turnover. It had sunk to nearly $1.3220 yesterday as European markets were closing, which was a four-day low. It is the strongest of the major currencies today, gaining about 0.4%. With today’s gains has met our retracement target near $1.3415. The momentum appears to give it potential toward $1.3500 in the near-term.

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FX Daily, November 28: Greenback Ticks Up in Cautious Activity

The US dollar is consolidating its recent losses with a small upside bias. What promises to be an eventful week has begun with the Bank of England stress test and the publication of the Fed’s Powell prepared remarks for his confirmation hearing to succeed Yellen as Chair. Unlike last year, this year’s BOE stress test saw all seven banks pass.

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FX Daily, November 27: Slow Start to Busy Week

The US dollar is narrowly mixed and is largely consolidating last week’s losses as the market waits for this week’s numerous events that may impact the investment climate. These include the likelihood of the US Senate vote on tax reform, preliminary eurozone November CPI, a vote of confidence (or lack thereof) in the deputy PM in Ireland, Powell’s confirmation hearing as Yellen’s successor, the BOE financial stability report, and stress test, and the latest read on Japanese inflation.

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FX Daily Rates, November 24: Euro Continues to Push Higher

The euro is edging higher to trade at its best levels since the middle of last month. It is drawing closer to the $1.1880 area, which if overcome, could point to return to the year’s high seen in early September near $1.2100. There is a combination of factors lifting the euro. The recent data, including yesterday’s flash PMI, suggests that the regional economy is re-accelerating here in Q4.

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German Politics: What’s Next?

Coalition talks will resume in the coming days, and failing this a minority government is more likely than new elections. The is a general agreement among the political elites, and a hubris of small differences. The rate differentials and cross currency swaps show the incentive structure for holding dollars is increasing.

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Cool Video: Bitcoin Discussion on Bloomberg

Bitcoin

I had to be on Bloomberg’s Day Break with David Westin and Alix Steel earlier today. We talked about the collapse of talks to put together a new coalition following the results of the September election. I suggested that the initial reaction was exaggerated, negotiations will likely resume in some fashion, and speculation of Merkel’s demise are premature.

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FX Daily, November 21: Dollar Marks Time

The US dollar has largely been confined to yesterday’s trading ranges against the major currencies amid light news. The North American session does not hold much hope for fresh impetus. The US reports October existing home sales, which are not typically market moving in the best of times. Yellen does not speak until after the markets close, and even then is unlikely to sway expectations, which have priced in a rate hike next month.

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FX Daily, November 20: German Political Impasse Roils Euro…Briefly

News that the attempt to forge a four-party coalition in Germany collapsed Sunday saw the euro marked down in early Asian activity. The euro fell to nearly $1.1720 in the immediate response to the news, stabilized before turning higher in early European turnover. It quickly recovered and poked through $1.1800. The pre-weekend high was seen near $1.1820.

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FX Weekly Preview: Another Week that is Not about the Data

The contours of the investment climate are unlikely to change based on next week’s economic data from the US, Japan, or Europe. The state of the major economies continues to be well understood by investors. Growth in the US, EU, and Japan remains solid, and if anything above trend, as the year winds down.

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Great Graphic: Euro Approaching Key Test

EUR/BGN Currency

Euro is testing trendline and retracement objective and 100-day moving average. Technical indicators on daily bar charts warn of upside risk. Two-year rate differentials make it expensive to be long euros vs. US. Beware of small samples that may exaggerate seasonality.

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FX Daily, November 17: Euro, Yen and Sterling Regain Footing

The US dollar is trading with a heavier bias against the euro, sterling, and yen, but is firmer against the Antipodean currencies and many of the actively traded emerging market currencies. This mixed performance is the story of the week. The US 2-10 yr yield curve is flattening further today with the two-year pushing above 1.70% for the first time since the financial crisis. The 10-year yield is slipping toward the middle of this week’s 2.32%-2.41% trading range.

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FX Daily, November 16: Euro Extends Pullback

After rising to its best level since October 20, the euro reversed direction yesterday and has extended its pullback today. The unexpected tick up in US core CPI and better than expected retail sales may have helped spur the euro losses after three cent run-up over the past several sessions. There bearish candlestick (shooting star) leaves the late euro longs in weak hands.

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FX Daily, November 15: Dollar Slides

The euro and yen are extending their gains, casting a pall over the US dollar. The euro is extending its advance into a sixth consecutive session, which is the longest streak since May. It is approaching last month’s highs in the $1.1860-$1.1880 area. As was the case yesterday, a consolidative tone in Asia was followed by strong buying in the European morning. There does not appear to be a fresh fundamental driver.

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FX Daily, November 14: Euro Rides High After German GDP

Sterling is trading in the lower end of yesterday’s range and has been confined to about a quarter a cent on either side of $1.31. On the other hand, the euro has pushed a bit through GBP0.8950 to reach its best level since October 26. Sweden also reported softer than expected October inflation.

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FX Daily, November 13: Sterling Trounced by Growing Political Challenges

The US dollar has begun the new week on firm footing, without the help of either higher interest rates or increased confidence that Congress will agree on a tax plan. Indeed, over the weekend the Chair of the House Ways and Means Committee was explicit that the Senate plan to repeal the federal tax break for state and local taxes will not find support in the House of Representative.

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FX Weekly Preview: Week Ahead Data and Policy

There seems to be a broad consensus on the trajectory of policy in the remaining weeks of the year. Barring a major shock or surprise the Federal Reserve will hike rates next month. The ECB’s course is set until at least the middle of next year when the current policy will begin to be debated in earnest.

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Cool Video: Bloomberg TV on Powell–Heir Apparent

BBG London

In London on business and had the opportunity to go to Bloomberg. In this clip, Francine Lacqua discuss the likely nomination of Fed Governor Powell to succeed Yellen at the helm of the Federal Reserve. I make three points. First, that, like others, I recognize a strong element of continuity between Bernanke, who was first appointed by a Republican, Yellen, and now, presumably Powell.

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FX Daily, November 02: Dollar Pulls Back in Asia

We suggested the market was at crossroads. It is still not clear if the dollar’s breakout, supported by higher yields is real or simply the fraying of ranges. Asia has pushed the dollar broadly lower. While the greenback finished the North American session above JPY114.00 for the first time since July, the fact that the US 10-year yield could not push back above the 2.40% level, does not help confidence.

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FX Daily, November 01: Super 48 Hours

This is it: The next 48 hours will be among the busiest of the year. The Bank of England meets tomorrow, and it not only gives a verdict on interest rates but also provides an update of its economic projections (Quarterly Inflation Report). And, among the innovations, the MPC minutes will be released. Ahead of the Federal Reserve meeting, the market will have the ADP private-sector job estimate.

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FX Daily, October 31: Month-End Leaves Market at Crossroads

Global equity markets are closing another strong month. The MSCI Asia Pacific Index was little changed on the day, but up 4.3% in October, the 10th consecutive monthly advance. Europe’s Dow Jones Stoxx 600 is also flattish today, but up 1.6% on the month. It is the second monthly advance after a June-August swoon. The benchmark is closing in on the high for the year set in May.

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FX Daily, October 30: Dollar Slips in Consolidative Activity

The markets are mixed, mostly responding to idiosyncratic developments, as the week’s large events loom ahead. These BOJ, BOE, and FOMC meetings, eurozone flash CPI and US jobs reports. In addition, US President Trump is expected to announce his nomination of the next Fed chair, and the initial House tax bill will be unveiled.

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Three Developments in Europe You may have Missed

The focus in Europe has been Catalonia’s push for independence and the attempt by Madrid to prevent it. Tomorrow’s ECB meeting, where more details about next year’s asset purchases, is also awaited. There are three developments that we suspect have been overshadowed but are still instructive. First, the ECB reported that its balance sheet shrank last week. With the ECB set to take another baby step toward the exit, many are seeing convergence, though we argue that divergence of interest rates and balance sheets has not peaked.

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FX Daily, October 27: Greenback Finishing Week on Firm Note

This has been a good week for the US dollar. The Dollar Index’s 1.25% gain this week is the largest of the year. The driver is two-fold: positive developments in the US and negative developments abroad. The positive developments in the US include growing acceptance that the Fed will raise rates in December and that there will be more rate hikes next year. The Fed says three.

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FX Daily, October 26: Draghi’s Day

It is all about the ECB meeting today. The market was hoping for more details last month, but Draghi pointed to today. The broad issue is well known. While growth has been strong, price pressures are still not, according to the ECB, on a durable path toward its “close but lower than 2%” target. The ECB judges that substantial additional stimulus is needed.

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FX Daily, October 25: Sterling and Aussie Interrupt the Waiting Game

Most participants seemed comfortable marking time ahead of tomorrow’s ECB meeting, and an announcement President Trump’s nominations to the Federal Reserve. However, softer than expected Australian Q3 CPI and a stronger than expected UK Q3 GDP injected fresh incentives. Australia reported headline CPI rose 0.6% in Q3.

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FX Daily, October 24: Dollar Treads Water as 10-year Yield Knocks on 2.40percent

The US dollar is narrowly mixed in mostly uneventful turnover in the foreign exchange market. There is a palpable sense of anticipation. Anticipation for the ECB meeting on Thursday, which is expected to see a six or nine-month extension of asset purchases at a pace half of the current 60 bln a month. Anticipation of the new Fed Chair, which President Trump says will be announced: “very, very soon.”

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Canada: Monetary and Fiscal Updates This Week

Divergence between US and Canada’s two-year rates is key for USD-CAD exchange rate. Canada’s 2 hikes in Q3 were not part of a sustained tightening sequence. Policy mix considerations also favor the greenback if US policy becomes more stimulative.

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FX Daily, October 23: US Dollar Starts New Week on Firm Note

The US dollar is enjoying modest gains against most currencies as prospects of both tax reform and additional monetary tightening by the Fed carry over from last week. The strong showing of the Liberal Democrats in Japan, where the governing coalition has maintained its super-majority is seen as confirmation of continuity. This helped lift Japanese shares and weighed on the yen. The Nikkei advanced 1.1%, the most in a month, and extends the advancing streak to a record 15 sessions. The Nikkei is at 20-year highs.

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FX Weekly Preview: Three on a Match: US Tax Reform, ECB and Bank of Canada Meetings

Busy week of economic data and central bank meetings, and reaction to Spanish developments and Japan and Czech elections. Focus below is on the Bank of Canada and ECB meetings and tax reform in the US. The biggest challenge to tax reform is unlikely on the committee level but on the floor votes, especially in the Senate, in a similar way the stymied health care reform. US and German 2-year rates are diverging the most since the late 1990s and US-Canada 2-year spread moving in US favor.

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Abe’s Third Arrow

Abe’s political gamble appears likely to pay off. The third arrow of structural reforms continues. The FSA is continuing to push for shareholder value. Foreign investors have gone on a three-week buying spree that appears to be the largest in years, and the Nikkei is leading G7 bourses higher this month.

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FX Daily, October 19: Kiwi Drop and Sterling Losses Punctuate Subdued FX Market

The 30th anniversary of the 1987 equity market crash the major US benchmarks at record highs. The drop in the market was at least partly a function of the lack of capacity, sufficient instruments, and regulatory regime. Each of these factors has been addressed to some extent. Circuit breakers have been introduced, and have evolved. The financial capacity has grown immensely.

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Great Graphic: The Euro’s Complicated Top

Euro looks like it is carving out a top. The importance also lies in identifying levels that the bearish view may be wrong. Widening rate differentials, a likely later peak in divergence than previously anticipated, and one-sided market positioning lend support to the bearish view.

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Central Bank Chiefs and Currencies

Market opinion on the next Fed chief is very fluid. BOE Governor Carney sticks to view, but short-sterling curve flattens. New Bank of Italy Governor sought. A second term for Kuroda may be more likely after this weekend election.

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Political Focus Shifting in Europe

There was a huge sigh of relief among investors when it became clear that the populist-nationalist wave that ostensibly led to Brexit and Trump’s election was not going to sweep through Europe. The euro gapped higher on April 24, and it has not looked back. We have suggested that with the outcome of the German election, European politics shift from tailwind to headwind.

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Brief Thoughts on the Euro

Euro peaked a month ago. The reversal before the weekend marks the end of the leg lower. ECB meeting is next big focus. ECB may focus on gross rather than net purchases.

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FX Daily, October 13: Sterling Extends Yesterday’s Recovery; US Data Awaited

The EU’s leading negotiator whipsawed sterling yesterday. The net effect was to ease fears that the UK would leave the EU without the agreement Initial concerns that the negotiations had stalled sent sterling to nearly $1.3120. The willingness to discuss a two-year transition period spurred sterling’s recovery. After trading on both sides of Wednesdays, it closed on its highs was a bullish technical signal and there has been follow-through buying today.

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FX Daily, October 12: Discipline Argues Against Consensus Narrative

Following the release of the FOMC minutes from last month’s meeting, the consensus narrative that has emerged says that it was dovish because there is a growing worry the reason inflation fell is not simply due to transitory factors. This explains, according to the narrative the dollar’s losses and the stock market rally.

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FX Daily, October 11: Markets Looking for a New Focus

The US dollar is consolidating after retreating since reversing lower following the US jobs data at the end of last week. While the greenback has largely been confined to yesterday’s ranges against the major currencies, the euro has made a marginal new high, briefly trading through the $1.1830 area noted yesterday.

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FX Daily, October 10: Dollar Pullback Extended

The US dollar’s advance faltered before the weekend after rise average hourly earnings and a new cyclical low in unemployment and underemployment initially fueled greenback buying. There is no doubt the data was skewed by the storms, though the upward revision to the August hourly early cannot be attributed to the weather distortions. The reversal in the dollar before the weekend has carried over into the early trading this week. Even the Turkish lira, which had been battered yesterday amid a diplomatic squabble with the US, is firmer today, though there is no resolution at hand.

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FX Weekly Preview: Forces of Movement

Over the past few weeks, the markets have come to accept the likelihood of a December Fed hike. US interest rates have adjusted. The pricing of December Fed funds futures contract is consistent with around an 80% chance of a hike. The two-year yield is trading at the upper end of what is expected to be the Fed funds target range at the end of the year, after slipping below the current range a month ago. The Dollar Index formed a bottoming pattern.

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Cool Video: Double Feature Courtesy of Bloomberg

Tom Keene and Francine Lacqua gave me a most appreciated opportunity to present my dollar views on Bloomberg TV earlier today. They also let me opine about current events, like Catalonia’s push for independence and May’s troubled speech at the Tory Party Conference. Bloomberg made two clips of the discussion available. The first is about the dollar’s outlook broadly. I suggest a combination of technical and fundamental factors point to a strong Q4 dollar performance.

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US Storm-Skewed Report Means Nothing about Anything

US interest rates and the dollar rose in response to the data. It was firm before the report. The US Dollar Index is up for a fourth consecutive week. It is the longest streak since Q1. US 10-year yields are near 2.40%, an area that has blocked stronger gains for nearly six months.

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FX Daily, October 6: Look Through the US Jobs Report

Traders are putting the final touches on another strong weekly performance for the US dollar. Strong economic data, including the PMIs, auto sales, and factory orders have surprised to the market. The ADP report warns that the storms that flattered some high frequency data will likely skew today’s employment report (both headline and details) to the downside. Of course, investors will quickly look for the number of people who could get to work due to the weather.

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FX Daily, October 04: Consolidative Tone in FX Continues

The US dollar has a softer tone today, and it was that way even for the European PMI. The greenback eased further after the upside momentum faded yesterday. The heavier tone in Asia seemed spurred by a hedge fund manager’s call that Minneapolis Fed President, and among the most dovish members of the FOMC, Kashkari would be the next Fed chair.

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FX Daily, October 03: Dollar Retains Firm Tone, Spanish Markets Stabilize

Firm US interest rates and a strong manufacturing ISM yesterday help support the greenback, while disappointing construction PMI in the UK weighs on sterling. The euro briefly slipped below $1.17 in Asia for the first time in six weeks. It has recovered toward the highs seen in North America yesterday (~$1.1760). There are several euro option strikes that may be in play today. In the euro, between $1.1750 and $1.1775, there are nearly 2.9 bln euros in options that expire today. And there are another nearly 900 mln euros struck at $1.18.

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Another Look at Why the Return to Capital is Low

surplus

(summary of presentation  based on my book, Political Economy of Tomorrow, delivered to Bank Credit Analyst conference yesterday)Alice laughed.   There is no use trying; she said, “one can’t believe impossible things.” I dare say you haven’t had much practice, said the queen.  When I was younger, I always did it for half an hour a day.  Why sometimes I’ve believed as many as six impossible things before breakfast.

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FX Daily, October 02: Dollar Upbeat to Start Fourth Quarter

The US dollar is broadly higher as the quarter-end positioning losses seen at the end of last week area reversed. Developments in the US are seen as dollar positive, while the Catalonia-Madrid conflict, and slightly softer EMU manufacturing PMI weighs on the euro. The UK also reported a disappointing manufacturing PMI, and more differences with the Tory government are taking a toll on sterling. Japan’s Tankan Survey was stronger than expected, but the rise in US Treasury yields and the LDP’s slippage in the opinion polls has seen the greenback return to JPY113 from a JPY112.20 low before the weekend.

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FX Weekly Preview: Changing Dynamics

We agree with the consensus that the markets are in a transition phase. The consensus sees this transition phase as a new economic convergence. European and Japanese economic growth continues above trend. Large emerging markets, including BRICs, are also expanding. Central banks are gradually moving away from the extreme accommodation.

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Great Graphic: Potential Head and Shoulders Bottom in the Dollar Index

This Great Graphic was composed on Bloomberg. t shows the recent price action of the Dollar Index. There seems to be a head and shoulders bottoming pattern that has been traced out over the last few weeks. The right shoulder was carved last week, and today, the Dollar Index is pushing through the neckline, which is found by connecting the bounces after the shoulders were formed.

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Evolving Thoughts on Inflation

In early 2005, Greenspan said that the fact that long-term rates were lower despite the Fed’s campaign to raise short-term rates was a “conundrum.” Many rushed to offer the Fed Chair an explanation of the conundrum, which given past cycles may not have been such an enigma in the first place.

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FX Daily, September 29: Dollar’s Gains Pared, but Set to Snap Six Month Losing Streak Against the Euro

Supported by a sharp rise in interest rates and ideas of tax reform, the US dollar is closing one of its best months of the year. The Dollar Index is snapping a six-month decline, and the euro’s monthly advance since February is ending. This month, the US 10-year yield has risen 18 bp, and the two-year yield has risen 13 bp. It is the biggest increase since last November.

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FX Daily, September 28: Greenback Consolidates while Yields Continue to March Higher

The US dollar is consolidating inside yesterday’s ranges against the euro and yen while extending its gains against sterling and the dollar-bloc currencies. The sell-off in the US debt market continues to drag global yields higher. The 10-year Treasury yield reached 2.01% on September 8 and now, nearly three weeks later, is near 2.35%. It had finished last week at 2.25%.

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FX Daily, September 27: Dollar Builds on Gains

The Federal Reserve may not be on a coordinated campaign to convince the markets of a pending rate hike as it did so effectively in late February and early March. But investors are getting the message. The Bloomberg calculation of the odds of a rate hike before the end of the year has risen to 70% from 53% before last week’s FOMC meeting and 33.5% at the end of last month. The CME puts the odds at 81% up from 37% a month ago.

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FX Daily, September 26: Weekend Election and North Korea Rhetoric Helps Greenback Remain Firm

The US dollar is firmer against most major currencies today. The implications the Jamaica coalition in Germany is understood to be less likely to support a new vision for Europe in the aftermath of Brexit and the Great Financial Crisis. The euro’s low for the year was set at the very start near $1.0340. The first quarter or so was spent consolidating the gains in H2 16. It was trading below $1.06 in early April.

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FX Daily, September 25: Euro and Kiwi Dragged Lower

The end of the Grand Coalition in Germany and the need for a coalition in New Zealand are weighing on the respective currencies. The euro was marked down in Asia and briefly dipped below $1.19 before recovering to $1.1940 by the middle of the Asian session. It was sold to new lows in the European morning after the weaker than expected IFO survey. Today’s survey stands in contrast to the recent PMI and ZEW survey and matches the mood of the market. The euro’s low from last week was near $1.1860. In only one session this month, the euro traded below $1.1850.

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Abe and BOJ

BOJ is unlikely to change policy. A snap election suggests continuity of policy. US 10-year yield remains one of most important drivers of the exchange rate.

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FX Daily, September 22: Markets Limp into the Weekend

The cycle of sanctions, recriminations, and provocative actives continues as the Trump Administration leads a confrontation with North Korea. The US announced yesterday new round of sanctions on North Korea. Reuters reported that the PBOC has instructed its banks not to take on new North Korean clients and to begin unwinding existing relationships.

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FX Daily, September 20: Shrinkage and Beyond

After much anticipation, the FOMC decision day is here. Much of the focus is on the likely decision that the Fed will allow its balance sheet to shrink gradually. No other country who employed quantitative easing has is in a position to begin unwinding the emergency expansion of its balance sheet. The Fed’s experience in QE, communication, and now unwinding, will be part of the information set other central banks can draw upon.

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FX Daily, September 19: Quiet Tuesday, Follow the Leader

Politics seems to dominate the talking points today. Boris Johnson’s weekend op-ed has been rejected by May, and there is talk that Johnson may resign or fired. Sterling is consolidating after pulling back yesterday. Carney said that if the UK does hike it will be gradual and limited. The markets did respond dramatically to the BOE minutes and suggestions by even some of the doves that rates may need to be lifted, but there is still a good reason to be a little skeptical.

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FX Daily, September 18: More Thoughts from Berlin

The unexpected weakness in US retail sales and industrial production reported before the weekend did not prevent US yields and stocks from rising.  Asia followed suit, and with Japanese markets closed, the MSCI Asia Pacific Index rallied a little more than 1%, the largest gain in two months.  Of note, foreigners returned to the Korean stock market, buying about $260 mln today, which cuts the month’s liquidation in half.  The Kospi rallied 1.3% today, the most in four months.

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FX Weekly Preview: FOMC Highlights Big Week

The days ahead are historic. By all reckoning, Merkel will be German Chancellor for a fourth consecutive term. Many observers expect the election to usher in a new era of German-French coordination to continue the European project post-Brexit and in the aftermath of the Great Financial Crisis.

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FX Daily, September 15: Short Note Ahead of the Weekend

Sporadic updates continue as the first of two-week business trip winds down. North Korea missile launch failed to have much impact in the capital markets. The missile apparently flew the furthest yet, demonstrating its ability to hit Guam. However, there was not an immediate response from the US. South Korea said it had simultaneously conducted its own drill which included firing a missile into the Sea of Japan (East Sea).

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FX Daily, September 14: New Trump Tactics Help Greenback and Rates

In the face of much cynicism and pessimism about the outlook for the Trump Administration’s agenda, we have repeatedly pointed out the resilience of the system of checks and balances. Many of the more extreme positions have been tempered, either on their own accord, such as naming China a currency manipulator or pulling out of NAFTA or KORUS, or the judiciary branch, such as on immigration curbs, or the legislative branch itself, as in limiting the President’s ability to rollback new sanctions on Russia (and Iran and North Korea).

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FX Daily, September 13: Sterling Shines While Euro Stalls in Front of $1.20

The next leg of the business trip takes me to Frankfurt. Sporadic updates will continue. We have been identifying the $1.3430 area is a reasonable technical target for sterling. It represents the 50% retracement of sterling’s losses since the day of the referendum June 2016 when it briefly traded $1.50. Also helping sterling is the unwinding of short cross positions against the euro.

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FX Daily, September 12: Dollar Sports Heavier Tone as Yesterday’s Bounce Runs out of Steam

The sporadic updates continue while I am on a two-week business trip. Now in Barcelona, participating in TradeTech FX Europe. The euro advanced yesterday from NOK9.30 to NOK9.40. It is consolidating in a tight range today. The election results may have been a bit closer than expected, but the weight on the krone yesterday seemed to stem more from the unexpectedly soft inflation report.

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FX Weekly Preview: Forces of Movement in FX: The Week Ahead

The dollar has been declining since the start of the year, but the causes have changed. The drag from US politics may be exaggerated, while European and Japanese politics are worrisome. The economic data may continue to be a drag on US yields, especially if core CPI slips again.

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FX Daily, September 08: US Dollar Tracks Yields Lower

The US dollar has been unable to find any traction as US yields continue to move lower. The US 10-year year is slipping below 2.03% in European turnover, the lowest level in ten months. The risk, as we have noted, is that without prospects of stronger growth and inflation impulses, the yield returns to where was before the US election (~1.85%). The two-year note yield, anchored more by Fed policy than the long-end,  is also soft. It yielded 1.25% today, the same as the upper end of the Fed funds target range, and the rate that the Federal Reserve pays on all bank reserves (not just excess reserves).  

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FX Daily, September 07: ECB Focus for Sure, but not Only Game in Town

The US dollar is trading broadly lower. The ECB meeting looms large. Many, like ourselves, expected that when Draghi said in July that the asset purchases would be revisited in the fall, it to meant after the summer recess, not a legalistic definition of when fall begins. Still, there have been some reports, citing unnamed sources close to the ECB, that have played down such expectations, and warn a decision on next year’s intentions may not be announced until October or even December.

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FX Daily, September 06: Wake Me up when September Ends

The US dollar fell to new lows since mid-2015 against the Canadian dollar yesterday. It is flattish today as the market awaits the central bank’s decision. We are concerned that given the strong performance and market positioning, a rate hike could spur “buy the rumor, sell the fact” activity. Alternatively, a disappointment if the Bank does not hike could also lead to some Canadian dollar sales.

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Great Graphic: Young American Adults Living at Home

Living at home

This Great Graphic caught our eye (h/t to Gregor Samsa @macromon). It comes from the US Census Department, and shows, by state, the percentage of young American adults (18-34 year-olds).The top map is a snap shot of from 2005. A little more than a quarter of this cohort lived at home. A decade later, and on the other side of the Great Financial Crisis, the percentage has risen to a little more than a third.
 

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FX Daily, September 5: Greenback Mixed, North Korea and PMIs in Focus

Reports suggesting that North Korea is moving an ICBM missile toward launch pad in the western part of the country at night to minimize detection, while South Korea is escalating its military preparedness and the US seeks new sanctions, keep investors on edge. Risk assets are mixed. Gold is slightly lower. While the yen is stronger, the Swiss franc is heavier. Asia equities slipped, and European shares are recouping much of yesterday’s 0.5% loss.

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FX Weekly Preview: Three Central Banks Dominate the Week Ahead

Following strong Q2 GDP figures, risk is that Bank of Canada’s rate hike anticipated for October is brought forward. ECB’s guidance to that it will have to extend its purchases into next year will continue to evolve. Among Fed officials speaking ahead of the blackout period, Brainard and Dudley’s comments are the most important.

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FX Daily, September 01: Manufacturing PMIs, US Jobs, and Implications of Harvey

As the markets head into the weekend, global equities are firmer, benchmark 10-year yields are mostly lower, and the dollar is consolidating after North American pared the greenback’s gains yesterday. Manufacturing PMIs from China, EMU, and the UK have been reported, while in the US, the August jobs data stand in the way of the long holiday weekend for Americans.

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FX Daily, August 31: US Core PCE Deflator may Challenge the Greenback’s Firmer Tone

The US dollar recovery was marginally extendedin Asia, and while it remains firm, it is lost some of its momentum. The Fed’s target inflation measure, the core PCE deflator, may decline from 1.5% to 1.4%, according to the median forecast in the Bloomberg survey. That would be the lowest read since the end of 2015 and likely spur more speculation against another Fed hike before the end of the year.

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Two Overlooked Takeaways from Draghi at Jackson Hole

The consensus narrative from the Jackson Hole Symposium was the Yellen and Draghi used their speeches to argue against dismantling financial regulation and the drift toward protectionism. Many cast this as a push against US President Trump, but this may be too narrow understanding.

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FX Daily, August 28: Monday’s Dollar Blues

The US dollar’s pre-weekend losses were extended initially in Asia before it recovered sufficiently to give European participant a better selling level. The dollar selling into the shallow bounce reflects the bearish sentiment, which as we see it, was simply fanned by both Yellen and Draghi did not alter the status quo in their Jackson Hole speeches.

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Great Graphic: Small Caps and the Trump Trade

The Russell 2000, which tracks the 2000 smallest companies in the Russell 3000, is threatening to turn positive for the year. It had turned negative in the second half of last week. Many pundits saw its decline and the penetration of the 200-day moving average for the first time in over a year as a sign of an impending down move in the broader equity market.

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FX Daily, August 25: Is the Janet and Mario Show a New Episode or Rerun?

The event that investors have been waiting for and the media frequently linked to whatever price action has taken place has arrived: Yellen and Draghi’s speeches later today. Yellen is first. She will speak at 10:00 am ET. This is toward the end of the European trading week. Draghi speaks late in the North American session–3:00 pm ET.

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How will Yellen Address Fostering a Dynamic Global Economy?

Yellen has identified two challenges regarding the US labor market, the opioid epidemic and women participation in the labor force. The topic of the Jackson Hole gathering lends itself more to a discussion of these issues than the nuances of monetary policy. Dynamic world growth needs a dynamic US economy, and that requires more serious thinking about these socio-economic and political issues.

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FX Daily, August 24: Greenback Firmer in Becalmed Markets

The US dollar is enjoying a firmer tone in quiet. Sterling is stabilizing after grinding down to its lowest level since late June. The Mexican peso, which had dropped in thin trading in Asia and Europe yesterday following Trump’s threat to exit NAFTA and force Congress to fund the Wall or face a government shutdown recovered fully and is now slightly higher on the week.

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FX Daily, August 21: Dollar Edges Higher, While Equities Trade Heavily to Start the New Week

The US dollar is mostly firmer against most of the major and emerging market currencies. The main impetus appears to be some position adjustment emanating from equities. The equity markets turned south in the second half of last week and are moving lower today. Foreign investors appeared to have sold around $100 bln of European equities in 2016 and bought around a third back this year.

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FX Weekly Preview: Transitioning to a New Phase

Jackson Hole marks the end of the investors’ summer and a beginning of a challenging several weeks. The abandonment of national business leaders from Trump’s advisory board and strong words by Republican Senator Corker, followed by the dismissal of the controversial Bannon, could be a turning point. Neither Yellen nor Draghi may not even address the current policy stance as they discuss the topic at hand, “Fostering Dynamic Global Economy”, which lends itself to structural issues.

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FX Daily, August 18: Dollar and Equities Trade Heavily Ahead of the Weekend

The second largest drop in US equities this year has spilled over to drag global markets lower. The MSCI Asia Pacific Index fell nearly 0.5%, snapping a four-day advance and cutting this week’s gain in half. The Dow Jones Stoxx did not completely escape the US carnage yesterday, but losses are accelerating today, with a nearly 1% decline following a 0.6% decline yesterday.

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FX Daily, August 11: Geopolitical Tensions Remain Elevated into the Weekend

There has been no apparent attempt by either North Korea or the United States to ease the rhetorical flourishes that have made global investors nervous. Risk assets were liquidated, and the funding currencies, particularly the Japanese yen and Swiss franc were bought back. The yen gained nearly 1.6% this week, ahead of the US session, while the Swiss franc gained 1.3%.

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FX Daily, August 10: Tensions Remain Elevated, Dollar Firms

It is difficult to walk back the saber-rattling rhetoric. US Secretary of State Tillerson tried to defuse the situation, which had appeared to ease nerves in North America yesterday. However, references to the modernization of US nuclear forces, a multi-year project begun last year, spurred a fresh threat by North Korea to fire four intermediate range missiles near Guam in week’s time.

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FX Daily, August 09: North Korea lets EUR/CHF Collapse

The bellicose rhetoric from the US and North Korean officials is the main driver today. We would qualify that assessment by noting that first, the market moves are rather modest, suggesting a low-level anxiety among investors. Second, pre-existing trends have mostly been extended. Turning to Asia first, the Korea’s equity market fell 1.1%. The Kospi has fallen for the past two weeks (~2.2%).

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FX Daily, August 08: Trade Featured as Dollar Drifts Lower

The US dollar has a slightly lower bias today, but the against most of the major currencies, it is consolidating within the range set at the end of last week. The main exceptions are sterling and the Canadian dollar. They had extended their pre-weekend losses yesterday, and are trading within yesterday’s range today.

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Great Graphic: Unemployment by Education Level

The US reports the monthly jobs data tomorrow.  The unemployment rate stood at 4.4% in June, after finishing last year at 4.7%.  At the end of 2015 was 5.0%.  Some economists expect the unemployment rate to have slipped to 4.3% in July. Recall that this measure (U-3) of unemployment counts those who do not have a job but are looking for one. 

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FX Daily, August 07: Outlaw Mondays

The US dollar is narrowly mixed to start the new week. Two main developments stand out. First, the dollar-bloc currencies are trading heavily. The Australian dollar is pushing lower for the fifth consecutive session. The greenback is advancing against the Canadian dollar for the sixth consecutive session. The New Zealand dollar is weaker for the fifth time in six sessions.

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Bank of England Crushes Sterling

Sterling reached a new 11-month high against the dollar earlier today, but the dovish take away from the Bank of England has seen sterling reverse lower. It has now fallen below the previous day’s low, and a close below there (~$1.3190) would confirm the bearish key reversal pattern. Support near the week’s low just below $1.3100 is holding, and if that goes, the $1.30 level can be tested. A break of $1.2930, the low from the second half of July needs to yield signal a more significant correction.

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Constructive US Jobs, but Where Do the Euro Bulls make a Stand?

The US created 209k jobs in July and jobs growth in June was revised higher (+9k) to 231k. The underemployment rate was unchanged at 8.6%. The unemployment rate ticked down to 4.3%, matching the cyclical low set in May. This is all the more impressive because the participation rate also ticked up (62.9% from 62.8%).

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FX Daily, August 03: Dollar-Bloc Currencies Turning, but Euro Downticks Limited

The high-flying dollar-bloc currencies may be a preliminary sign market change. The US dollar is gaining on the Canadian dollar for the fourth consecutive session. It is probing resistance we identified in the $1.2620 area. The US dollar has not traded above its 20-day moving average since the Fed hiked rates on June 14. It is found today near CAD1.2625.

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Cool Video: Dollar Drivers on Bloomberg

There were three talking points. First was the observation that while the President took credit for the record stock market, the strength of the economy, the low unemployment rate, and business confidence, there was no mention of the dollar, which poised to close lower for its seventh consecutive month.

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FX Daily, August 02: Euro Climbs Relentlessly, While Greenback is Mixed

The euro’s strength is surely partly a reflection of US dollar weakness, but it is also a reflection of the improved sentiment among investors. The initial dollar losses at the start of the year was largely a correction that is common after a Fed hike. This is more or less what happened at the start of 2016 as well, following the Fed hike in December 2015.

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FX Daily, July 31: Monday Morning Blues

The euro is up by 0.15% to 1.1385 CHF. The US dollar is enjoying a respite from the recent selling, but its gains have been shallow, and will likely prove brief. The upticks have been concentrated in the recently high-flying dollar-bloc currencies, and sterling. The tone appears to be more consolidative than corrective, and month-end adjustment provides an additional wrinkle.

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Great Graphic: CRB Index Hits 2017 Down Trendline

The CRB Index gapped higher today and it follows a gap higher opening on Tuesday, which has not been filled. Today’s gains lift the commodity index to a trendline drawn off the January and February highs and catches the high from late May. It intersects today near 181.35 and the high has been a little over 181.17.

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Dollar View: Discipline or Stubbornness

Fundamental driver, divergence is still intact. The dollar’s losses have barely met the minimum retracements of a bull market. Sentiment may be exaggerating the positive developments in Europe and the negative developments in the US.

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FX Daily, July 28: Dollar and Equities Closing Week on Heavy Note

The US dollar is mostly lower, though one of the features of recent days has been the dramatic slide of the Swiss franc, and that is continuing today. The franc is off another 0.5% today, to bring its weekly loss to a sharp 2.5%. The euro finished last week near CHF1.1030 and is now near CHF1.1370; its highest level since the cap was lifted in mid-January 2015.

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Great Graphic: Surprise-S&P 500 Outperforming the Dow Jones Stoxx 600

Many asset managers have been bullish European shares this year. European and emerging market equities are among the favorite plays this year. Surveys of fund managers find that the allocation to US equities is among the lowest in nearly a decade. The case against the US is based on overvaluation and being a crowded trade. Many are concerned about too hawkish of a Federal Reserve (policy mistake) or the lack of tax reform.

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FX Daily, July 27: Dollar Remains on the Defensive

The US dollar is narrowly mixed after selling off following the FOMC statement. Sometimes the narrative explains the price action, and sometimes the price action explains the narrative. This seems to be the case of the latter. The dollar and interest rates fell, and so the Fed was dovish.

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Progress in St. Petersburg

Expectations going into the OPEC monitoring meeting in St. Petersburg were low. The OPEC agreement to reduce output appeared to be fraying. June output appeared to have increased in several countries, and private sector estimates suggest output rose further in July. Russia expressed reluctance to extend the agreement further.

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FX Daily, July 26: Quiet Fed Day without Yellen

By definition, the Federal Reserve Open Market Committee meeting is the highlight of the day. Without a press conference, and following last month’s rate hike, there is practically no chance of a new policy initiative either on the balance sheet or the Fed funds target.

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FX Daily, July 25: Summer Markets Ahead of FOMC

The global capital markets are subdued today; a dearth of fresh news and tomorrow’s FOMC meeting are making for light activity and limited price movement. The US dollar is little changed against most of the major currencies. The net change on the day through most of the European morning is +/- 0.15%. The exception is the Norwegian krone and Swedish krona, which is about 0.25% stronger.

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FX Daily, July 24: Euro Recovers from Softer Flash PMI

The euro made a marginal new high in early Asia, but participants rightly drew cautious ahead of the flash eurozone PMI. The flash PMI was softer than expected, and although the composite fell to six monthly lows, it is more a reflection of how steady it has been at elevated levels.

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FX Daily, July 21: Dollar Licks Wounds as News Stream Doesn’t Improve

The euro has depreciated by 0.13 to 1.1043 CHF. ECB President Draghi did not argue forcefully enough at yesterday’s press conference to dampen the enthusiasm for the euro. The initial dip was quickly bought and the euro chased above last year’s high near $1.1615, and the gains have been extended to nearly $1.1680 today. The next target is the August 2015  near $1.1715 is near.

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FX Daily, July 20: ECB Game Day

The US dollar is enjoying a firmer tone against the major currencies today. It does not appear to be simply position adjustments ahead of the ECB meeting. Consider that Australia reported strong employment data, and after making new highs, reaching almost $0.8000, it has reversed to toy with yesterday’s low. A convincing break of that area (~$0.7910), especially on a closing basis, could be the kind of technical reversal that momentum traders take note.

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Oil Update

OPEC meets on July 24. Nigeria and Libya may be pressured to cap output although they were exempt from quotas. US exports and refining appear to be the driving force behind the 13.8 mln barrel decline in inventories. Mexico has reportedly made two large oil finds.

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FX Daily, July 18: Dollar Dumped on Doubts on US Economic Agenda

News of the defection of two more Republican Senators doomed the Senate attempt to replace and repeal America’s national health care. The failure to replace the system dubbed Obamacare, despite the Republican majority in both legislative chambers and the executive branch raises questions about the broader strategy of the Administration and raises serious questions about the rest of its legislative agenda.

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FX Daily, July 17: Markets Mark Time, Dollar Consolidates Losses

After falling to new lows for the year against several major currencies in response to disappointing retail sales and uninspiring CPI before the weekend, the US dollar has begun the new week on a more stable note. It is firmer against nearly all the major currencies, though is mixed against the emerging market currencies.

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FX Weekly Preview: Focus Shifts from Fed to ECB

Market has downgraded chances of a September hike from low to lower, but the chances of a December hike are higher than the day after the June hike. ECB meeting is the most important event of the week. A small change in the risk assessment is likely. The US and Europe have been more disruptive to the global capital markets this year than China.

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Great Graphic: Dollar Index Bottoming?

The Dollar Index set the year’s high on January 3 a little above 103.20. Today it made a marginal new lows for the year at 95.464. The previous low, set at the end of last month was 95.47.

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FX Daily, July 13: Sterling and Antipodeans Trade Higher

The US dollar is mostly consolidating yesterday’s move. Sterling is pushing back through $1.29 as the hawks on the MPC may not have been dissuaded by disappointing PMI readings and the softer earnings growth. The table is being set for another 5-3 vote at next month’s MPC meeting.

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FX Daily, July 11: Markets Looking for Next Cue

Investors await fresh policy clues as the Bank of England’s Broadbent is seen as a key vote on a closely balanced MPC, while the Fed’s Brainard, is also seen as a bellwether, will speak shortly after midday in NY. Broadbent has not spoken since the election, and his current views are not known.

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FX Daily, July 07: Taper Tantrum 2.0 Dominates

Taper Tantrum 2.0, emanating from Europe rather than the United States continues to overshadow other developments. Yesterday, the yield on the 10-year German Bund pushed through the 50 bp mark that has capped the occasional rise in yields in recent months. The record of the ECB meeting was understood as indicating that the official assessment had surpassed the actual communication in order try to minimize the impact.

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FX Daily, July 03: Dollar Bounces to Start H2

The beleaguered US dollar is enjoying a respite from the selling pressure that pushed it lower against all the major currencies in the first six months of 2017. A measure of the dollar on a trade-weighted basis fell about 5% in the first half after appreciating nearly 8% in Q4 16.

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FX Daily, June 30: Greenback Stabilizes

The US dollar has been battered this week amid a shift in sentiment seen in how the market responded to comments mostly emanating from the ECB’s annual conference. It is not really clear that Draghi or Carney gave new policy indications.

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FX Daily, June 29: Run on Dollar and Yen Continues

The main driver of the foreign exchange market is the continued reassessment of the trajectory of monetary policy in the UK, EMU, and Canada. The OIS market does not show that higher rates are discounted for the next policy meeting (August, September, and July respectively), but rather there is greater confidence that, outside of Japan, peak monetary stimulus is behind us.

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FX Daily, June 28: Draghi’s Sparks Mini Taper Tantrum, Euro Chief Beneficiary

Sounding confident, ECB President Draghi seemed prepared to reduce the asset purchases, and this overshadowed his explicit recognition that substantial accommodation is still necessary. This is very much in line with what many, including ourselves, anticipate: At the September ECB meeting, an extension of the asset purchases into the first part of next year, coupled with a reduction in the amounts being purchased.

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Great Graphic: Dollar Breaks Out Against Yen

Dollar's Decline

The dollar is at new lows for the year against the euro and Swiss franc. Draghi’s comments earlier that transitory forces are dampening price pressures were seen as broadly similar to the Fed’s leadership’s assessment about US prices. The implication is that the ECB will announce tapering its purchases as it extends them into next year.

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Great Graphic: US Wage Growth Exceeds Productivity Growth

One of the longstanding challenges to growth US aggregate demand has been that wages have not kept pace with inflation and productivity.  The decoupling appears to have taken place in the late 1960s or early 1970s depending on exactly which metric one uses.In my book, the Political Economy of Tomorrow, I argue the decoupling of men’s wages from productivity and inflation made it possible and necessary for women to enter the workforce in large numbers. 

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FX Daily, June 26: Italian Markets Shrug off Banking Morass and Local Election Results

The US dollar is mostly slightly firmer as North American dealers return to their posts. Ideas that the UK Tories are getting close to a deal with the DUP appears to be lending sterling a modicum of support, as it tries to extend its uptrend into a fourth session. The Japanese yen is the weakest of the majors, rising equities, and yields, spurs the dollar to re-challenge last week’s high near JPY111.80.

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Short Summary Weekly MOF Portfolio Flows

Japanese investors bought the third largest amount of foreign bonds this year last week, but still not enough to offset sales in first part of the year. Japanese investors are buying around the same amount of foreign equities as last year. Foreign investors are buying more Japanese stocks and bonds than they did on average last year.

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Bond Yields, Inflation, and More

Falling oil prices pushing down inflation expectations and lowering bond yields is the conventional narrative. It ignores that survey-based measures of inflation expectations are stable. It ignores a host of other demand factors.

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FX Daily, June 21: Heavy Oil Weighs on Yields and Lifts Yen

The US dollar is narrowly mixed against the major currencies. The drop in oil prices (3.3% this week) is seen as one of the factors that may be underpinning the appetite for fixed income, and this, in turn, is lifting the yen. The greenback had approached JPY112 yesterday, but with the drop in oil prices and yields has seen it retreat toward JPY111.00.

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FX Daily, June 20: Officials Fill Vacuum of Data to Drive FX Market

The light economic calendar has cleared the field to allow officials to clarify their positions. Yesterday it was NY Fed President Dudley and Chicago Fed Evans who argued that economic conditions continued to require a gradual removal of accommodation. The Fed’s Vice Chairman Fischer did not address US monetary policy directly but did note that housing prices were elevated and that low interest rates
contributed.

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FX Weekly Preview: Events Not Data Key in Week Ahead

Light economic data calendar, but look for downtick in eurozone flash PMI. Soft Canadian retail sales (volume) and softer CPI (base effect) could take some of the sting from the recent BoC official comments. MSCI decision on China, Argentina, Saudi Arabia, and South Korea may have the broadest and long-lasting impact of the five key events we highlight.

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Great Graphic: Value vs Growth

Performance of Growth and Value Stocks Compared

This Great Graphic, created on Bloomberg show the performance of growth and value stocks since the start of December 2016. The yellow line is the Russell 1000 Growth Index. The white line is the Russell 1000 Value Index. The outperformance of the former is clear.

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FX Daily, June 16: Dollar Slips In Consolidation, but Extends Recovery Against the Yen

As the market heads into the weekend, the US dollar is trading softer as it consolidates. It is within yesterday’s ranges against the major currencies but the Japanese yen. The dollar has made a dramatic recovery against the yen. It traded near JPY108.80 in the middle of the week and pushed through JPY111 in late in the Tokyo morning. The greenback is above its 20-day moving average against the yen for the first time in a month.

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Great Graphic: Sticky Pass Through

This Great Graphic was posted by Steve Goldstein at MarketWatch. The blue line shows the effective Fed funds rate. The orange line depicts the average interest rate on a $10,000 one-year CD.

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FX Daily, June 14: FOMC and upcoming SNB

The Euro has risen by 0.37% to 1.0901 CHF. This is a typical movement ahead of the SNB meeting tomorrow.

This movement is probably unrelated to the Fed rate hike, given that the USD/JPY has fallen.

It makes sense to go long CHF against JPY, if you bet on an inactive SNB. Inactive SNB would mean that the central bank will not speak about stronger FX Interventions or about lower rates.

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FX Daily, June 13: Dollar Softens Ahead of Start of FOMC Meeting

The US dollar is trading with a heavier bias against all the major currencies save the Japanese yen. The Scandis and Canadian dollar are leading the move. Sweden reported a 0.1% rise in the headline and underlying inflation while the median expected a decline of the same magnitude. The year-over-year pace slowed but not as much as expected.

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FX Weekly Preview: Politics and Economics in the Week Ahead

FOMC, BoE, and BOJ meet next week; only the Fed is expected to change policy. High frequency data may be less important than the central bank meetings and politics in the week ahead. UK political situation is far from resolved, and US drama continues, while several hot spots in the EMU are emerging.

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FX Daily, June 09: Sterling Shocked, Dollar Broadly Firmer

What looked like a savvy move in late April has turned into a nightmare. Collectively, voters have denied the governing Conservative party a parliamentary majority. The uncertainty today does not lie yesterday with the known unknown, but with the shape of the next government and what it means for Brexit.

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FX Daily, June 08: Thursday’s Show

Today has an anti-climactic feel to it. Yesterday’s leak of what is purported to be the ECB staff forecasts point to small downward revisions to inflation forecasts and an ever small upward tweak to growth. This would be in line with only mild changes in the forward guidance language. The clear indication is that inflation is still not the conditions of a self-sustaining path toward the target.

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FX Daily, June 06: Yen Propelled Higher

The week was supposed to be dominated by the UK election and the ECB meeting, but the yen is stealing the show in the first part of the week. The US dollar has been sold through JPY110 for the first time since late April. The euro has fallen from JPY125.30 before the weekend to JPY123.25 today.

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Euro Shrugs off European Banking Woes

Spain’s Banco Popular is scrambling ahead of its meeting with the ECB tomorrow; shares are around 50% in three sessions. Italy has two banks that may see the same deal Monte Paschi negotiated with the EU. Portugal banks are still putting loan loss reserves and provisions aside.

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Great Graphic: Don’t be Misled by Sterling Stability, Investors are Concerned

The Great Graphic, created on Bloomberg, shows the options skew (three-month 25 delta risk reversal) in the white line, and sterling is the yellow line. The takeaway is that the market appears to be more nervous than the relatively firm sterling in the spot market suggests. Typically, one might expect those with sterling exposure to sell calls (and receive funds) rather than buy puts (new expenditure).

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FX Daily, June 05: US Dollar Starts Important Week Mostly Stable to Higher

The US dollar is beginning what promises to be an important week on a steady to firmer note against most of the major currencies. It is a holiday in parts of Europe (e.g.,m Germany and Switzerland). Although excitement is not until Thursday’s ECB meeting, UK election, and the testimony of former US FBI Director Comey, there are several developments today to note.

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Great Graphic: Iron Ore and the Australian Dollar

This Great Graphic, from Bloomberg, shows the correlation between the price of iron ore and the Australian dollar on a rolling 60-day basis over the past year. The correlation is a little more than 0.81. The relationship is the tightest since last August. This is purely directional.

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Great Graphic: US Rate Curve and the Euro

This Great Graphic was created on Bloomberg. It shows two times series. The yellow line and the left-hand scale show the euro’s exchange rate against the dollar for the past year. The white line depicts the spread between the US two-year and 10-year yield.

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FX Daily, June 02: Dollar Marks Time Ahead of US Jobs Report

The foreign exchange market is becalmed, leaving the US dollar narrowly mixed. The euro has been confined to less than a 20-pip range through the Asian session and most of the European morning. The news stream is light. The US withdrawal from the Paris Accord may have garnered the headlines, but as a market force, it is difficult to detect the immediate impact.

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FX Daily, June 01: Greenback Steadies at Lower Levels, Sterling Struggles

The US dollar is mostly firmer against the major currencies. It is consolidating yesterday’s losses more than staging much of a recovery. Even sterling, where a YouGov poll has the Tory lead at three percentage points, down from seven previously, is above yesterday’s lows. On the other hand, even strong data from Japan did not drive the yen higher.

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The US and German Relationship

US and German relations may be strained, but this is not unprecedented. It has been fanned by Trump and Merkel’s rhetoric. A European sphere of influence seems to have been the force pushing in that direction.

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FX Daily, May 31: Sterling Takes it On the Chin

Projections showing that the UK Tories could lose their outright majority in Parliament in next week’s election spurred sterling sales, which snapped a two-day advance.  Polls at the end of last week showed a sharp narrowing of the contest, and this saw sterling shed 1.3% last Thursday and Friday. 

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What Happened Monday

No impact from the latest North Korean missile test. Polls suggest Tories still ahead for the June 8 election. Prospects of an Italian election this year weighed on Italian stocks and bonds.

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FX Weekly Preview: Twin Peaks: US Economy and EMU Inflation

US economic data, culminating with the employment report, should be consistent with a re-acceleration of the world’s largest economy after a typical slowdown in Q1. Eurozone price pressures likely eased considerably in May. For the UK economy, the bounce in April was a fluke, and gradual slowdown continues. Japanese investors have bought foreign bonds for three weeks in a row, which is the longest streak in six months.

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Emerging Markets: What has Changed

Moody’s downgraded China’s rating from Aa3 to A1 with stable outlook. Reports suggest that the PBOC has informed local banks that it is changing the way it sets the daily fix. Moody’s downgraded Hong Kong’s rating to Aa2 from Aa1 with stable outlook. Philippine President Duterte declared martial law on Mindanao island. Egypt’s central bank unexpectedly hiked rates by 200 bp. S&P moved the outlook on Bolivia’s BB rating from stable to negative. Reports suggest Brazil President Temer is losing support from his own PMDB.

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FX Daily, May 26: Anxiety Levels Rise Ahead of Weekend

The markets are unsettled. It is not so much in the magnitude of moves as the breadth of the move. The nearly 1% rally in gold is a tell, but also the inability of equity market to follow the lead of the US markets, where the S&P 500 and NASDAQ set new records. US yields are softer, and the yen is the strongest of the major currencies, up 0.7% against the greenback.

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Great Graphic: OIl and the S&P 500

S&P 500 Index, May 2017

The fluctuation of oil prices is often cited as an important factor driving equities. Our work shows that this is not always the case and that the correlation between the price of oil and the S&P 500 continues to ease.

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FX Daily, May 25: Euro Strength more than Dollar Weakness

The Dollar Index is heavy, just above the lows set earlier this week set near 96.80. However, this exaggerates the dollar’s weakness because the weight of the euro and currencies that shadow it, like the Swiss franc and Swedish krona. As the North American session is about to start, the dollar is higher against the dollar-bloc currencies and the Japanese yen.

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Four Numbers to Watch in FX

The dollar’s downside momentum faded today, but it has not shown that it has legs. Watch 96.45 in the DXY and $1.3055 in sterling. The US 2-year note yield is low, given expectations for overnight money. The US premium needs to widen.

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FX Daily, May 23: Greenback Remains Soft

The US dollar cannot get out of its own way, it seems. With a light economic schedule, there is little to offset the continued drumbeat of troubling political developments. The latest turn, as reported first in the Washington Post, that President Trump asked heads of intelligence groups to also publicly deny collusion with Russia.

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FX Daily, May 22: Dollar Pushes Back

After being shellacked last week, the US dollar is trading with a firmer bias against all the major currencies, but the euro and New Zealand dollar. To be sure, it is not that a new development has emerged to take investors’ minds from intensifying political uncertainty in the US.

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FX Weekly Preview: Nothing Like A Good US Drama

US drama distracts from the difficult and ambitious economic program. European and Japanese developments have been constructive. Bank of Canada is the only G7 central bank that meets, and it is not expected to shift from its cautious stance.

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Merkel Sends Euro Higher

Markel said the euro was too weak, so it rallied. This is not a new position for Germany. Merkel may now tack to the left since the AfD appears to have been dispatched. Look for Weidmann to begin moderating views or becoming less antagonistic.

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Markozy, Merde, and now Meron

German Chancellor Merkel is one of the outstanding leaders of our era. She leads the world’s fourth largest economy, which is still the locomotive for Europe. Recent state elections and polls leave little doubt that barring some kind of shock, she will be re-elected as Chancellor in September. It will be her fourth term.

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FX Daily, May 19: Markets Trying to Stabilize Ahead of Weekend

Judging from investors’ reactions, the only thing worse that than the low volatility environment is when volatility spikes higher, as it did yesterday. Higher volatility is associated with weakening equity markets, falling interest rates, pressure on emerging markets, a strengthening yen and, sometimes, as was the case yesterday, heavier gold prices.

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FX Daily, May 18: Some Respite from US Politics as Sterling Surges Through $1.30

Yesterday’s dramatic response to the political maelstrom in Washington is over. The appointment of a special counsel to head up the FBI’s investigation into Russia’s attempt to influence the US election appears to have acted a circuit breaker of sorts. It is not sufficient to boost confidence that the Trump Administrations economic program is back the front burners, but it is sufficient to stem the time for the moment.

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FX Daily, May 17: Drama In Washington Adds To Dollar Woes

The US dollar has drifted lower against most of the major currencies as the culmination of news from Washington, escalating already rising concerns about the economic agenda that was to bolster growth with dramatic tax reform, infrastructure initiative, and re-orienting trade.

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Cool Video: Oil, US Inflation

I was on Bloomberg’s Day Break with the team and guest Anne Lester from JP Morgan discussing oil and inflation. Oil prices had bounced back at the end of last week and were lifted further on news that Saudi Arabia and Russia were inclined to support extending output cuts not just until the end of the year, but through Q1 18.  

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FX Daily, May 15: Softer Dollar and Yen to Start the Week

The US dollar has opened the week softer against the major currencies, except for the Japanese yen. The disappointing US inflation and retail sales data before the weekend have not been shrugged off, even though the US 10-year yield is a little higher and expectations for a Fed hike next month continue to be elevated.

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FX Weekly Preview: Two Known Unknowns

The Trump Administration seems to be trying to cast the US as a revisionist power. Or perhaps it is like Roman emperors long ago trying to draw greater tribute from others. The outlook of US interest rates is critical to the outlook of the dollar.

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Great Graphic: Trade-Weighted Dollar

US TWI has appreciated a little since the end of Q1. The euro and sterling’s strength are exceptions to the rule. The dollar has edged up against the currencies of the US top four trading partners here in Q2.

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FX Daily, May 12: Markets Becalmed Ahead of US data and Weekend

The foreign exchange market is becalmed, and the major currencies are little changed. The US dollar is mixed, but mostly a little lower. Sterling is the weakest of the majors, off 0.3%, near $1.2850, having been rebuffed by offers in front of $1.30 several times. It has not recovered from the quarterly inflation report and Carney’s press conference.

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FX Daily, May 09: Dollar Firms amid Position Adjustments

The election of Macron as French President has set off a bout of position adjustment that has seen the euro push back into the $1.0850-$1.0950 range that had confined activity for the two weeks between the first and second rounds of the French presidential election.

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FX Daily, May 08: Euro Bought on Rumor, Sold on Fact

The euro initially opened higher in Asia following confirmation that Macron was elected the next president of France, but quickly fell below $1.0960 before bouncing back toward $1.10 only to be sold again in early Europe below the pre-weekend low near $1.0950. A break now of $1.0930 could signal a return to the lower end of the range seen since the first round of the French election near $1.0850-$1.0870.

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FX Weekly Preview: Dollar Drivers

US retail sales and CPI should help bolster confidence that the Fed was right about the transitory nature of Q1 slowdown. Bank of England meets; Forbes will likely continue with her dissent, but likely failed to convince her other colleagues of the merit of an immediate rate hike. French politics are center stage, but German state election and South Korea’s national election are also important.

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Great Graphic: Gas and Oil

Steep falls in gasoline and oil prices. Large build in gasoline inventories and record refinery work shifted some surplus from oil to the products. OPEC is expected to roll over its output cuts, but non-OPEC may find it difficult and US output continues to rise.

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April Jobs Won’t Change Minds

There is something for everyone in today’s US jobs report, and at the end of the day, it is unlikely to sway opinion about the direction and timing of the next Fed move. The greenback itself may remain range bound after the initial flurry. On the other hand, the disappointing but noisy Canadian data underscores the risk of a more dovish slant to the central bank’s neutral stance next week.

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FX Daily, May 03: Marking Time

The global capital markets are relatively calm. Japan, South Korea, and Hong Kong markets are closed for national holidays. Investors await the FOMC statement, though expectations could not be much lower. The disappointing US auto sales, and poor Apple sales figures reported yesterday have had little impact on the broader investment climate.

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Euro Drivers

Correlation between the change in the US-German two-year differential and euro remains robust. The German two-year yield has jumped in recent weeks but looks poised to slip back lower. US two-year yield has eased but is knocking on 1.30%, an important level.

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FX Daily, May 02: Dollar and Yen Heavy, Equities Trade Higher and Bonds Lower

The US dollar is sporting a softer profile against most of the major and emerging market currencies. The Japanese yen is the main exception. The greenback is rising against the yen for the fourth session and the sixth of the past seven. The dollar’s gains against the yen coincide with the 10-12 bp recovery in the US 10-year yields over the past ten sessions.

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FX Daily, May 01: May Day Calm

Many financial centers are closed for May. Japanese markets were open today, but will be closed for three sessions beginning Wednesday for the Golden Week celebrations. The US dollar is narrowly mixed.

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NAFTA Trade Update

The trade tensions between the US and Canada set the Canadian dollar to lows for the year. The dollar’s downside momentum against the Mexican peso has eased. The Canadian dollar looks attractive not against the US dollar but against the peso.

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Longevity and Income

Rich people live longer than poor people in the US. This disparity undermines the progressive nature of Social Security. Disparity of income seems more important than the slowdown in growth in explaining why few US people are doing better than their parents at the age of 30.

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FX Daily, April 28: Markets Limp into Month End

Equity markets are stalling into the end of the month. MSCI Asia-Pacific Index is snapping a six-day advance, and the week’s gain was sufficient to extend the advancing streak for the fourth consecutive month. The Dow Jones Stoxx 600 is trading off for the second consecutive session, after rallying for six consecutive sessions.

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FX Daily, April 25: Euro Consolidates Gains, Bond Market Sell-Off Continues

The US dollar is again at the fulcrum of the foreign exchange market. The dollar-bloc currencies are under pressure, along with the Japanese yen, while the European complex is posting modest gains. The euro is consolidating in the half cent below $1.09. Yesterday’s marked up in early Asia saw the euro complete the 61.8% retracement of the losses since the US election, which was found near $1.0935

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FX Weekly Preview: Politics and Economics in the Week Ahead

Provided Le Pen and Macron or Fillion make to the second round, the market response to the French election results may be short lived. BOJ, Riksbank and ECB meetings. Spending authorization and some announcement from the White House on tax policy are in focus as Trump’s 100th day in office approaches.

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State of Dollar Bull Market

The dollar market is intact, despite the pullback here at the start of 2017. We have seen similar pullbacks in 2016 and 2015. Divergence remains the key driver.

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FX Daily, April 21: Markets Enter Consolidative Mode Ahead of Weekend

Neither the terrorist attack in Paris nor the strong eurozone flash PMI has managed to shake investors. Judging from the social media, many suspect that the terrorist attack plays into Le Pen’s hands, but investors do not seem particularly concerned. The French interest rate premium over Germany has narrowed, and gold is flat. UK retail sales fell sharply, yet sterling is holding on to the bulk of this week’s gains, which are the most here in 2017.

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FX Daily, April 20: Dollar and Yen Push Lower

With the exception of the yen, the US dollar is lower against all the major currencies. US Treasury yields are firm, extending yesterday’s rise a little. This may help keep the dollar straddling JPY109, but unwinding long yen cross positions is helping underpin the other major currencies. The Dollar Index is making a new low for the week and appears poised to test support around 98.85-99..00.

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More Thinking about Trade as Pence and Ross Head to Tokyo

Pence and Ross may “feel out” Abe for interest in a bilateral trade agreement. The US enjoys a small trade surplus with countries it has free-trade agreements. Ownership-based framework of the current account and value-added trade suggest the US trade imbalance is not a significant problem.

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FX Daily, April 17: Markets Trying to Stabilize in Holiday-Thin Activity

Financial centers in Europe are closed for the extended Easter holiday. Australian and New Zealand markets were also closed. The drop in US 10-year Treasury yields in early Asia, with a brief push below 2.20%, appears to have kept the dollar under pressure. As the North American market prepares to open, the dollar is softer against the all major currencies and many emerging market currencies.

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FX Weekly Preview: What to Watch in the Week Ahead

Many observers misunderstood US President Trump’s “American First” rhetoric. Trump’s earlier writings show that this is not a reference to the 1940s effort to keep the US out of WWII, with its isolationist tint. Rather, Trump’s use goes back to the original use by President Harding in the 1920s. It was a rejection of the Wilsonian multilateralism (e.g. League of Nations) and a robust defense of unilateralism.

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Decoupling of Oil and US Interest Rates

US yields have trended lower as oil prices have trended higher. The correlation between the 10-year breakeven and oil has also weakened considerably. Technicals readings are getting stretched, but no compelling sign of a top.

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Cool Video: Making Sense of the New Administration

I was on Bloomberg TV earlier today, chatting with David Gura about how to try to make sense of new Trump Administration. I suggest that the decision-making style and practical concerns have created two wing to the Administration. There is a populist-nationalist wing that is home to America First ideas.

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FX Daily, April 14: Holiday Markets Remain on Edge

The holiday-induced calm in the capital markets conceals a high degree of anxiety. The investment climate has been challenged by heightened geopolitical risk and unusual complaints about the US dollar’s strength from the sitting US President. While sending an “armada” toward the Korean peninsula, the US ordered a missile strike against Syria in retaliation for the use of chemical weapons and dropped the largest bomb in the world on Afghanistan.

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Trade Notes: China and Prospects for a New Executive Order

China’s trade concessions seem modest, but little discussion of US concessions. Reports suggest Trump is set to sign a new executive order to investigate trade practices in steel, aluminum, and maybe household appliances. Trade imbalances and floating currencies are not mutually exclusive.

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FX Daily, April 12: Investors Catch Breath, Markets Stabilize

Markets are calmer today. The significant movers yesterday have stabilized. The dollar has been unable to resurface above JPY110, but after plumbing to new lows near JPY109.35 in Asia, the dollar has recovered back levels since in North America late yesterday. The decline in the US 10-year yield was also initially extended in Asia before stabilizing and returning to levels seen in the US afternoon.

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FX Daily, April 11: Dollar Pushed Lower in Subdued Activity

The US dollar has a slight downside bias today through the European morning. The market does not seem particularly focused on high frequency data, though sterling traded higher after an unchanged year-over-year reading of 2.3%, and the euro traded higher after a stronger Germany ZEW survey.

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FX Weekly Preview: A New Phase Begins

There were no celebrations; no horn or trumpets, nary a sound, but an important shift took place last week. The shift was signaled by two events. The first was the US strike on Syria, and the second was investors’ willingness to look past Q1 economic data.

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US Jobs Growth Disappoints

The US jobs growth slowed considerably more than expected in March and the disappointment pushed the dollar and equities initially lower. The US created 98k jobs in March, well below market expectations for around 175k jobs.  Adding insult to injury, revisions to the January and February data took off another 38k job.

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Short Note on US Employment Report

The US jobs data is notoriously difficult to accurately forecast consistently.  I do not claim to do so now.  My intent is more modest.  It is simply to point out why I there is risk that the jobs data is disappointing, especially after the stronger than expected ADP estimate. 

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FX Daily, April 05: Dialing it Up on Hump Day

he dollar is practically unchanged against the euro and yen in the first two sessions of the week. The pace can be expected to pick up starting Wednesday. Although the euro slipped through $1.0650, it was not sustained, and on Monday and Tuesday, the euro finished near its highs.

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Inclusion in SDR Does Not Spur Official Demand for the Yuan

China’s share of global reserves is in line with expectations prior to its inclusion in the SDR. Three factors influencing allocated reserves – valuation, portfolio decisions, and China’s gradual inclusion in allocated reserves. The Swiss franc’s as a reserve asset diminished, but the “other” category appeared robust.

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FX Weekly Preview: The Macro Backdrop at the Start of the Second Quarter

The macroeconomic fundamentals have not changed much in the first three months of the year. The US growth remains near trend, the labor market continues to improve gradually, both headline and core inflation remain firm, and the Federal Reserve remains on course to hike rates at least a couple more times this year, even though the market is skeptical. The uncertainty surrounding US fiscal has not been lifted, and it may not be several more months.

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Five Keys to Understand Trump

The election of Donald Trump as the 45th President of the United States surprised many people, even seasoned political observers and astute investors. He failed to win the popular vote but did carry the electoral college, which is how the US elects its chief executive. His victory is a bit of a Rorshcach test, where people project the issues that allowed Trump to succeed, with different observers making different claims.

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Cool Video: Brexit, Europe and EU Challenges

Marc Chandler

Earlier today, I had the opportunity to discuss the outlook for sterling and the US dollar on Bloomberg TV with Rishaad Salamat and Haidi Lun. It is a momentous day with Article 50 of the Lisbon Treaty being formally triggered by UK Prime Minister May, nine months after what was, at least initially, a non-binding referendum.

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FX Daily, March 28: Prospects for Turnaround Tuesday?

The slide in the US dollar and US interest rates faded in the North American session on Monday. US participants also had a fairly relaxed initial response to news that after years of complaining, the Republicans could not agree on an alternative to the Affordable Care Act.

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FX Weekly Preview: After US Health Care, Now What?

The first quarter winds down. The dollar moved lower against all the major currencies. The best performer in the first three months of the year has been the Australian dollar’s whose 5.8% rally includes last week’s 1% drop. The worst performing major currency has been the Canadian dollar.

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FX Daily, March 24: Dollar Trying to Stabilize Ahead of the Weekend

The US dollar has been stabilizing over the past couple of sessions. This broad stability of the dollar is impressive because of the questions of the prospects of US President Trump’s economic agenda. Expectations for tax reform and infrastructure spending have bolstered investor confidence and helped boost equity prices despite what appears to be stretched valuation.

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FX Daily, March 23: Some Thoughts about the Recent Price Action

The gains the US dollar scored last month have been largely unwound against the major currencies. The dollar’s losses against the yen are a bit greater, and it returned to levels not seen late last November. The down draft in the dollar appears part of a larger development in the capital markets that has also seen the US 10-year yield slide 25 bp in less than two weeks. The two-year yield is off 17 bp.

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Status of US Pivot To Asia

AsiaPivot

Pivot still taking place, but without TPP, more militaristic. President Trump seems a little less confrontational toward China. China is unlikely to be cited as a currency manipulator in next month’s Treasury report.

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FX Weekly Preview: Divergence Theme Questioned

catlion

Recent developments have given rise to doubts over the divergence theme, which we suggested have shaped the investment climate. There are some at the ECB who suggest rates can rise before the asset purchases end. The Bank of England left rates on hold, but it was a hawkish hold, as there was a dissent in favor of an immediate rate hike, and the rest of the Monetary Policy Committee showed that their patience with both rising price prices and the resilient economy was limited.

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Oil Supply Remains Resilient, Prices Heavy

Nearly half of OPEC’s intended cuts are being offset by an increase in US output. The contango rewards the accumulation of inventories. The drop in oil prices probably weighs more on European reflation story than the US.

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FX Daily, March 17: Dollar Remains Heavy

The dollar is softer against most of the major currencies to cap a poor weekly performance. The Dollar Index is posting what may be its biggest weekly loss since last November. The combination of the Federal Reserve not signaling an acceleration of normalization, while the market remains profoundly skeptical of even its current indications, and perceptions that the ECB and BOE can raise earlier than anticipated weighed on the dollar. The PBOC surprised many by lifting some operational interest rates. It also contributed to the sense that the divergence theme has run its course.

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FX Daily, March 16: Greenback Consolidates Losses as Yields Stabilize

The US dollar remained under pressure in Asia following the disappointment that the FOMC did not signal a more aggressive stance, even though its delivered the nearly universally expected 25 bp rate hike. News that the populist-nationalist Freedom Party did worse than expected in the Dutch elections also helped underpin the euro, which rose to nearly $1.0750 from a low close to $1.06 yesterday.

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FX Daily, March 15: Greenback Softens Ahead of FOMC

The US dollar is paring yesterday’s gains as the market awaits the outcome of the well-telegraphed FOMC meeting. In recent weeks, the combination of data and official comments have swayed market, which had previously anticipated a hike in May or June.

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China’s NPC Ends with New Initiatives

China will make its mainland bond market more accessible. As China’s portfolio of patents grows it will likely become more protective of others’ intellectual property rights. PRC President Xi will likely visit US President Trump early next month.

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FX Daily, March 13: Bonds and Equities Rally, Dollar Heavy

Hit by profit-taking ahead of the weekend, despite US jobs data that remove the last hurdle to another Fed hike this week, the greenback remains on the defensive. It has softened against all the major currencies and many of the emerging market currencies. The chief exception is those in eastern and central Europe.

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FX Weekly Preview: Succinct Views of Ten Events and Market Drivers: Week Ahead

The week ahead is the busiest week of the first quarter. It sees four major central meetings, including the Federal Reserve which is likely to raise rates for the second time in four months. The Dutch hold the first European election of the year, and the populist-nationalist party remains in contention for the top slot. The week concludes with the G20 meeting, the first that the Trump Administration’s presence will be felt.

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FX Daily, March 10: US Jobs Data: Deja Vu All Over Again?

A week ago, after nine Fed officials had spoken, the market widely expected Yellen and Fischer to confirm that the table was set for a rate hike later this month. They did, and the dollar and US interest rates fell. Now, after a strong ADP jobs report (298k), everyone recognizes upside risk to today’s national report, and the dollar has lost its upside momentum against most major currencies, but the Japanese yen.

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Solid US Jobs Report in line with Expectations

fred

The US jobs report was largely in line with expectations. February was the second consecutive month that the US economy created more than 200k jobs. It is the first time since last June and July. The 235k is just below the revised January 238k gain (initially 227k).

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FX Daily, March 09: Pre-ECB Squaring Lifts Euro in a Strong USD Context

The euro tested the lower of its range near $1.05 in Asia before short covering in Europe lifted back toward yesterday’s highs near $1.0575. However, buoyed by the upside surprise in the ADP estimate of private sector jobs growth, the dollar is firmer against most other currencies today. The US 10-year yield is up 20 bp this week.

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Dutch Election: Where Rubber Meets the Road

Populism-Nationalism is not sweeping the world. The populist-nationalist party in the Netherlands will most likely not be a member of the next govt. There is little appetite for a referendum on EU. Nexit may be a clever slogan, but is highly improbable.

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FX Daily, March 08: Dollar Bid as Rates Firm

The US dollar is moving higher against nearly all the other major foreign currencies today. As far as we can tell, the driving force remains interested rate considerations. US rates are rising in absolute terms and about Europe and Japan. The US 10-year yield is moving above the downtrend that has been in place since the day after the Fed hiked rates last December.

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A Few Thoughts about the US Labor Market

work

The 94 mln people POTUS claims are not working is true but terribly misleading. What happened to agriculture a century ago is happening to manufacturing. New industries are less labor intensive than smokestack industries.

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FX Daily, March 06: The Dollar Gives Back More Before Consolidating

The US dollar’s pre-weekend pullback was extended in early European turnover but appeared to quickly run out of steam. The prospect of a constructive US employment report at the end of the week, especially given the steady decline in weekly initial jobless claims to new cyclical lows, underscores the likelihood that the Fed hikes rates next week. Bloomberg puts the odds above 90%, while the CME estimates a nearly 80% chance.

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The Resilience of Globalization and the US Dollar

strong

Populism-nationalism is not really a wave sweeping across the world. Where it succeeded was where a center-right party in a two-party system embraced part of the populist agenda. Center-right parties in Europe are not embracing key agenda for populist-naitonalist, but appear to be tacking to the right on domestic issues.

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European Commission Offers 5 Scenarios

Europe not dead

EC is committed to the future of Europe. Juncker presented five scenarios. Even if the populist-nationalist do not win the electoral contests, the national identity issues will continue to exert influence.

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FX Daily, March 02: Dollar Remains Bid

The US dollar is bid against the major currencies as the combination the increased expectation of a Fed rate hike and the President’s commitment to fiscal stimulus buoys sentiment. The dollar-bloc, where speculators in the futures market, have grown a net long position, are leading the move.

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FX Daily, March 01: Greenback Bounces, More Fed than Trump

FX Performance, March 01 2017 Movers and Shakers

The much-anticipated speech by US President Trump was light on the details that investors interested in, like the tax reform, infrastructure initiative, and deregulation. There appears to be an agreement to repeal the national healthcare, but there is no consensus on its replacement.

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Beware the Ides of March

Numerous events converge in the middle of March. We still lean toward a May hike rate than March. Wilders may garner a plurality of the vote in the Netherlands, but is unlikely to form a government for want of coalition partners. How will the Republican US Congress and President deal with the debt ceiling?

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FX Daily, February 28: Markets Little Changed as Breakout is Awaited

The capital markets are becalmed, and the US dollar is in narrow trading ranges. Month-end considerations are at work, but the key event is much-awaited speech US President Trump to a joint session of Congress this evening (early Wednesday in Asia). The hope is that he provides the policy signals that allow the dollar to break out of its recent ranges.

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FX Daily, February 27: Asia Stumbles, Europe Recovers, Waiting for Trump

chess

The late recovery in US equities before the weekend did little good for Asian markets. Nearly all the Asian equity markets moved lower, led by the 1.0% decline in Japan’s Topix. It was the third successive loss for the Topix, which is the long losing streak of the year so far. The MSCI Asia Pacific Index lost 0.6%, further pushing it off the 17-month high seen last week.

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FX Weekly Preview: Macroeconomics and Psychology

There is a broad consensus around the macroeconomic picture. The headwinds slowing the US economy in H1 16 have eased, and above trend growth in H2 16 appears to be carrying into 2017. Q4 16 GDP is expected to be revised to 2.1% up from 1.8%. Many economists appear to accept that a good part, though not all, of the decline in the estimated trend growth in the US, is a function of demographic considerations.

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FX Daily, February 24: Anxiety? What Anxiety?

The US dollar is finishing the week on a mixed note in choppy activity in narrow ranges. It is an apt way to finish this week, which has been largely directionless as investors wait for fresh incentives, and are especially looking toward Trump’s speech to a joint session of Congress next week.

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FX Daily, February 23: Dollar Chops About, as “Fairly Soon” Does not Mean mid-March

FX Performance February 23 2017 Movers and Shakers

The US dollar is confined to narrow ranges today within yesterday’s ranges. Equity markets posted small gains in Asia and have an upside bias in Europe. Core bond yields are softer, and today this includes France, but peripheral European 10-year benchmark yields are 3-6 bp firmer. Italian bonds are the poorest performer, while the 10-year Dutch bond yields are off the most (3.2 bp to 0.56%) despite the looming election.

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Primary Budget Balances in EMU

Greece debt has rallied as a repeat of the 2015 crisis seems less likely. The EC may turn its attention to Italy’s structural deficit. There are several countries, including France that is forecast to have a larger primary deficit in 2018 than 2017.

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FX Daily, February 22: Euro Meltdown Continues

FX Performance February 22 2017 Movers and Shakers

February has been cruel to the euro. Of the sixteen sessions this month, counting today, the euro has risen in four, and two of those were last week. Its new four-day slide pushed it below $1.05 for the first time in six weeks as European markets were opening. The $1.0560 area that was broken yesterday, and provided a cap today is 61.8% retracement objective of last month’s rally.

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FX Daily, February 21: Dollar Bounces Back

FX Performance February 21 2017 Movers and Shakers

Some profit-taking in the middle of last week pushed the dollar lower and gave rise in some quarters that the run was over. However, the greenback has come back the bid. It is gaining against all the major currencies today and most of the emerging market currencies.

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Dollar Index: The Chart Everyone is Talking About

Many are discussing a possible head-and-shoulders pattern in the Dollar Index. We are skeptical as other technical signals do not confirm. We recognize scope for disappointment over the border tax and the next batch of employment data, but European politics is the present driver and may not be alleviated soon.

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Great Graphic: US and Japan Five-Year Credit Default Swaps

Japan and US 5-year credit default swap (CDS)

For the first time since the financial crisis, the 5-year CDS on JGBs is dipping below the 5-year US CDS. It appears to be more a function of a decline in Japan’s CDS than a rise in the US CDS. We are reluctant to read too much into the small price changes in the mostly illiquid instruments.

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FX Daily, February 20: Marking Time on Monday

FX Performance February 20 2017 Movers and Shakers

US markets are closed for the Presidents’ Day holiday, but it hasn’t prevented its pre-weekend gains giving a bullish tone to global equities. The S&P 500 and NASDAQ recovered from early weakness to close at new record levels before the weekend. Global equity markets are following suit today.

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FX Weekly Preview: Number One Rule of the Game is Stay in the Game

Light economic calendar in the week ahead, but anticipation of US tax reform may underpin dollar and equities. European politics are in flux (France, Italy, Greece) and this may see spreads widen over Germany. Russia’s outlook was upgraded by Moody’s before the weekend, and China has announced no coal imports this year from North Korea. Brazil is expected to cut Selic by 75 bps.

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FX Daily, February 17: Greenback Stabilizes Ahead of the Weekend

The US dollar is finishing the week on a steady to firmer note against the major currencies but the Japanese yen. The softer yields and weaker equity markets often are associated with a stronger yen. For the week as a whole, the dollar is mostly lower, though net-net it has held its own against sterling, the euro and Canadian dollar.

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FX Daily, February 15: Yellen Helps the Dollar Extend Streak

The Dollar Index’s ten-day rally was at risk yesterday, but Yellen’s reiteration of the commitment to continue to lift rates gradually helped extend the streak to eleven sessions.This surpassed the streak around the election (November 7-November 18). With today’s gains, it may draw closer to what appears to be the long streak, 14 sessions between April 30, 2012 and May 17.

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Lies, Damn Lies, and Taxes

taxes

President Trump hinted at the end of last week that the Administration’s tax proposals would be aired in the next two or three weeks. This seems to be a signal of its inclusion in his address to both houses of Congress on February 28. This is not quite a State of the Union speech, but similar and precisely what Obama did in February 2009.

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Greece and the Return of the Repressed

Don’t expect a deal between Greece and its official creditors until late spring or early summer. Grexit is still not a particularly likely scenario. It was the European governments not Greece which put other taxpayers’ skin in the game.

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FX Daily, February 14: Markets Showing Little Love on Valentines

EUR/CHF - Euro Swiss Franc, February 14

Corrective pressures are gripping the major capital markets today.The Dollar Index’s nine-day advancing streak is being threatened by the position adjustment ahead of Yellen’s testimony later today. Despite record high closes in the main US equity markets yesterday, Asia could not follow suit. It tried to initially, and recorded new highs since July 2015, but sellers emerged and the MSCI Asia Pacific Index closed marginally lower on the lows of the day. European bourses are mixed in morning turnover, but the Dow Jones Stoxx 600 may snap a five-day advance. The US S&P 500’s five-day streak is also on the line.

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What is Good for the Dollar is Bad for Gold

The Dollar Index is powering ahead, moving higher for the eighth consecutive session. Over the past 100 sessions, gold and the Dollar Index move in the opposite direction more than 90% of the time. The technical condition of gold is deteriorating.

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FX Daily, February 13: Quiet Start of Busy Week

With inflation and growth reports due out this week and Federal Reserve Chair Yellen’s testimony before Congress, it promises to be a busy week for investors. However, the week has begun off fairly quietly, while the recent rally in equities continues.

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New Book: Political Economy of Tomorrow

My new book,Political Economy of Tomorrowhas just been published, and it is available onAmazon. The book is not so much of a sequel to my first book,Making Sense of the Dollar. There is very little about the foreign exchange market in the new book. However, it is not wholly new cloth either.

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FX Weekly Preview: Yellen’s Path Cleared by Trump’s Moderation

Trump has moderated in several areas, he is being checked in others, and less impactful in others. This will underscore the focus on Yellen’s testimony this week. At same time, many will be reluctant to short the dollar ahead of the tax reform plans that may be unveiled in Trump’s upcoming speech to Congress.

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FX Daily, February 10: US Dollar Holding on to Week’s Gains

The US dollar is about 12 hours away from gaining against all the major currencies this week. The main talking points today remain Trump-centric. The US dollar is mixed as European trading gets underway. Of note the dollar is continuing to gain on the yen. The yen is off 0.4%, which is nearly half the week’s decline. The Aussie is the strongest on the day, up about 0.2% to trim the week’s loss to about 0.45%.

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FX Daily, February 09: Dollar Bounce in Asia is Sold in the European Morning

Winter

The US dollar is firmer against most of the major currencies in fairly quiet Asian turnover, but is seeing those gains pared in early Europe. The highlights include the RBNZ meeting that left rates on hold, as widely expected. The concern about the strength of the Kiwi saw the market reduce the perceived likelihood of a rate hike. NZD came off.

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Is a Strong or Weak Dollar Good for the US? The $16 trillion Question

Еagleflag

Dollar movement helps some economic interest and hurts others. From a strategic point of view, the best thing for the US is the market-generated rate. It was an important achievement that the forex market was de-weaponized. Many observers have been crying wolf about a currency war for many years, which may have de-sensitized investors to the threat of a real one.

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Cool Video: Around the World with Katie Martin of the Financial Times

Fintool - Marc Chandler

I am in London as part of a larger business trip. I had the chance today to talk to Katie Martin, who runs Fast FT and is often writing about foreign exchange. They show was live on Facebook. It is about a 22 minute interview and although foreign exchange is the key issue, to get to it we end up talking about many things, including US interest rates, Trump, and even cooking frogs.

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Great Graphic: Interesting Sterling Price Action

GBP Currency, Feb 02-07

Sterling is having an interesting day. It fell in the face of the US dollar’s bounce but has recovered fully. It has not yet traded above yesterday’s high (~$1.2510) but it may. It does appear to be tracing out a hammer in Japanese candle stick terms.

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The Dollar: Real or Nominal Rates?

US Dollar Index Currency 2011-2017

Real interest rates are nominal rates adjusted for inflation expectations.Inflation expectations are tricky to measure. The Federal Reserve identifies two broad metrics. There are surveys, like the University of Michigan’s consumer confidence survey, and the Fed conducts a regular survey of professional forecasters. There are also market-based measures, like the breakevens, which compare the conventional yield to the inflation-linked, or protected security (TIPS).

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FX Weekly Preview: Politics Not Economics is Driving the Markets

The Fed is more confident this year of stable growth and rising inflation. The new US Administration’s economic agenda is beginning to take shape, though it is not clear that consumer interests will be pursued. There are several considerations, including politics in Europe, that are driving European rates higher. The RBA and RBNZ meet next week. Neither is expected to change policy.

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The Future of Globalization

antiglobalization

antiglobalizationThe cross-border movement of goods, services, and capital increased markedly for the thirty years up to the Great Financial Crisis. Although the recovery has given way to a new economic expansion in the major economies, global trade and capital flows remain well below pre-crisis levels. It had given rise to a sense globalization is ending.

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Thoughts about the Fed’s Balance Sheet

hotair balloon

Several regional Fed presidents want to begin talking about shrinking Fed’s balance sheet. Leadership does not appear to have great urgency, so don’t expect anything in this week’s statement. First step more hikes, then refrain from reinvesting payments and maturities, but slowly.

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Trade is Trump’s Centerpiece

Trans-Pacific Partnership

Investors are anxiously awaiting more details on the new US Administration’s economic policies and priorities. Part of the challenge is that the cabinet represents a wide range of views and it is not clear where the informal power lies, or whose call is it. In terms of economic policy, trade is being given priority. It is seen as the key to the jobs and growth objectives.

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FX Daily, January 31: Markets Look for Solid Footing

FX Performance, January 31 2017 Movers and Shakers

The immigration imbroglio in the United States is being cited in various accounts for the price action, including yesterday’s drop in the S&P 500, where the intraday loss was the largest since before the election. The drama is also being blamed for the dollar’s losses yesterday, which it is consolidating today.

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Trump and the Dollar

Dollar Shoes

US official comments on the FX market appear to have increased in frequency. They are mostly warnings about a strong dollar, but not all comments are dollar-negative. Policy is the ultimate driver but comments pose headline risk.

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FX Daily, January 30: EUR/CHF falls further to 1.650

FX Performance, January 30 2017 Movers and Shakers

The EUR/CHF collapsed once again to 1.0650. This rate broke the 1.0680 – 1.0700 that constituted the previous intervention area.
Reasons can be found in the weak U.S. GDP weak, in Trump’s foreign trade policy and in the strong Swiss trade balance.

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Great Graphic: Mexico and China Unit Labor Costs

Unit Labor Costs in China and Mexico 2007 - 2015

Mexico has been gaining competitiveness over China before last year’s depreciation of the peso. The depreciation of the peso, and other US actions can contribute to the destabilization of Mexico. An economically prosperous and stable Mexico has long been understood to be in the US interest.

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FX Daily, January 26: EUR/CHF collapses to 1.670

FX Performance, January 26 2017 Movers & Shakers

The US dollar is mostly firmer against the major currencies but is confined to narrow ranges, and well-worn ranges at that, but the focus has shifted to the strong advance in equities. Yesterday, the Dow Jones Industrials finally rose through the psychologically-important 20k level, and the S&P 500 gapped higher to new record levels.

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Cool Video: Bloomberg’s Daybreak–Trump and Rates

Chandler - Bloomberg TV

On what Trump’s first working day as POTUS, I had the privilege to be on Bloomberg’s Daybreak to talk about the wagers on US interest rates in the futures market. In the most recent CFTC reporting week, which ended on January 17, speculators in the 10-year note futures market reduced the record net short position. It is only the second week reduction since the end of November.

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Great Graphic: How a Strong Dollar Weighs on Net Exports

Contributions of Exports and Imports to GDP Growth

Investors appreciate that a strong dollar can impact US growth through the net export component of GDP. The dollar’s appreciation can push up the price of exports and lower the cost of imports. The St. Louis Fed took a look at how the strong dollar from 2014 to the beginning of 2016 impacted the net export function of GDP.

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UK Supreme Court Decision: Anti-Climactic?

May

Sterling retreats on court ruling but key supports hold and it recoups initial loss. The US dollar is recovering with the help of firming US yields. Investors are still anxious for details of new US government’s tax, deregulation, and infrastructure investment plans.

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FX Daily, January 23: Dollar’s Pre-Weekend Retreat Extended in Asia Before Stabilizing in Europe

FX Performance, January 23 2017 Movers and Shakers

The US dollar had a poor close in the North American session before the weekend as investors appear increasing anxious about the new US Administration’s economic policies and priorities.With no fresh details emerging over the weekend, some stale dollar longs exited. The dollar stabilized in the European morning, but broader risk appetites were not rekindled, and the Dow Jones Stoxx 600, led by financials, was sold to its lowest level this month.

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FX Weekly Preview: The Challenging Week Ahead

thought

Investors will finally be able to focus on what the new US President does rather than what he says. The UK Supreme Court decision is expected, but it may not be the driver than it may have previously seemed likely. The dollar-yen rate does not appear to be driven by domestic variable as much as US yields and equities. Prices not real sector data may be the key for the euro.

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Cool Video: Bloomberg’s Daybreak – Dollar Correction

Bloomberg Marc Chandler

I was on Bloomberg’s Daybreak: Americas today. The issue at hand was about the dollar’s losses since the start of the year. I suggest that the correction actually began a day or so after the Federal Reserve hiked rates in mid-December. I noted that the correction was not just about the dollar but also interest rates.

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FX Daily, January 20: Trump Day

inauguration

The dollar peaked against the yuan two days after the Federal Reserve hiked interest rates in the middle of last month. We argue that that is when the market correction began, not at the turn of the calendar. Despite claims that China’s currency is dropping like a rock, it has actually risen for the fifth consecutive week. That is the longest rising streak for the yuan since early 2016.

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Great Graphic: Trade and Tariffs-End of an Era?

Trade-weighted average global tariff rate and trade

This Great Graphic was tweeted by the Financial Time’s John Authers, who got it from @fathomcomment. The green line is the inversion of global trade (right-hand scale). The blue line is a trade-weighted average global tariff rate. What the chart shows is that since 1990, the decline in the average tariff coincided with an increase in trade (remember green line is inverted).

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Draghi Lets Steam out of Euro

eurodeflate

US reported stronger than expected series of data, including a large drop in weekly jobless claims for the week of the next NFP survey. Draghi remained dovish, with key phrases retained. Euro needs to break $1.0575 now to confirm a top is in place. Markets still uncertain ahead of the start of the new Administration.

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FX Daily, January 19: Dollar Gives Back Most of Yellen-Inspired Gains

FX Performance, January 19 2017 Movers and Shakers

While the US 10-year yield is unchanged, the dollar is consolidating its gains against the yen in a relatively narrow range of about half a big figure below JPY115.00. It has seen its gains pared more against the euro and sterling, where most of Yellen-inspired gains have been unwound. Sterling found support near $1.2250 and was bid up to $1.2335 by early in the European sessions.

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FX Daily, January 18: Markets Stabilize, Awaiting Fresh Cues

FX Performance, January 18, 2017 Movers & Shakers

The US dollar has stabilized after yesterday’s bruising. From a fundamental perspective, little has changed. After hard exit signals from the UK government sent sterling down from $1.2430 on January 5 and 6, to below $1.20 at the start of the week, the pound rallied back to almost $1.2430 yesterday amid “sell the rumor buy the fact” activity.

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Great Graphic: Is the Pound Sterling?

Sterling’s 2.75% rally today is the biggest advance in more than eight years. The UK government has done a good job of managing expectations. Over the last week or so, Prime Minister May and Chancellor of the Exchequer Hammond has made it clear that the intention was a “clean break” from the EU.

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FX Daily, January 17: Trump’s Comments Send the Dollar Reeling

The Pound has been subjected to a heavy amount of pressure as we progress further into 2017, with GBP/CHF rates being one of the heaviest losers. The pairing is now trading at a similar level to GBP/USD levels below the 1.22 mark. Their is an enjoyable symmetry between the two from an analysts point of view. Both are well regarded as safe-haven currencies, and in this time of increased uncertainty, both have almost the exact same value in the marketplace against the likes of the Pound.

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FX Daily, January 16: Hard Exit Talk Sent Sterling Below $1.20

FX Performance, January 16 2017 Movers and Shakers

The euro has been sold to $1.0580 in the European morning, a cent lower from the pre-weekend high. In addition to the drag from sterling, the euro appears to have been sold in response to the interview in two European papers of the next US President. Among other things, Trump reported claimed that NATO was obsolete and that other countries will leave the European Union, which is largely a German project.

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FX Weekly Preview: Five Events that Will Drive the Capital Markets in the Week Ahead

fox in hen house

Bank of Canada may be more upbeat following strong jobs and trade figures. China’s President Xi will speak at Davos and likely defend globalization and free trade, which some think the US is abandoning. UK PM May’s speech on Brexit may be blunted by few surprises, collapse of the government in Northern Ireland, and the pending Supreme Court ruling. ECB will leave rates on hold and look for Draghi to push back against ideas that rise in CPI means QE should be tapered. Donald Trump becomes the 45th US President on January 20.

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The Difference of an A and BBB for Italy

Italian Bank Stocks

DBRS cut Italy’s rating to BBB from A. It will increase the haircut on Italy’s sovereign bonds used for collateral by Italian banks. It is not a mortal blow or a significant hit, but is not helpful, except to add pressure on Italy and further reduce its ability to respond to another shock.

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FX Daily, January 13: Corrective Forces Persist

FX Performance, January 13 2017 Movers and Shakers

The Supreme Court Judgement on whether parliament will have to O.K the triggering of article 50 is ongoing and when the ruling is announced expect big swings on GBP/CHF. I think the likely outcome will be that parliament will get the vote, most broad sheet papers have indicated the majority of the judges are in favour of the parliamentary vote.

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FX Daily, January 11: Dollar Comes Back Bid

FX Performance, January 11 2017 Movers and Shakers

The pound has seen a sharp fall following the interview that Theresa May gave with Sky news on Sunday although there has been a small rebound this afternoon. GBP CHF exchange rates are hovering around 1.2350 for this pair.

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Great Graphic: Real Rates in US are Elevated

The US 10-year yield fell briefly below 1.32% last July. The yield slowly rose to reach 1.80% in mid-October. The day after the election, the yield initially slipped to almost 1.71%. This was a bit of a miscue, and the yield rose sharply to hit almost 2.64% the day after the FOMC hiked rates for the second time in the cycle on December 14. The yield backed off to hit 2.33% at the end of last week.

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FX Daily, January 10: Positioning more than Fundamentals Give Traders Pause

FX Performance, January 10 2017 Movers and Shakers

After strong moves to start the year, the capital markets continue to consolidate. Many observers are suggesting a fundamental narrative behind the loss of momentum, but in discussions with clients and other market participants, it seems as if the main source of caution is coming from an understanding of market positioning rather than a reevaluation of the macro drivers.

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FX Daily, January 09: Sterling Pounded by May’s Hard Brexit

Thor

Sterling has stolen the US dollar’s spotlight. The issue facing market participants was if the rise in hourly earnings reported as part of the pre-weekend release of US December jobs data was sufficient to end the dollar’s downside correction. Instead, May’s comments over the weekend indicating not just a desire but strategic thrust to abandon the single market in exchange for regaining control over immigration and not being subject to the European Court of Justice has cost sterling more than one percent.

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FX Weekly Review, January 02 – 07: Is the corrective phase of the dollar over?

US Dollar/Swiss Franc FX Spot Rate, December 30

The lack of full participation and the resulting choppy conditions may have obscured the signal from the capital markets. That signal we think was one of correction since shortly after the Fed’s rate hike in id-December. The question now, after the US employment data showed continued labor market strength and that earnings improvement remains intact, is whether the corrective phase is over.

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US Jobs Details Better than the Headline

The dollar and US yields are recouping more of yesterday’s decline. A break of $1.0480-$1.05 would suggest the euro’s upside bounce is exhausted. A dollar move above JPY116.80-JPY117.25 would also hint that the greenback was going to make an other run toward JPY118.30-JPY118.60. Sterling support is seen in the $1.2285-$1.2310 area.

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Cool Video: CNBC’s Power Lunch-China and Mexico

Marc Chandler - Bloomberg

Two central banks were particularly active today. Chinese officials appear to be engineering short squeeze that has lifted the yuan 1.2% over the past two sessions. While this does not sound like much, it is a record two-day move, for the still closely managed currency.

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FX Daily, January 06: Dollar Consolidates Losses, Peso Firms while Yuan Reverses

FX Performance, January 06 2017 Movers and Shakers

I am reading a lot about the pound in 2017 which is likely to be as volatile as in 2016. But the Franc is a harder beast to predict. Loosely tracking the euro but subject to its own rules and trends GBPCHF could be an interesting pair to watch in 2017. There are numerous global events which can shape the direction on the Franc and clients looking to exchange pounds into Francs or move Francs back to the UK should be considering the path ahead.

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A Few Thoughts Ahead of the US Jobs Report

ADP and Non-Manufacturing ISM lend credence to our fear of a disappointing national jobs report. Economists estimate only a small part of the manufacturing jobs loss can be traced to trade policy. 19 states increased min wage at the start of the year, but the impact on the nation’s average weekly earnings will likely be too small to detect.

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FX Daily, January 04: Consolidation in Capital Markets

FX Performance, January 04 2017 Movers and Shakers

GBP/CHF rates have jumped during the first official day of trading in 2017, with the pair hitting 1.2657 at today’s high. The Pound gained support this morning following positive UK Manufacturing data, which came in well above market expectation. This increased market confidence in the UK economy and the Pound has ultimately benefited as a result, gaining a cent on the CHF.

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Great Graphic: Real Wages

Real Wages 2007 - 2015

This Great Graphic caught my eye. It was tweeted by Ninja Economics. Her point was about immigration. German had much higher immigration than the UK, but also saw real wage increase of nearly 14% in the 2007-2015 period, while real wages in the UK fell nearly 10.5%.

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FX Daily, December 23: Markets Edge into Holiday Weekend

FX Performance, December 23 2016 Movers and Shakers

Asian shares trade heavily. The MSCI Asia-Pacific Index ex-Japan fell 0.4%. It is the fourth lower close this week and brings the loss to 1.75% for the week. It is fallen in seven of the past nine weeks. The Dow Jones Stoxx 600 is little changed on the session and is nursing a minor loss on the week and could snap a two-week advance.

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Where Do US Companies Hire Abroad?

High-wage economies of Canada, EU, Japan and Australia account for nearly half of US corporate employment abroad. And even in low-wage regions, the high-wage parts tend to draw more US employment. The new US administration may have second thoughts about pivot to Asia, but US companies may not.

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FX Daily, December 22: Mixed Dollar amid Light News as Investors Move to Sidelines

FX Performance, December 22 2016 Movers and Shakers

GBP/CHF rates have dipped over the past week, as the markets start to slowdown ahead of the Christmas period. Market trends become harder to predict at this time of year, due to the fact there is less capital injected by investors. Less liquidity ultimately equals less stability and the Pound may be suffering due to investors pulling their funds away from it and into safer haven currencies such as the CHF.

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FX Daily, December 19: EUR/CHF Dives under 1.07

FX Performance, December 19 2016 Movers and Shakers

Once again a line in sand for the Swiss National Bank is broken. The EUR/CHF falls under 1.07. But trading algorithms are like this: When the EUR/USD is falling, then the EUR/CHF must follow. The SNB decided not to intervene any more at 1.07.

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BIS: A Paradigm Shift on Bond Yields?

Review of recent BIS report. US election spurred a substantial change in sentiment. Equity and bond market reactions are roughly similar to when Reagan was elected, with the dollar, at least initially, stronger than then.

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Rising Trade Tensions

Trade

Obama Administration has taken a hardline against China’s trade practices. Other countries are also resisting China’s arguments that it is a market economy. Last week, US imposed anti-dumping duties on imported washing machines from China.

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FX Daily, December 16: Markets Turn Quiet Ahead of the Weekend, Dollar Consolidates Gains

FX Performance, December 16 2016 Movers and Shakers

Some mild position squaring pressures are evident ahead of the weekend, and for many market participants the year is coming to an end. Outside of the BOJ meeting next week, the calendar turns light and markets are moving into holiday mode. The Dollar Index is seeing this week’s gains trimmed, but it is up nearly 1.4% this week. Although the election has seen the dollar’s gains accelerate, the current leg up began in early October. The Dollar Index has risen in eight of the past 11 weeks.

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FX Daily, December 15: Greenback Extends Gains on Back of Fed

FX Performance, December 15 2016 Movers and Shakers

Sterling has made steady gains against the CHF over the past month and although the spike has levelled this week, the Pound has certainly gained a foothold. Yesterday’s decision by the US Federal Reserve to raise their base rate from 0.25% to 0.5% did little to shift the value of GBP/CHF but with investors still digesting the outcome, we may yet find it still has an effect.

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Cool Video: Big Picture Dollar Outlook

I had the privilege of joining Scarlet Fu and Joe Wisenthal on the set of What’d You Miss on Bloomberg TV yesterday afternoon. It was within a couple of hours of the second Fed rate hike in a decade. The dollar rallied.

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FX Daily, December 14: Markets Quietly Edge into FOMC Meeting

FX Performance, December 14 2016 Movers and Shakers

The Pound is entering mid-December in the same fashion it begun the month after having a very strong November as well. After being buoyed by Donald Trump’s victory and the High Courts ruling that parliamentary approval is needed before invoking Article 50, the Pound has been boosted further after economic data has also impressed, with yesterday being a good example of this.

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FX Daily, December 13: Narrowly Mixed Dollar Conceals Resilience

FX Performance, December 13 2016 Movers and Shakers

The US dollar is little changed against most of the major currencies. The dollar finished yesterday’s North American session on a soft note, but follow through selling has been limited. After rallying to near 10-month high above JPY116 yesterday, the greenback finished on session lows near JPY115.00. Initial potential seemed to extend toward JPY114.30, but dollar buyers reemerged near JPY114.75, and it rose back the middle of the two-day range (~JPY115.40 area).

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Busy Week for the UK

The UK reports inflation, employment and retail sales this week. The BOE meets but will keep rates steady. The US 2-year premium over the UK is the highest since at least 1992 today.

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FX Daily, December 12: Dollar and Yen Trade Lower to Start the Week

FX Performance, December 12 2016 Movers and Shakers

The US dollar and Japanese yen are trading lower. The tone is largely consolidative, and the foreign exchange market is not main focus today. Instead, the OPEC-non-OPEC agreement before the weekend is arguably the key driver today. Oil prices are up 4.5%-4.8%, lifting bond yields and supporting oil producers’ currencies, like the Norwegian krone, Canadian dollar, the Russian ruble and Mexican peso.

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FX Daily, December 09: Euro Chopped Lower before Stabilizing

FX Performance, December 09 2016 Movers and Shakers

The euro has stabilized after extending yesterday’s ECB-driven losses. The euro’s drop yesterday was the largest since the UK referendum to leave the EU. Ahead of the weekend, there may be some room for additional corrective upticks, but they will likely be limited, with the $1.0650 area offering initial resistance. In the larger picture, this week’s range, roughly $1.05 to $1.0850 likely will confine the price action for the remainder of the month, though of course, thin holiday markets (after FOMC next week) could make for erratic price action.

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FX Daily, December 08: Dollar Heavy into ECB

FX Performance, December 08 2016 Movers and Shakers

The ECB prolonged its bond purchases, which came unexpected for markets. Consequently the EUR/CHF lost nearly half of its big gains that it registered in the beginning of the week. The ECB expects lower inflation for longer, which makes the life for the SNB harder for longer.

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ECB: Dovish Taper or Hawkish Ease?

Mario Draghi

Purchases increased for longer but at a lower level; overall, more purchases than anticipated. Euro spiked higher on the announcement, but has subsequently dropped 2 cents. Lower inflation forecast for 2019 shows scope for a further extension.

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ECB and the Future of QE

ECB will likely extend asset purchases in full. It may modify the rules by which it buys securities. It may adjust the rules of engagement for its securities lending program.

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FX Daily, December 07: Greenback is Broadly Steady While Sterling Slides

FX Performance, December 07 2016 Movers and Shakers

The US dollar is little changed against most of the major currencies. Sterling is the notable exception, losing about 0.75% to trade at three-day lows. It was on the defensive in early European turnover but got the run pulled from beneath by the unexpectedly poor data. UK industrial output fell by 1.3% in October. The median forecast was for a small increase.

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Greek Bonds may Soon be Included in ECB Purchases

The ECB accepts Greek bonds as collateral but does not include them in its asset purchases. A new staff-level agreement by the end of the year could change that. Finance ministers imply that Greece’s debt is sustainable, but the IMF disagrees.

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FX Daily, December 06: You Can Almost Hear a Pin Drop

FX Performance, December 06 2016 Movers and Shakers

The foreign exchange market is quiet. Ranges are narrow, with the US dollar mostly consolidating against the major currencies. Given the push lower yesterday, the shallowness of its recovery warns of the greenback’s downside correction after strong gains last month may not be complete.

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Yen and US Yields

Dollar-yen has been driven by the sharp rise in US bond yields. There are some (dollar) bearish divergences in the JPY/USD technicals. US 10-year yields may also be putting in a near-term top.

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Great Graphic: Dollar Index Update

The Dollar Index’s technical tone has deteriorated. It is corresponding to the easing of US rates and a narrowing differential. The risk is that the correction can continue in the coming days.

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FX Daily, December 05: Dollar Comes Back Bid, but Still Vulnerable to Corrective Pressures

FX Performance, December 05 2016 Movers and Shakers

After softening ahead of the weekend, the US dollar has begun the new week on a firm note. It is gaining against most major and emerging market currencies. Outside of what appears to be a staged call between US President Elect Trump and the Taiwanese President, the developments in Europe grabbed the markets’ attention. Austria turned back the populist right Freedom Party’s bid for the presidency. The Freedom Party does not appear to have carried any districts.

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FX Weekly Preview: Focus Shifts toward Europe

Economic Events: Eurozone, Week December 05

US developments have driven the dollar rally and bond market decline over the past three weeks. Attention shifts to European politics and the ECB meeting. Bank of Canada and the Reserve Bank of Australia meet but are unlikely to change policy.

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FX Daily, December 02: Is it About US Jobs Today?

FX Performance, December 02 2016 Movers and Shakers

The capital markets are finishing the week amid speculation that the driving forces of the past three weeks are ebbing. Global equities and the dollar may be snapping three-week advances. The issue is whether it is a consolidation or trend change. The former is a more prudent assumption until proven otherwise. As a rough and ready signal, the 100.60 level in the Dollar Index, which corresponds to the lows November 22 and November 28 is reasonable.

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Mixed Jobs Report, but Unlikely to Deter Expectations for Fed Hike

The US dollar has slipped lower in response to the jobs data, but quickly recovered. The details are mixed, but is unlikely to change views on the outlook for Fed policy. The headline job creation was in line with expectations at 178k. Job growth of the back two months were shaved by 2k, concentrated in October. The unemployment rate dropped to 4.6%, the lowest since 2007.

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FX Daily, November 30: Renewed OPEC Hopes and Month End Featured

FX Performance, November 30 2016 Movers and Shakers

Rates for buying Swiss Francs dollars remain incredibly subdued post Brexit but there has been a general improvement over the last month. Rates for the moment appear to have found support over 1.24 for GBP CHF and this has largely come about following the Trump US presidential election victory. Despite a leaked government document titled Have cake and eat it, the markets and sterling were largely unphased.

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Bernanke Suggests How to Use the Dot Plots

Bernanke

The dot plots are not FOMC commitments or an aggregate view of the FOMC. They are a collection of individual economic forecasts based on the most likely scenario and their view of appropriate policy. The SEP is useful for understanding how Fed officials view the long-term economic parameters, which appears to explain the downward shift in the long-term equilibrium rate for Fed funds.

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Great Graphic: Yen and Yuan Connection

The US dollar has rallied against both the Japanese yen and Chinese yuan since the end of September. Through today, the yen has fallen 9.8% and the yuan has fallen by 3.5%. What they have in common is the rise in US interest rates relative to their own. Since September 30, the US 10-year yield has from below 1.60% to above 2.40% at the end of last week. Japan’s 10-year yield has risen from minus nine basis points at the end of September to five basis points before last weekend. China’s 10-year yield rose from 2.73% to 2.90% ten days ago.

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FX Daily, November 28: Corrective Forces Seen in Asia, Subside in Europe

FX Performance, November 28 2016 Movers and Shakers

As soon as markets opened in Asia, the greenback was sold, and corrective forces that had been nipping below the surface took hold. The euro, which had finished last week below $1.0590, rallied nearly a cent. Before the weekend, the greenback had pushed to almost JPY114, an eight-month high, before closed near JPY113.20. It was sold to almost JPY111.35 in early Asia. Sterling extended last week’s gains and briefly poked through $1.2530, to reach its highest level since November 14.

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Short Summary on US Thanksgiving

Turkey

Euro fell to new 20-month lows before steadying. The dollar extended its recovery against the yen. Emerging markets remained under pressure, and Turkey’s central bank surprised with a 50 bp hike in the repo rate.

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FX Daily, November 22: Bonds and Stocks Rally, Leaving Greenback to Meander

FX Performance, November 22 2016 Movers and Shakers

The US dollar entered a consolidative phase yesterday, and this carried into today’s activity.While the foreign exchange market is sidelined as the two-week trend slows, the stocks and bonds are posting strong gains today. Equities are being led by energy and materials, as oil and industrial metals continue to advance. Bond are recovering from their recent slide.

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FX Daily, November 21: Flattish Consolidation Hides Dollar Strength

FX Performance, November 21 2016 Movers and Shakers

The news over the weekend is primarily political in nature. Sarkozy is going to retire (again) after taking a drubbing in the Republican Party primary in France. Fillon, the self-styled French Thatcher unexpected beat Juppe, but without 50% and therefore the results set up the run-off this coming weekend. It is as if, knowing their candidate will likely face Le Pen in the final round next spring, the Republican Party might as well chose the most extreme laissez-faire candidate.

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The Italian Job

Four Seasons

Italy is the epicenter of the next potential populist “shock.” A defeat of the referendum is seen as intensifying the political risk. Renzi has wavered again regarding his political future if the referendum loses.

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Weekly Speculative Positions: Dramatic Spot Currency Moves not Reflected

What is most noticeable about the CFTC Commitment of Traders report for the reporting week ending November 15 is what is not there: Activity.  With the Australian dollar being the sole exception, we are struck by the apparent fact that dramatic spot price action and a what seemed like an impulsive trend move seemed not to be reflected in the futures position adjustments by speculators.  

Given the strength of the US dollar after the election, which this report covers, it is not surprising that among the eight currency futures we follow, there was some light profit-taking by speculators in six of the gross short currency futures.  The exceptions were the Japanese yen and the Mexican peso, where gross short positions were extended.  

The speculators cut exposure in the

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If TPP is Dead…

Tpp

TPP may be dead, but China is spearheading an alternative regional free trade deal. It is not as ambitious as the US-led TPP. China and Russia are eager to re-establish spheres of influence.

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FX Daily, November 18: Revaluation of the Dollar Continues

FX Performance, November 18 2016 Movers and Shakers

Since the US election, the dollar has been on a tear. Pullbacks have been brief and shallow. There are powerful trends in place. The euro has fallen nearly five percent over the past ten sessions, during which it is not closed higher once. The dollar rose four days this week against the yen and four days last week.

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FX Daily, November 17: Consolidation Gives Dollar Heavier Tone

FX Performance, November 17 2016 Movers and Shakers

The US dollar is trading with a heavier bias today as its recent run is consolidated. The euro is trying to snap the eight-day slide that brought it to nearly $1.0665 yesterday, the lows for the year. It is almost as if participant saw the proximity of last year’s lows ($1.0460-$1.0525) and decided to pause, perhaps to wait for additional developments, such a Fed Chief’s Yellen’s testimony before the Joint Economic Committee of Congress.

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FX Daily, November 16: The Greenback Remains Resilient

FX Performance, November 16 2016 Movers and Shakers

The US dollar remains bid. It is at its year high against the euro and five-month highs against the Japanese yen. Sterling, which has performed better recently, remains in the trough around 30-year lows. It surge since the election reflects three considerations. The first is December Fed hike. Prior to the election, the market was assessing around a two-thirds chance. Now both the CME and Bloomberg’s WIRP estimate the odds above 90%. Investors have also increased the anticipated path of Fed next year as well.

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FX Daily, November 15: Investors Catch Breath, Markets Consolidate

FX Performance, November 15 2016 Movers and Shakers

After a dramatic run since the US election, the capital markets are consolidating today. It is a bit too restrained to such a Turn Around Tuesday is unfolding. The euro is struggling to sustain corrective upticks through $1.08, and after a pullback is, the greenback pushed back above the JPY108 level like a beach ball held under water.

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Great Graphic: Euro-the Big Picture

Eurofish

Most economists are focusing on either US monetary policy or US fiscal policy. We focus on the policy mix. After the policy mix, politics is also a weigh on the euro. Our long-term call is for the euro to revisit the lows from 2000.

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Cool Video: Reiterate Bullish Dollar Call on Bloomberg

Bloomberg Marc Chandler

I was on Bloomberg TV this morning to weigh in on the dollar’s rally. The US Dollar Index is flirting with the 100 area that has blocked side since last year. In my work, after a big run-up form around 80 in mid 2014, the Dollar Index has been consolidating. I have long anticipated a spring board for another leg up.

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FX Daily, November 14: Dollar Steps Up to Start Week

FX Performance, November 14 2016 Movers and Shakers

The US dollar rally that moved into a higher gear in the second half of last week has begun the new week with a bang. It is up against nearly all the major and emerging market currencies. Even sterling, which last week, managed to eke out modest gains against the greenback is under pressure today.

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FX Weekly Preview: Forces of Movement

US election results accelerated forces that were already present. Interest rates have appeared to bottom, fiscal stimulus in Canada and Japan already evident, and divergence between US and EMU/Japan monetary policy. US stimuli may reach when the economy is already near trend.

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Great Graphic: Shifting Trade-Weighted Exchange Rates

The dollar’s trade-weighted index is firming and a couple percentage points from the year’s high set in January. The yen’s trade-weighted index is at several month lows, but remains dramatically higher ear-to-date. The euro’s trade-weighted index has begun falling amid concerns that it is the next focus for the anti-globalization/nationalism movement. Sterling’s trade-weighted index is extending its recovery as a softer Brexit is anticipated, the greater role for Parliament, and a more neutral BOE is signaled.

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FX Daily, November 11: Ramifications of Trump’s Election Continue to Drive Markets

FX Performance, November 11 2016 Movers and Shakers

The forces unleashed by the US election results continue to drive the capitals markets. The combination of nationalism, reflation and deregulation are seen as good for US equities and the US dollar. It has not been so kind to US Treasuries, where the 10- and 30-year yield has risen about 32 bp this week coming into today’s federal holiday that closes the bond market, while the stock market is open.

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Rising US Premium Lifts Dollar-Yen

US 10-year rate premium is the largest in 2.5 years. US 2-year premium is the most since Q4 2008. Japanese investors likely will be buying foreign bonds, while foreigners may see opportunities in Japanese stocks after being large sellers in the first 9 months of the year.

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Cool Video: Chat with the FT’s John Authers

Stumped

I was just as surprised as anyone by the election outcome. The initial market reaction was not as surprising, but the dramatic reversal was. About a dozen hours after the election was called, John Authers from the Financial Times came to my office and we chatted. Check out the cool video here.

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FX Daily, November 10: US Dollar, Equities, and Commodities Firmer as Reflation Trade Takes Hold

FX Performance, November 10 2016 Movers and Shakers

GBP/CHF rates spiked by almost two cents during Wednesday’s trading, providing those clients holding Sterling with some of the best rates they’ve seen in the past few weeks. This move came following confirmation that Donald Trump had won the race for the White House, news which sent shockwaves through the market. How the outcome will affect the global markets is difficult to analyse at this point but could yesterday’s positive spike indicate better times ahead for the Pound?

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China Update

China

The evolving political situation in China is worth monitoring. China’s trade surplus with the US has fallen this year. It has been roughly 20 years since China was formally labeled a currency manipulator. Trump has indicated he would do so.

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FX Daily, November 09: Mourning in America?

FX Performance, November 09 2016 Movers and Shakers

Global capital markets have been roiled by Trump’s stunning victory Swiss National Bank’s Andrea Maechler promised interventions for the case that Trump wins the elections. It was probably not necessary. Only the EUR/CHF fell to 1.0753. Strangely the dollar and markets recovered.

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Cool Video: Bloomberg Interview – Peso, Equities, Yuan

Mark Chandler

Even before the my polling station opened today, I had the privilege of being on Bloomberg Surveillance today with Gina Cervetti and Tom Keene. We talk about a wide range of issues directly and tangentially related to the US election. We discuss the outcome the market appears to be discounting.

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Romanticizing the Gig

Humanostrich

Gigs are part of the new lexicon for a long existing phenomenon. It is largely but not solely a capital offensive to lower labor input costs. There may be short-run advantages but long-term challenges from the growth of the gig or contingent workforce.

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FX Daily, November 07: Dollar Stabilizing After Bounce

FX Performance, November 07 2016 Movers and Shakers

The DAX also gapped lower before the weekend and gapped higher today. It is stalling just ahead of the earlier gap from last week (10460-10508). It is up about 1.6% in late-morning turnover. The strongest sector is the financials, up 2.5%, with the banks up 3.4%. Deutsche Bank is snapping a five-session drop. It fell 9.1% last week. It has recouped more than half of that today.

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FX Weekly Preview: The US Election is The Driver in the Week Ahead

Economic Events: Eurozone, Week November 07

Neither the Mexican peso’s performance nor the fed funds futures seem to show that investors think the election is very close. Not all poll analysis showed what the Financial Times called “knife-edge”. None of the poll analysis showed Trump winning, and many appear to have stabilized over the last couple of days.

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Carney’s Tenure: Brief Thoughts

Marc Carney Bank of England

Not only is Carney not resigning, but he agreed to stay a year longer than initially agreed. He will stay for the two years that Brexit is negotiated. Sterling rallied, but did not challenge last week’s highs.

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Did Carney Really Open the Door to a Rate Hike?

Huh?

Sterling’s recovery began before today and went through technical levels that accelerated the advance. The interest rate market did not change sufficiently to indicate a change in policy expectations. The High Court decision will be appealed.

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FX Daily, November 03: Political Angst Drives Markets

FX Performance, November 03 2016 Movers and Shakers

GBP/CHF rates are trading below 1.20 on the exchange, providing those clients holding CHF with some of the best rates they’ve seen in the past six years. The Pounds woes have been well documented but with a key day of economic data releases ahead, is it all about to change?

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US Political Anxiety Stems Bond Sell-Off

Yield

Bond yields have been rising in the US and Europe since the summer. There are some country-specific considerations and some generalized factors. Anxiety over US politics has helped bonds recover some lost ground.

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FX Daily, November 02: Standpat FOMC Trumped by US Political Jitters

FX Performance, November 02 2016 Movers and Shakers

The single biggest driver in the capital markets is the continued narrowing of the US election polls. The prospect of a Trump presidency and the dramatic changes that could entail is rattling investors and spurring position squaring.The dollar is broadly lower as are stocks. The surge in global yields has been arrested.

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EC Pushes Back on (8) Draft Budgets

Coloseum

Long before the UK referendum, many argued that monetary union was undermining the European Union. Many had expected Greece to be forced out not once but twice. There is a cottage industry of books forecasting the demise of EMU.

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Great Graphic: Sentix Shows a Shift

Sentix Euro Break-up Index: Greece and Italy

The risk that the eurozone implodes over the next year has risen, but is still modest. Italy has surpassed Greece as the most likely candidate. The December referendum is the second part of Renzi’s political reforms.

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FX Daily, November 01: Dollar and Yen Slip in Quiet even if Eventful Turnover

FX Performance, November 01 2016 Movers and Shakers

The US dollar is posting minor losses against most of the major currencies today.The Japanese yen is the exception, as the greenback continues to straddle JPY105. There have been several developments today, and the US also has a full economic calendar today. The most important of the developments was the upbeat message from the Reserve Bank of Australia.

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Weekly Speculative Positions: Bottom-Picking Sterling, Swiss Franc Even More Net Short

weekly

Speculators increased their Short Swiss Francs to Net 18K contracts. While they started to bottom-pick Sterling.
Not everyone is convinced that sterling will bounce.  The bears extended their gross short sterling position by 3.4k contracts to 147.6k.  On the eve of the UK referendum, the gross short position was around 94k contracts.  

Again speculators, both bulls and bears have rapidly expanded their exposure in recent weeks.  In the most recent reporting period, the bulls added 14.7k contracts, lifting the gross long position to 142.9k contracts.    Given the bearish sentiment and recent trend, this is a very large position.  It is about 5k

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Riksbank and Norges Bank Policy Meetings

Six major central banks meeting over the next six sessions. Sweden’s Riksbank is the most likely ease policy of these central banks, but it is not particularly likely. Norway is decisively on hold, as fiscal policy does some of the heavy lifting.

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FX Daily, October 28: Dollar Sidelined, Krona Stabilizes, Rates Firm

FX Performance, October 28

The main development here in the last full week of October is the sharp rise in bond yields. US 10-year yields rose nine bp this week coming into today’s session, which features the first look at Q3 GDP. The two-year yield is up four bp. European 10-year benchmark yields mostly rose 11-17 bp. UK Gilts were are the upper end of that range. Two-year yields are 3-5 bp higher.

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FX Daily, October 27: Rising Yields Continue to be the Main Driver

FX Performance, October 27 2016 Movers and Shakers

The euro remains pinned near the seven-month low it recorded two days ago near $1.0850. It approached $1.0950 yesterday and has been confined to about a 15-tick range on either side of $1.0905 today. Against the yen, the dollar remains near the three-month high (~JPY104.85) also seen two days ago. New dollar buying emerged yesterday near JPY104.

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Great Graphic: CRB Index Revisited

CRB Index

Interest rates and 10-year break-evens are rising. Some think the CRB Index is tracing out a head and shoulders bottom. We look for inflation in non-tradable goods’ prices (think services).

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FX Daily, October 26: Euro and Yen Extend Recovery

FX Performance, October 26, Movers and Shakers

After touching 1.08, which apparently the “new floor”, the SNB moved the EUR/CHF upwards yesterday and Monday. Today’s EUR recovery against USD, let also the EUR/CHF rise. The US dollar’s upside momentum reversed in North America yesterday and has been sold in Asia and Europe. This seems like mostly position adjustments ahead of next week’s FOMC, BOE and RBA meetings, in an otherwise subdued news period. The euro has at three-day highs. It has scope toward $1.0950-$10.970 in this corrective phase. Support may be found around $1.09.

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FX Daily, October 25: Germany IFO, Dollar Going Nowhere

FX Performance, October 25 2016 Movers and Shakers

The US dollar has been confined to extremely narrow ranges against the euro, yen, and sterling. To the extent that there is much action in the foreign exchange market, it is with the dollar-bloc and emerging market currencies.The Canadian dollar was whipsawed by comments from the Bank of Canada.

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Yuan Not

There were two dogs that did not bark this year. There are the Japanese yen, which despite negative interest rates and an unprecedented expansion of the central bank’s balance sheet, the yen has strengthened 15% against the dollar. The yen has been the strongest major currency, and the third strongest currency in the world behind the high-yielding Brazilian real, recovering from last year’s drop, and the Russian rouble, aided by a rebound in oil.

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FX Daily, October 24: Dollar Begins Mostly Slightly Lower, and Risk is On to Start the Week

FX Performance, October 24 2016 Movers and Shakers

Sterling vs the Swiss Franc has remained close to its lowest level in history caused by the aftermath of the Brexit vote back in June and more recently the announcement that Article 50 will be triggered by March 2017. Confidence in Sterling exchange rates has plummeted recently and until we get some form of assurances as to how the talks may go with the European Union we could see Sterling fall even further against the Swiss Franc than its current levels.

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FX Weekly Preview: Forces of Movement in the Week Ahead

opticalillusion

Fitch cut Italy’s rating outlook to negative from stable, while DBRS left Portugal’s rating and outlook unchanged. Europe and Canada’s free trade negotiations broke down, but many seem to be making exaggerating the significance of the drama. Japan and Australia report inflation figures, and both are exceptions to the generalization that price pressures are rising in (most) high income countries.

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Demographics and a New Old Paradigm

paradigm

The hangover from the debt crisis and secular stagnation are the two main explanatory models for the low growth and low interest rates. Anew Fed paper brings the focus back to demographics. If true, warns of a protracted period of slow growth, low interest rates.

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FX Daily, October 21: Greenback Ending Week on Firm Note

FX Performance, October 21 2016 Movers and Shakers

The US dollar is firm especially against the European complex and emerging market currencies. The yen continues to be resilient, and exporters are thought be capping the dollar above JPY104. The dollar is lower against the yen for the fourth consecutive session and set to snap a three-week advancing streak.

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Cool Video: Double Bloomberg Feature–ECB and US Baby Boomers

Double Feature

This afternoon I had the privilege of being on Bloomberg TV, with anchors Scarlet Fu and Matt Miller. I was joined by an old market friend Bob Sinche. We had a lively discussion (what did you expect?) on two issues. The first was on the ECB. At his press conference earlier today, Draghi indicated that the question of extending QE and tapering was not discussed.

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FX Daily, October 20: ECB Unlikely to Shake Dollar’s Slumber

FX Performance, October 21 2016 Movers and Shakers

GBP/CHF rates have fallen dramatically over the past month, as Sterling continues to find itself under pressure against the major currencies. However, despite these losses it is not all doom and gloom for those clients holding GBP, as Tuesday’s positive spike for the Pound proved. Currency does not move in a straight line and therefore we will see opportunities for those clients holding GBP to take advantage of, even if a sustainable Sterling recovery is unlikely in the short-term.

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FX Daily, October 19: FX After China GDP

FX Performance, October 19 2016 Movers and Shakers

The Swiss Franc has strengthened against the pound as global uncertainty persists in the form of the UK’s Brexit vote and the US Presidential Election. Looking ahead it seems the CHF may soften a little as we learn of the new President, I found it very interesting that yesterday Paddy Power paid out on any bets for Hilary Clinton to become President in the United States.

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ECB: Dovish Hold

Draghi will like emphasis inflation is the key to policy and ECB is committed using allow for its technical tools to achieve its legal mandate. Key decisions will be made in December. The more the euro rises against sterling, the greater the pressure for the euro to fall against the dollar.

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FX Daily, October 18: Dollar Slips Broadly but not Deeply

FX Performance, October 18 2016 Movers and Shakers

According to Bank of England deputy governor Ben Broadbent the drop in the value of Sterling has helped to stop the UK economy from falling further since the shock of the Brexit vote. He went on to say ‘in the shape of the referendum, we’ve had exactly one of those shocks’ and added that the Bank of England would not interfere with monetary policy to boost the Pound’s value.

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Is Oil about to Rollover?

Oil has rallied 20% since mid-September. Market may be getting ahead of itself. US rig count has risen by more than 100 in less than 4-months and inventories, seasonally adjusted are at record highs.

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FX Daily Rates, October 17: Dollar Starts Week Narrowly Mixed, while Bonds and Stocks Retreat

FX Performance, October 17 2016 Movers and Shakers

The US dollar is consolidating in relatively narrow trading ranges. Participants appear to be waiting for fresh incentives, while the recent rise yields continue and equities have begun the new week on a soft note. Yellen spoke before the weekend, and her explicit willingness to tolerate higher inflation pushed yields higher, while not deterring expectations for a hike in December.

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A Few Thoughts on Canada

Bank of Canada meets Wed. Look for a dovish hold. Foreigners continue to buy Canadian bonds and stocks. The EU-Canadian free-trade deal is facing challenges, with the most pressing one coming from Belgium.

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FX Weekly Preview: Four Key Events in the Week Ahead

Escher Esque

Of the forces driving prices in the week ahead, events appear more important than economic reports.There are four such events that investors must navigate.The Bank of Canada and the European Central Bank meet. The UK High Court will deliver its ruling on the role of Parliament in Brexit.The rating agency DBRS updates its credit rating for Portugal.

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Great Graphic: China’s PPI and Commodities

China Producer Price Inflation

China’s PPI rose for the first time in four years. It is related to the rise in commodities. Yet there are good reasons there is not a perfect fit between China’s PPI and commodity prices. US and UK CPI to be reported next week, risk is on the upside.

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High Court Hears UK Constitutional Challenge

Judge and Queen

Regardless of outcome early next week, the High Court’s decision will likely be appealed. The issue is the role of parliament. The greater the role, the greater the risk of a delay, but also a better chance to minimize a hard Brexit.

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FX Daily, October 12: May Concedes to Parliament, Sterling Rises after Pounding

FX Performance, October 12 2016 Movers and Shakers

News that UK Prime Minister May has accepted that Parliament should vote on her plan for exiting the EU stopped sterling’s headlong slide. Sterling had been pounded for roughly 8.5 cents since the start of the month including the last four sessions. The idea that parliament, where the Conservatives enjoy a slim majority, is less enthusiastic about Brexit may mean a less acrimonious divorce.

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Sterling: Has the Breaking Point been Reached?

Sterling’s decline is not longer coinciding with lower rates. Sterling’s decline is boosting inflation expectations. If the inflation expectations are realized (Sept CPI next week), it will quickly erode what ever competitive gains there may have been.

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FX Daily, October 11: The Dollar Remains Bid

FX Performance, October 11 2016 Movers and Shakers

The US dollar is bid against all the major and most emerging market curerncies. An important driver is the backing up of US rates. The two-year yield, which is particularly sensitive to Fed policy is at it highest levbel since early June (~86 bp). The US 10-year yield is five basis points hihger today at 1.77%, which is the highest in four months.

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FX Daily, October 10: Dollar after the Second Debate

FX Performance, October 10 2016 Movers and Shakers

The US dollar has started the new week on a firm note. The light news stream and holidays in Japan, Canada and the United States make for a subdued session. Notable exceptions to the dollar’s gains are the Canadian dollar and Mexican peso. Both currencies appear to have been. underpinned by US political developments, the main feature of which is the implosion of the Trump campaign.

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FX Weekly Preview: The Week Ahead: It’s Not about the Data

High frequency economic reports will be not be among the key drivers of the capital markets in the week ahead.The light schedule, consisting mostly of industrial production in Europe, inflation for Scandinavia, and US retail sales, will have minimal impact on rate expectations.

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US and Canada Jobs: Sill Strong Enough for a Rate Hike

The US grew 156k jobs in August, missing the median estimate by about 16k. The July series was revised up by 16k. The unemployment and participate rate ticked up 0.1% to 5.0% and 62.9% respectively. Hourly earnings rose 0.2% to lift the year-over-year rate to 2.6% from 2.4%. The average work week increased to 34.4 hours from 34.3.

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FX Daily, October 06: The Dollar is Firm in Quiet Market

FX Performance, October 06 2016 Movers and Shakers

The US dollar is advancing against the major and most emerging market currencies. Activity is subdued and ranges are narrow. We share four observations about the price action. First, the euro has been unable to sustain upticks even after Germany reported a jump in industrial orders three-times more than the median estimate (1.0% vs. 0.3%).

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Why Portugal Matters

DBRS reviews its investment grade rating of Portugal on Oct 21. A cut in its rating would have far reaching implications. A cut in the outlook is more likely than a cut the rating.

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FX Daily, October 04: Sterling’s Slide Continues, EUR/CHF Soars Again

FX Performance, October 4, 2016

UK Prime Minister May’s comments at the Tory Party Conference over the weekend played up the risk of what has been dubbed a hard Brexit and triggered a slide in sterling saw it fall to new 30-year+ low against the dollar just below $1.2760. The EUR/CHF has soared again. Later during the day, it has even achieved 1.0970.

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Cool Video: Bloomberg TV-Dollar Supercycle and Brexit

Marc Chandler and Dollar and Exogenous Shocks

I reiterated my long-standing view that the euro is going to retest its record lows before the Obama Dollar Rally is over. I warn that the UK’s quest to regain sovereignty is an illusion. I announce that my new book will be published in early December or early January.

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The Yen in Three Charts

The dollar is taking out a several month downtrend against the yen. The correlation between the yen and the S&P 500 has broken down. The US 2-year premium over Japan has steadily risen.

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FX Daily, October 03: May’s Confirmation Sends Sterling Lower

FX Performance, October 03 2016 Movers and Shakers

Sterling has a bad case of the Monday blues. Even the moon looks distraught. Prime Minister May has confirmed earlier suggestions that she will trigger Article 50 to formally begin its divorce proceedings from the EU at the end of Q1 17. Several officials have already hinted this time frame, though many have been skeptical that Article 50 would be triggered at all, given the complexities of the issues.

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FX Weekly Preview: Next Week’s Two Bookends

The start of next week will likely be driven by Deutsche Bank’s travails and dollar funding pressures, which may or may not be related. The end of the week features the US monthly jobs report. Despite being a noisy, high frequency time series subject to significant revisions, this report like none other can drive expectations of Fed policy.

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Weekly Speculative Positions: Speculators Closing their CHF Longs

  Marc Chandler speaks of the volatility of the CHF speculative positioning. For us this was window dressing by the SNB that wants to improve the quarterly results. Traders react to the strong market movement caused by the SNB and they close their long CHF positions. If it was really the SNB, we will see on Monday

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Renzi and the Italian Referendum: Disruption Potential Minimized

Italian Prime Minister has set the date for the constitutional referendum as late as practically possibly. It will be held on December 4. The issue is the perfect bicameralism that gives as much power to the Senate as the Chamber of Deputies. Renzi’s argument is that the political reform is necessary to make Italy governable. Italy has had 63 governments since the end of WWII. In order to address the economic challenges the country faces, political reform is necessary.

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FX Daily, September 30: SNB Intervenes to Polish Q3 Results

FX Performance, September 30 2016 Movers and Shakers

True to its recent habit, the US dollar is finishing the week on a firm note. On the month, though, the greenback has fallen against most of the majors, but sterling, the Canadian dollar, and the Swedish krona. Global equities are trading heavily, and investors’ angst is lending support to bond markets.

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Divergence: Norway and Sweden

Twins

Sweden has one of the weakest of the major currencies this year. Norway has one of the strongest of the major currencies this year. The key driver is divergence of monetary policy and that divergence is likely continue into next year.

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FX Daily, September 28: Dollar Mostly Firmer, but Going Nowhere Quickly

FX Performance 2016, September 28 Movers and Shakers

The US dollar is enjoying a firmer bias today, but it remains narrowly mixed on the week. It is within well-worn ranges. Of the several themes that investors are focused on, there have not significant fresh developments. In terms of monetary policy, both Draghi and Yellen speak today. The former is behind closed doors with a Germany parliamentary committee.

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Great Graphic: Stocks and Bonds

US 10-year yield and S&P 500

The relationship between the change in Us 10-year yields and the change in the S&P 500 has broken down. The 60-day correlation is negative for the first time since late Q2 2015. It is only the third such period of inverse correlation since the start of 2015.

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FX Daily, September 27: US Debate Lifts Peso, but Leaves the Dollar Non-Plussed

FX Performance September 27, 2016

Since the monetary assessment meeting, the EUR/CHF is trending downwards. Sight deposits indicate that the SNB is intervening 0.9 bn per week. We emphasized that the preferred intervention corridor is between 1.08 and 1.0850. The first US Presidential debate may not sway many voters but has lifted the Mexican peso. The peso, which has fallen by about 1.3% over the past two sessions, has stormed by 1.5% today as the seemingly biggest winner of the debate. Snap polls immediately following the debate gave the edge to Clinton.

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FX Weekly Preview: Politics to Overshadow Economics in the Week Ahead

The major central banks have placed down their markers and have moved to stage left. There are the late-month high frequency data, which pose some headline risks in the week ahead. The main focus for most investors will be on several political developments. The first US Presidential debate is wild card, in the sense that the outcome is unknown. In recent weeks, the polls have drawn close. In early August, Nate Silver’s fivethirtyeight.com, the gold standard of the poll analysis, gave Trump about a 15% chance of becoming President. It now puts the odds at near 40%. Rarely have the odds of Trump’s election been higher.

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FX Daily, September 19: Dollar Begins Important Week on Softer Note

The US dollar, which finished last week on a firm note, is under pressure to start the new week that features Bank of Japan and Federal Reserve meetings. The slighter stronger August CPI reading helped lift the greenback ahead of the weekend, but investors continue to see a low probability of a Fed hike this week.

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Great Graphic: Median U.S. Income per Presidents

How Median Income Changed Under Each President

Median household income was higher in 2015 than in 2008, but still below 1999 peak in real terms. The bottom fifth of households by income have just recouped what was lost. Income growth did best under (Bill) Clinton and Reagan, including for top 5%. Origin of strong dollar policy means it will not be used as a trade weapon and it hasn’t since Bentsen.

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Yellow Lights are Flashing

Bonds are not rallying despite poor US data. Greater chance that Trump gets elected than the Fed hikes next week. Berlin may be more important than Bratislava.

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FX Daily, September 15: Early Update: Full Calendar but Little News

Movers and Shakers, September 15

Looking at the diary, today is the most important day of the week. The Bank of England and the Swiss National Bank meet. The UK reports retail sales. EMU reports CPI figures. The US reports retail sales, industrial output, and two September Fed surveys. Yet the economic updates are unlikely change sentiment ahead of next week FOMC and BOJ meetings.

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FX Daily, September 14: Precarious Stabilization

Movers and Shakers, September 14

Swiss ZEW expectations came in better than expected. The value was +2.7 instead of expected negative value. The US dollar advanced yesterday and is in narrow ranges with a mostly softer bias today. The exception is the Japanese yen. Japanese press have reported that more negative rates are under consideration may have contributed to the weakness of the yen.

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FX Weekly Preview: Capital Markets in the Week Ahead

Global bonds and global stocks ended last week on a weak note and this will likely carry into this week’s activity. The Bank of England meets, but the data may be more important. Oil and commodity prices more generally look vulnerable, and this coupled with higher yields sapped the Australian ad Canadian dollar in the second half of last week.

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FX Daily, September 9: Ahead of the Weekend

The US dollar is lower against all the major currencies this week as North American participants close it out. On the day, the dollar is consolidating swings yesterday and is narrowly mixed.Bond yields are higher and equities are mostly lower. The euro has finished lower the last three Fridays. The streak may end today. The euro has found support nearly $1.1260, and the intraday technicals favor a move higher in the US morning.

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FX Daily September 8: Draghi Says Little, Door Still Open for More

In the last two days, the euro moved upwards against CHF. Given that Swiss GDP was stronger than the one in the euro zone, this is surprising. But we must recognize that Draghi could be the reason. Inflation forecasts of 1.2% in 2017 and 1.8% in the euro zone would mean the ECB hikes rates maybe in 2018 or 2019. I personally do not believe it, given that wage inflation in Italy or Spain is clearly under 1%. This is lower than Swiss wage inflation of 0.8%.

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FX Daily, September 07: Dollar Stabilizes, but Hardly Recovers

Disappointing industrial output figures from Germany and UK are helping stabilize the US dollar after yesterday’s shellacking. Investors have been fickle about the prospects for a rate hike this month, and the unexpected dramatic slide in the service spurred a downgrading of such expectations, and a flight out of the dollar. It was not simply a quest for yields, though that was part of it. Surely the yen and euro’s strength is not a function of superior yields than the US.

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Great Graphic: What Kind of Jobs is the US Creating

The oft repeated generalization about the dominance of low paying jobs is not true for the last few years. This does note refute the disparity of wealth and income in the US. There is a restructuring taking place that favors educated and skilled workers.

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FX Daily, September 5: While Americans were Celebrating Labor Day

There were several developments that took place while US markets were closed for its Labor Day holiday. Most of the economic news was favorable. This included a strong snap back in the UK service PMI, more evidence that the moral suasion campaign to lift wages in Japan is yielding some success and a rise in the Caixin’s China’s service PMI.

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Weekly Speculative Positions: Rising Swiss Franc Longs

Speculative activity remained light in the latest CFTC reporting period ending August 30. There were no gross position adjustments that we recognize as significant; 10k contracts or more. There were only three gross adjustments by speculators of more than 4k contracts. With the higher EUR/CHF FX rate and weaker U.S. jobs date, speculators went long CHF by 8.2K contracts.

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FX Daily, August 31: Dollar Bides Times, Month-End at Hand, Jobs Data Ahead

The US dollar is a little softer against most of the major and emerging market currencies. The exception is the Japanese yen, where the greenback has moved above JPY103 for the first time in a month. The tone is consolidative as the market awaits assurances that the jobs growth this month has been sufficiently strong as to keep the prospects of a September meeting still alive.

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FX Daily, August 30: Greenback Remains Firm, Awaiting Fresh Cues

The US dollar is trading firmly, largely within yesterday’s ranges. The odds implied by the September Fed fund futures eased to 36% from 42% before the weekend, but ahead of Fischer’s Bloomberg TV appearance, and tomorrow’s ADP employment estimate, the market seems cautious about fading the dollar’s strength.

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Natural Rates and Terminal Fed Funds

The neutral or natural interest rate is linked to potential growth. Potential growth has fallen so has the neutral rate. The implication is that the FOMC has made the bulk of the adjustment on its long-term Fed funds forecast.

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FX Daily, August 29: Dollar Gains Extended, but Momentum Fades

The US dollar staged a strong pre-weekend rally on hints that the Fed will raise rates before the end of the year. There was initially follow through dollar buying in Asia before a more stable tone emerged in Europe, where London markets are closed for a bank holiday. The easing of the dollar’s upside momentum may set the stage for a bout of profit-taking later today and tomorrow.

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Great Graphic: Low Wages in US Rising

The bottom of the US wage scale is rising. The added wage costs are being blunted by less staff turnover, hiring and training costs. It is consistent with our expectation of higher price pressures.

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FX Daily, August 26: And now for Yellen…

Yellen’s presentation at Jackson Hole today is the highlight of the week. It also marks the end of the summer for many North American and European investors. It may be a bit of a rolling start for US participants, until after Labor Day. However, with US employment data next Friday, many will return in spirit if not in body.

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FX Daily, August 25: Narrow Ranges Prevail as Breakouts Fail

The US dollar remains mostly within the ranges seen yesterday against the major currencies.The market awaits fresh trading incentives and the end of the summer lull, which is expected next week. The Jackson Hole Fed gathering at which Yellen speaks tomorrow is seen as the highlight of this quiet week.

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FX Daily, August 24: Narrowly Mixed Greenback in Summer Churn

The US dollar is going nowhere fast. It is narrowly mixed against the major currencies. The market awaits for fresh trading incentives, with much hope placed on Yellen’s presentation at Jackson Hole at the end of the week. Is it too early to suggest that the build-up ahead of it is too much?

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Great Graphic: GDP Per Capita Selected Comparison

US population growth has been greater than other major centers that helps explain why GDP has risen faster. GDP per capita has also growth faster than other high income regions. The US recovery is weak relative to post-War recoveries but it has been faster than anticipated after a financial crisis and shows little evidence of secular stagnation.

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FX Daily, August 23: Broadly Mixed Dollar in a Mostly Quiet Market

The US dollar is mostly little changed against the major, as befits a summer session.There are two exceptions.The first is the New Zealand dollar. Comments by the central bank’s governor played down the need for urgent monetary action and suggested that the bottom of cycle may be near 1.75% for the cash rate, which currently sits at 2.0%.This means that a cut next month is unlikely. November appears to be a more likely timeframe.

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FX Daily, August 22: Fischer Joins Dudley; Waiting for Yellen

Last week, some market participants were giving more credence to what seemed like dovish FOMC minutes than to NY Fed President Dudley’s remarks that accused investors of complacency over the outlook for rates. Yesterday, Vice-Chairman of the Federal Reserve Fischer seemed to echo Dudley’s sentiment, and this has underpinned the dollar and is the major spur of today’s price action.

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Dollar Weakness and Fed Expectations

Dollar weakness does not line up with increased perceived risk of Fed hiking rates. Frequently the rate differentials lead spot movement. Some now turning divergence on its head, claiming too expensive to hedge dollar-investments so liquidation. TIC data, though, shows central banks not private investors, were the featured sellers in June, the most recent month that data exists.

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FX Weekly Preview: Yellen at Jackson Hole

Lastly, a brief word about next week. I will not post my usual piece on macro considerations on Sunday. Here, though, is a brief thumbnail sketch of the top five things I will be watching: Yellen at Jackson Hole at the end of next week: To the extent that she shares her assessment of the economy, I would expect to largely echo the broad sentiment expressed by NY Fed President Dudley.

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FX Daily, August 19: Dollar Recovers into the Weekend

The US dollar is trading firmly ahead of the weekend as part of this week’s losses are recouped. The euro is trading within yesterday’s range, holding to a little more than a half-cent above $1.13. However, as we have noted, the Asia and European participants appear more dollar-friendly than Americans

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The Need for Higher Wages: Lots of Thunder, No Rain

Major central banks and many economists are calling for higher wages. However, they are reluctant to offer proposals to strengthen those institutions who’s goal is to boost labor’s share of national income. The advocates are more interested in boosting prices than in lifting aggregate demand or addressing the disparity of income and wealth.

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FX Daily, August 17: Dollar Snaps Back

The US dollar is enjoying a mid-week bounce against all the major currencies. It appears that participants in Asia and Europe are giving more credence to NY Fed Dudley’s comments yesterday. Although many in the market have given up on a rate hike this year, Dudley reaffirmed his belief that the economy was accelerating in H2 and that the market was being too complacent.

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Great Graphic: Aussie Tests Three-Year Downtrend

The Australian dollar’s technical condition has soured. Market sentiment may be changing as the MSCI World Index of developed equities posted a key reversal yesterday. It is not clear yet whether the Aussie is correcting lower or whether there has been a trend change.

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Yuan and Why

It is as if Hamlet, the confused prince of Denmark, has taken up residence in Beijing. The famed-prince wrestled with “seeming” and “being”. So are Chinese officials. They seem to be relaxing their control over financial markets but are they really? Are they tolerating market forces because they approve what they are doing, such as driving interest rates down or weakening the yuan? If so what happens when the markets do something which they don’t approve?

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FX Daily, August 15: Dollar Eases to Start the New Week

The US dollar closed the pre-weekend session well off its lows that were seen in response to the disappointing retail sales report. It has been unable to sustain the upside momentum, and as North American dealers prepare to return to their posts, it is trading lower against most of the major currencies. The notable exceptions are the Scandi-bloc, which are consolidating last week’s gains, and sterling, which remains pinned near $1.29.

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Bretton Woods: RIP

Some romanticists want to have another Bretton Woods fixed exchange rate regime. Bretton Woods had difficulty from nearly the day it went operational. It is misguided to think a new rigid regime is needed or is appropriate.

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FX Weekly Preview: Thoughts on the Significance of Ten Developments

The GDP deflator may be just as important as overall growth for BOJ considerations and the possibility of fresh action next month. Falling UK rates and a weaker pound are desirable from a policy point of view.

Dudley’s press conference may be more important than FOMC minutes.

Two German state elections that will be held next month comes as Merkel’s popularity has waned.

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FX Daily, August 12: Summer Markets Grind into the Weekend

There is a general consolidative tone in the capital markets as the week draws to a close. The US retail sales report may offer a brief distraction, but it is unlikely to significantly shift expectations about the trajectory of Fed policy. Indeed, it might not really change investors’ information set.

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Cool Video: CNBC Asia–Mostly about the Redback and Greenback

I was invited to appear on CNBC Asia Rundown show with Pauline Chiou. We discuss the Chinese yuan on the anniversary of last summer’s unexpected devaluation. I suggest that most of the things that get observers excited, like the internationalization of the yuan, or the Hong Kong-Shanghai link or, perhaps by the end of the year,a Hong Kong-Shenzhen link are really Chinese machinations that are the result of its contradictions.

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FX Daily, August 10: FX Consolidation Resolved in Favor of Weaker US Dollar

European bourses are mixed, and this is leaving the Dow Jones Stoxx 600 practically unchanged in late-European morning turnover. Financials are the strongest sector (+0.4%), and within it, the insurance sector is leading with a 0.8% advance and banks are up 0.4%. The FTSE’s Italian bank index is up 1.4% to extend its recovery into a fifth session.

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China: Political and Economic Developments

Balance of power in China between “princleling and youth league may be at risk. Foreigners have stopped up their purchases of onshore CNY bonds. Tensions are rising between China and Japan and China and South Korea.

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Weekly Speculative Positions: Record Sterling Shorts, Net Short in Swiss Francs

For a period that included a BOJ and FOMC meeting and the US GDP, speculators in the currency futures were unusually quiet.  Summer holidays with family may be more important. Of the 16 gross currency futures speculative positions we track, 12 of them were less than 5k contracts. There was only one gross position adjustment more than 10k contracts.  Euro bears covered …

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FX Daily, August 03: Consolidation Featured

The US dollar is consolidating yesterday’s losses. The greenback’s upticks have thus far been shallow and unimpressive, except perhaps against the New Zealand dollar, which is off 0.8% ahead of next week’s RBNZ meeting. Softer than expected labor cost increase reinforces the conviction that a 25 bp rate cut will be delivered next week.

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Abe’s Fiscal Policy: More of the Same

Japan’s fiscal stimulus if smaller than it appear and is unlikely to boost the economy as much as officials may think. The problem in Japan is not that interest rates are too high or that pubic investment is too weak. The risk is that the yen strengthens further, and we suggest the dollar may fall toward JPY94.60.

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FX Daily, August 01: Dog Days of August Begin

The US dollar is trading with a small upside bias in narrow trading ranges. The main news has consisted of PMI reports, while investors continue to digest last week’s developments. In particular the BOJ’s underwhelming response to poor economic data and a missed opportunity to reinforce the fiscal stimulus, and the dismal US GDP.

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No Big Thoughts, but Several Smaller Observations

Notable that as the CRB Index moves lower, MSCI emerging market equities have done well. European banks are retreating after the stress test results. Tokyo elected its first women governor as this seem to be in part a sign of protest against Abe.

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FX Daily, July 28: Dollar Pulls Back Further Post-FOMC

After reversing lower yesterday after the FOMC statement, the US dollar has continued to move lower against the major currencies, save sterling. While the market is not fully confident of a rate cut by the Reserve Bank of Australia, indicative pricing in the derivative markets suggest a UK rate cut has been fully discounted (and a new asset purchase plan may also be announced).

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FX Daily, July 25: Big Week Begins Slowly

What promises to be a busy week has begun off slowly. The US dollar has been largely confined to its pre-weekend ranges against most of the major currencies. Equity markets are mostly firmer following the new record highs on Wall Street. The MSCI Asia Pacific Index eked out a small gain (0.1%), with losses in Japan, Taiwan, and Singapore offsetting gains elsewhere.

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Great Graphic: OIl Breaks Down Further

With today’s losses the Sept contract has retraced 50% of this year’s rally. The oil glut has partly been transformed into a gasoline glut. US rig count is rising and output has increased two weeks in a row.

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European Bank Stress Test: Preview

European bank stress test results will be released a couple hours before the US open on Friday. The focus is on Italy, but other countries’ banks may also be identified as needing capital. Within the existing rules are allowances for exceptions. Everyone wants to follow the rules.

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FX Daily, July 22: Flash PMIs Show Brexit Impact Localized

As the week draws to a close, there are three main developments in the capital markets. First, the profit-taking seen in US equities yesterday has continued in Asia and Europe today. The MSCI Asia Pacific Index and the Dow Jones Stoxx 600 in Europe are both off around 0.5%.

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Effective Fed Funds and Money Markets

Fed funds have been trading firmly. There are several reasons and one of them is the shift that is taking place in the US money markets. Still the risk of a Fed hike has increased, just as speculation increases of easing in other major centers.

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Draghi Does not Surprise and Euro Edges Away from $1.10

Draghi does not show the kind of urgency many bank economists do over the shortage of bonds to buy. Draghi kept options open and suggested a review in September when new staff forecasts are available and more data will be seen. The euro firmed, mostly it seemed on sell the rumor buy the fact, and/or possibly some disappointment that no fresh action was taken.

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FX Daily, July 20: Sterling’s Jump Slows Dollar’s Ascent

It is a bizarre turn of events. Just like the Game of Throne’s Westeros is a map of the UK put on top of an inverted Ireland, so too do UK events seem to be a strange permutation of the pre-referendum views. Although sterling and interest rates have not fully recovered from the Brexit decision, equity markets have, and fear of contagion has died down.

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Great Graphic: Aussie Approaches Two-Month Uptrend

Australian dollar is the second heaviest currency this week after a key downside reversal at the end of last week. It is approaching an uptrend line near $0.7450. Many perceive an increased likelihood that the RBA eases and many are reassessing chance of a Fed hike later this year.

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Dollar Bull Case Intact: It is All About the Perspective

Our bullish dollar outlook was based on divergence and we judge it to still be intact.The Dollar Index has been trading broadly sideways since March 2015, but never did more than a minimum retacement of its arlier rally. The Dollar index is at it highest level since March today.

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FX Daily, July 18: Coup in Turkey Repulsed, Risk-Appetites Return

The US dollar and the yen are trading heavy, while risk assets, including emerging markets, and the Turkish lira, have jumped. Sterling is the strongest of the majors. It is up about 0.5% (~$1.6365), helped by the opportunity of GBP23.4 bln foreign direct investment and comments from a hawkish member of the MPC suggesting not everyone is onboard necessarily for a rate cut next month.

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Squaring the Circle: Can Article 7 be Used to Force Article 50?

Article 7 would suspend the UK’s EU voting rights on grounds it is not negotiating in good faith by delaying the triggering of Article 50. The U.S. debated what “is” means, now investors are trying to figure out what May means. Although sterling has stabilized, interest rate differentials have not.

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Speculative Sentiment Shifts

The combination of a robust US jobs report, speculation of bolder action by Japan, the possibility that the ECB drops the capital key to overcome the ostensible shortage of some core bonds (e.g. German bunds), and the anticipation of easier BOE policy appears to have generated a change in sentiment among speculators in the currency futures market.

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Great Graphic: Equities Since Brexit

Since the UK voted to leave the EU, emerging market equities have outperformed equities from the developed markets. This Great Graphic, composed on Bloomberg, shows the MSCI Emerging Market equities (yellow line) and the MSCI World Index of developed equities (white line).

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FX Daily, July 15: Sterling and Yen Remain Key Drivers in FX

The US dollar is broadly mixed against the major currencies. The Swiss franc’s 0.25% gain puts it at the top of the board, after sterling’s earlier gains were largely unwound in late-morning turnover. The yen is the weakest major; extending its loss by 0.6%, to bring the weekly decline to more than 5%. The pre-referendum result high for the dollar was near JPY106.85. Today’s high has been about JPY106.30. In emerging markets, we note that the Taiwanese dollar is at 11-month highs, helped by $3 bln portfolio capital inflow this week.

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FX Daily, July 14: Will BOE Ease on May Day?

Theresa May

After a nearly three weeks of turmoil following the UK referendum, there is now a sense of order returning to UK politics. Two elements of the new government are particularly relevant. First, May demonstrates strategic prowess by putting those like Johnson and Davis, who campaigned for Brexit, to lead the negotiations with the EU, while putting Tories who favored remaining in the EU in the internal ministries.

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FX Daily, July 13: Sterling and Yen Momentum Slows

The two main developments in the foreign exchange market this week in recent days has been the opposite of what has transpired over the past several weeks. Sterling moved higher quickly. The yen moved down just as fast. Over the past five sessions through late-morning levels, sterling has gained 2.5% while the yen has shed 2.8%.

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Three Developments in Spain

Favorable initial ruling for Spanish banks that overcharged on mortgages. The EC may be lenient on Spain (and Portugal) for the excessive deficits in 2015. There is a window of opportunity for Rajoy to form a minority government.

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FX Daily, July 12: Easing Political Uncertainty Encourages Animal Spirits

Further risk appetite means rising euro and weaker CHF. The SNB typically sustains such risk appetite phases with smaller FX interventions of around 300 million per day. Sterling is leading the new appetite for risk as one element of political uncertainty has been lifted. It is moving higher for the third consecutive session today; advancing by more than 1.5 cents to reach $1.3180.

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FX Daily, July 11: Dollar Extends Gains

The combination of the rebounding US job growth and gains in the S&P 500 to near record levels before the weekend is helping boost the US dollar against the major currencies, while the emerging market currencies are mixed. In addition, indications that Japan will put together another fiscal stimulus package and the Bank of England may cut rates late this week are helping global equities.

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Caixin Monthly Column: Brexit

(Here is the latest monthly column I write for Caixin.  It is on Brexit and I wrote it as an email to my mother.  Here is the link.  The text follows) To: Mother, Date: July 4, 2016, Glad to see you figured out how to access your email account. I smiled when I saw your note in my inbox. Thank you, though I am not sure that Thomas Watson felt the same way when Alexander Graham Bell called him.

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New Wrinkle in European Bail-In Efforts

European Court of Justice could rule on July 19 that private investors do not have to be bailed in before public money can be used to recapitalize banks. Italy stands to gain the most, at least immediately, from such a judgment. Italian bank shares recovered after initial weakness.

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North American Jobs Report and Implications

There is something for everyone in today’s US jobs report, and at the end of the day, it is unlikely to sway opinion about the direction and timing of the next Fed move. The greenback itself may remain range bound after the initial flurry. On the other hand, the disappointing but noisy Canadian data underscores the risk of a more dovish slant to the central bank’s neutral stance next week.

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FX Daily, July 07: Sterling Bounces Two Cents, but Does not Appear Sustainable

Amid a better if not strong risk appetite, sterling has rallied two cents from yesterday’s lows near $1.28 to poke through the $1.30 level in the European morning. It was helped by an industrial production report that was better than expected. Industrial and manufacturing output fell 0.5% in May. This was around half of the expected decline after a strong April advance (2.1% and 2.4% respectively).

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Great Graphic: The Yuan’s Weakness

Don’t be fooled, the yuan has fallen more against its basket that against the dollar this year. It is not clear what China means by stable. Market forces appear to be moving in the same direction as officials wish.

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FX Daily, July 06: Dollar and Yen Advance Amid Growing Investor Angst

What a difference a few days make. Many saw last week’s equity market advance a sign that Brexit anxiety was overdone. However, quarter-end position adjustments appear to have been misread. Equity markets are falling now. Bond yields in the US, Japan, and Germany, are at new record low. Japan’s 20-year bond yield briefly dipped below zero for the first time.

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How Exceptional are Conditions?

If conditions are exceptional, isn’t BOJ intervention more likely? If conditions are exceptional, the ban on European government supporting banks might not be valid. Italy is leading the charge in Europe.

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Great Graphic: Sterling Monthly Chart and Outlook

Sterling’s losses are not simply a product of thin liquidity or panic. Both main political parties are in disarray just when strong leadership is needed. The rough projection pre-vote of what could happen on Brexit suggests $1.20-$!.2750.

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FX Weekly Preview: Post-Brexit: Week One

The EU response to Brexit is important. The EU summit and the talks with Turkey are very important. Brexit leaders seem as surprised and unprepared for the results as anyone. And a preview on economic data for the week.

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Cool Video: Chandler at CNBC on Brexit

Chandler on CNBC’s Trading Block show to discuss how the market is positioned for the UK referendum. The markets are strongly anticipating the UK to vote to stay in the EU, even though polls remain very tight. Given that leveraged participants and speculators have rallied sterling more than nine cents from last week’s lows.

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More Thoughts on the Democratic Deficit

It is not just that the polls indicate that the outcome of the UK referendum is too close to call, but the mere fact that the referendum is being held in the first place is significant.  It was not Labour, but the Conservative Party that brought the UK into the EU in the first place …

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European Politics Beyond the UK Referendum

Sterling is hovering around seven cents above last week’s lows as many short-term participants better position themselves for the UK to vote to say in the EU, even though many opinion polls show a statistical dead heat.   The German Constitutional Court dismissed claims that the ECB’s Outright Market Transactions does not violate the German Constitution. …

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Great Graphic: Age and Brexit

The betting and events markets have shifted more decisively than the polls in favor of the UK to remain in the EU.  Sterling extended its rally from $1.4010 last Thursday to nearly $1.4785 today, as the market participants adjust positions. What is particular striking is that the asymmetrical perceptions of the personal impact of a …

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How Germany Could Upset Europe before UK Referendum

The assassination of the Jo Cox has broken the powerful momentum in the markets.  Investors recognize that the tragedy potentially injects a new element into consideration for the outcome of next week’s referendum.   The campaigns will be resume over the weekend, and new polls will be available.  Investors will place more weight on polls conducted …

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FX Daily, June 16: Markets are Anxious, Yen Soars

The US dollar is higher against the major currencies but the Japanese yen and the New Zealand dollar.  The dollar fell to new two-year lows against the yen to JPY103.55 before bouncing in the European morning back to JPY104.40.  The…

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Macro Thinking: FOMC, USD, and EU

The Federal Reserve modified its stance yesterday without changing rates.  It is not just about how fast the Fed sees itself normalizing monetary policy but also where the level of the equilibrium rate. The FOMC statement, but especially the officials’ forecasts (dot plots) effective unwound the impact of the earlier Fed talk of the likely …

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FX Daily, June 15: Key Data and FOMC

The Swiss Franc was today on the back-foot against the euro, while the FOMC helped him to rise against the dollar.
Yesterday Swiss producer prices were published. Negative changes in producer prices in 2015 reduce the Swiss franc overvaluation in terms of the Real Effective Exchange strongly. Now, however, changes producer prices are approaching zero again.

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Fed Softens Stance Slightly

The immediate reaction was driven by the Fed’s dot plots.  Although the median continues to expect two hikes this year, six officials now see only one hike.  Only one official anticipated one hike this year in the last forecasts made in March.  The m…

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Kuroda and the BOJ

Following today’s FOMC meeting, the central banks of Japan, Switzerland, and the UK meet tomorrow. 
The SNB will keep its powder dry to be able to respond to the results of the UK
referendum if needed.  The Bank of England is als…

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FX Daily, June 14: Capital Markets Remain at UK Referendum’s Mercy

“The Swiss Franc was the strongest performer, EUR/CHF has fallen to 1.08 by 0.8%”. A spate of opinion polls showing a tilt toward Brexit, and the leading UK newspaper urging the Leave vote on the front page, keep the global capital markets on edge. Equities are lower, though of note ahead of the MSCI decision first thing Wednesday in Asia, Chinese shares eked out a small gain.

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Great Graphic: Oil Flirts with Four-Month Uptrend

The broader technical tone has weakened.  The RSI has turned lower.  The MACDs are also turning lower with a bearish divergence.  The five-day moving average may move below the 20-day moving average for the first time since mid-April later this week….

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US Election Infographic

This infographic was in the Wall Street Journal on the US election.  It is important to remember that the US does not elect the President by direct popular vote.  This makes the national polls a bit misleading. There are 538 electoral college votes.  To be elected a candidate must secure a majority or 270  electoral …

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FX Daily, June 13: Brexit Dominates

  Swiss Franc Chandler is a bit puzzled about the Swiss Franc, that got stronger despite speculators being short CHF. We see weaker oil prices and weaker China as major reason, why sight deposits are falling and speculators are long the dollar. FX Rates The risk that the UK votes to leave the EU next …

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Weekly Speculative Positions after Uneventful ECB and Surprisingly Weak US Jobs

Price action shows a increase of the Swiss franc after the bad US payrolls report. Commitments of traders, however, indicate a move to a short CHF position of 9600 x 100k contracts against the dollar. We must separate speculative CHF positions from inflows into CHF cash, CHF stocks, bonds and real-estate, what we call “real financial flows”. These will be revealed on Monday, with the SNB release of sight deposits, the counter-position of real financial flows.

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FX Daily, June 10: Yen and Swiss Franc maybe Drawing Support from Brexit Fears

20160610 Movers and Shakers FX Market

Once again, CHF was one of the strongest performers on the FX market. Next Monday we will report how much the Swiss National Bank had to intervene in our regular “Weekly SNB sight deposits” report. For the week, it is the dollar-bloc and franc that have maintained weekly gains.

The US dollar weakened in the first half of the week as
participants continued to react to the shockingly poor jobs report and shift in Fed expectations.  However, it recovered smartly yesterday and is seeing
some modest follow thr…

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Politics and Economics

Many people understand politics and economics to be two different disciplines. I remember in graduate school more than two decades ago, many colleagues and professors operationally defined political economy as how politics, by which they meant the state, screws up economics. I spoke at the Fixed Income Leaders Summit earlier this week and teased that many seemed …

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FX Daily, June 9: Greenback is Mostly Firmer, but Yen is Firmer Still

The euro continues to weaken against the franc at 1.0922. But the speed of the descent has slowed. The dollar is stronger, in particular against EUR, CHF and AUD.

The US dollar is posting modest upticks against most of the
European currencies and the Canadian and Australian dollars. However, it has fallen against the yen and taken out the
recent low, leaving little between it and the May 3 l…

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FX Daily, June 8: Currencies Broadly Stable, but Greenback is Vulnerable

Once again the Swiss Franc appreciates both against EUR and USD.
The euro topped at 1.1095 shortly before the US payroll data and has fallen to 1.0932. The dollar has fallen from 0.9947 to 0.9596.

The foreign exchange market is quiet.  The euro remains confined to the
narrow range seen on Monday between $1.1325 and $1.1395.  We continue to
look for higher levels near-term as the
drop from May 3 (~$1.1615) to May 30 (just be…

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Swiss Reserves: Not what They Seem

SNB Currency Allocation 2016

This posts shows again the stupidity of the financial media, that mixes up assets and liabilities for central banks.
SNB FX reserves are assets. They are in different foreign currencies and subject to the valuation effect of these currencies.

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Great Graphic: Brexit Risks Rise

Brexit Predict This Great Graphic shows the price people are willing to pay to bet that the UK votes to leave the EU at the June 23 referendum on the PredictIt events markets.   We included the lower chart to give some sense of volume of activity on this wager in this event market. Presently, one …

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Three Political Events before the UK Referendum

“Every thinking person in America is  going to vote for you Governor Stevenson,” said an enthusiastic voter. “I am afraid that won’t do.  I need a majority,” reportedly quipped Stevenson (1952 or 1956).   The UK referendum on June 23 is the most important political event of the first half of the year.  A decision to …

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Can OPEC Surprise?

OPEC ministers meet in Vienna tomorrow. Expectations could hardly be lower.  Attempts to agree on an output freeze were stymied by the Saudi’s insistence that is rival Iran participates as well.  Iran cannot agree to limit its production yet, or it would have sacrificed (or postponed) it nuclear program for nought.   Many observers have announced …

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FX Daily, June 1: Swiss SVME PMI strongest PMI

The Swiss SVME PMI was the strongest PMI in this data release. It is driven by machinery and electronics industry. They strongly compete with the Germans, and got shocked by the end of the peg.
Surprisingly they have outperformed in recent months.

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FX Weekly Preview

The US dollar bottomed against nearly all the major currencies on May 3.  The hawkish April FOMC minutes that began swaying opinion about the prospects for a summer rate hike were not published until two weeks later, and the confirmation by NY Fed President Dudley was not until May 19.  Nevertheless, the shift in expectations for …

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First Skirmishes in Long Battle

For various reasons, well beyond the scope of this short note, China has amassed huge industrial capacity, well beyond its ability to absorb.  In part, that is one of the challenges that the “One Belt One Road” addresses.  Export the spare capacity by building infrastructure, networking east and central Asia (included parts of the former …

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Great Graphic: Gold and the Dollar

Many investors still think about gold as if it were money.  Economists identify three functions of money: store of value, means of exchange, and a unit of account.  

It can be a store of value, but the price fluctuates compared with other form…

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What the Greek Deal Does and Does Not Do

For investors, the most important thing about the successful review of Greece’s implementation of last year’s agreement is that it effectively removes it from the list of potential disruptive factors in the coming quarters.   There will be no repeat of last year’s drama. Assuming Greece resolves a few outstanding issues in the next few days, …

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FX Daily, May 25: Dollar Marks time

  The US dollar is little changed against the major currencies as yesterday’s moves are consolidated and traders wait for fresh developments.  Global equities were higher after Wall Street’s advance yesterday.  Asia-Pacific bond yields were firm, following the US lead, but European 10-year benchmark yields are lower, led by the continued rally in Greek bonds …

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The Yuan and Market Forces: Declaratory and Operational Policy

The Wall Street Journal is reporting that minutes of a meeting in China two months ago reveal that officials there have abandoned their commitment to give market forces greater sway in setting the yuan’s exchange rate.  Reportedly, in response to economists and banks request that officials stop resisting market pressure, one PBOC official explained that …

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LIBOR Alternatives Taking Shape

Since the LIBOR scandal erupted, US officials have been working toward an alternative benchmark.  In 2014, the Fed set up a working committee that includes more than a dozen large banks and regulators   Before the weekend the committee (Alternative Reference Rates Committee) proposed two possible replacements for LIBOR. There reportedly was some consideration of …

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Great Graphic: Dollar Pushes Back Below JPY110

The yen is the strongest of the major currencies.  It has gained about 0.65% against the dollar.  It has been grinding lower throughout the Asian and European session and has remained in narrow ranges near its highs in the US morning. Japan still seems isolated in terms of it desire to intervene.  Ahead of the …

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FX Daily May 23

The capital markets are off to a mixed start to start the last week of the month.  Asian shares were mostly higher, though the Nikkei shed 0.5%.  European shares are also higher, extending the three-week high seen last week. 

The US dollar is…

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FX Week Ahead: Evolving Investment Climate

The US dollar’s weakness in recent months, despite negative interest rates in Europe and Japan likely had many contributing factors. These factors include shifting views of Fed policy, weaker US growth, the recovery in commodity prices, including oil, gold and iron ore, and market positioning.

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FX Daily, May 19: FOMC Minutes Extend Dollar Gains

We felt strongly that the FOMC minutes would be more hawkish than the statement that followed the meeting, and we were not disappointed.  However, our caveat remains:  the minutes dilute the signal that emanates from the Fed’s leadership, Yellen, Fischer, and Dudley.  The latter two speak in the NY morning.  Fischer and Dudley’s comment will be scrutinized …

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Cool Video: CNBC Asia–Rare Double Feature

My two week trip to Asia is winding down.  I had the privilege of being on CNBC in Asia earlier today and discussed the markets with Martin Soong from Singapore.     There were two segments.  The first segment (here) is about two minutes long and focuses on about Japan.  The second segment (there) is 3.5 …

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Brief Look at the Start of the New Week’s Activity

The most notable thing is not what has happened, but what has not happened.  The market has not responded to the soft Chinese data over the weekend.  Chinese equities began softer but recovered fully and the Shanghai Composite closed on its highs.  The MSCI Asia Pacific Index is snapping a two-day losing streak with a …

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Daily FX, May 13: Toward a New Mouse Trap

The Great Financial Crisis has exposed a deep chasm in economics and economic policy.  No single institution is this crystallized more than at the Bank of Japan. The former Governor, Shirakawa brought policy rates to nearly zero to combat deflation. His successor, Kuroda, took the central bank in the completely other direction. He has introduced three …

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Dollar Drivers in the Week Ahead

The key issue facing the foreign exchange market is whether the modicum of strength the US dollar demonstrated last week is the beginning of a sustainable move.  It is possible that the market is again at a juncture in which the price action will…

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Cool Video: Trump and the Dollar–Bloomberg TV

I was invited to discuss the potential impact of a Trump presidency on the US dollar with Bloomberg’s with Joe Weisenthal, Oliver Renick, and Alix Steel on “What’d You Miss” show yesterday afternoon, Of course the topic lends itself to all sorts of partisanship.  However, I put aside my own political axes and focused on two potential …

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Political Crisis in Turkey is Not Good for Europe

It has been long recognized by the investment community that power in Turkey was concentrated in Erdogan’s hands.  He enjoys incredible power in the ceremonial presidential post and brooks no rivals. Common among authoritarian leaders they habitually turn on hand-picked successors as they grow fearful of competitors.   This is precisely what has played out …

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Great Graphic: CAD Takes out Trendline

CAD BGN Curncy It has been painful trying to pick a bottom of the US dollar against the Canadian dollar.  But now a 4-5 point downtrend from the secondary high in late-January is being violated today.    It is found near CAD1.2785 today.  Intraday penetration is one thing, but some models may take the signal on …

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Greenback Firmer, but has it Turned?

There is one question many investors are asking after noting that with Cruz dropping out of the Republican primary, Trump has secured the nomination, and that is whether the dollar has turned. The greenback has extended yesterday’s reversal higher. The euro had briefly poked through $1.16 and closed on its lows a little below $1.15. …

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Two Decisions from Europe

It might not be on investors’ calendars, but European officials will take steps toward addressing two issues tomorrow.  First, the EC will make a preliminary recommendation of visa-free travel in the Schengen area for Turkish passport holders.  S…

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Dollar Continues to Push Lower

The US dollar’s downtrend is extending.  The euro traded above $1.16 for the first time since last August. With Japanese markets closed for the second half of the Golden Week holidays, perhaps participants felt less hampered by the risk of intervention and pushed the dollar to almost JPY105.50.  Despite an unexpectedly large fall in the …

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Great Graphic:US Rents and Core Inflation

Shelter inflation in the U.S. is at 3.2% per year, but only 1% in Europe. It is 33% of the US CPI basket, but only 6.4% of the euro zone. This leads to massive distortions in CPI inflation, and to wrong bets of investors and FX traders.

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FX Daily, May 02: New Month, Same Heavy Dollar

In quiet turnover, with China, Hong Kong, Singapore and London markets closed, the US dollar is trading with a heavier bias against all the major currencies.  Lower commodity prices, including oil and copper, appears to be taking a toll on some emerging market currencies, including the South African rand. Japanese markets were closed last Friday …

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Central Banks Roil Markets

The Bank of Japan defied expectations and its economic assessment to  leave policy unchanged.  The inaction spurred a 3% rally in the yen and an even larger slump in stocks.  The financial sector took its the hardest and dropped almost 6%.  The…

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What is the BOJ Going to Do?

Under Kuroda’s leadership the BOJ has surprised the market a number of times, most recently with the move to negative rates at the end of January.  

It is not that such a move, which has been tried by several European central banks, was without…

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Great Graphic: Measuring Cost of Extend and Pretend

There is a debate.  On one hand is Summers, who argues that modern economies have entered an era of secular stagnation.  Full utilization of the factors of production and particularly capital and labor is not possible without stimulating aggregate demand in a way that facilitates bubbles.  The broad strokes of the argument can be found …

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Greenback Mostly Softer, Sterling Shines

The gains the US dollar registered in the second half are being pared, but it is sterling’s strength that stands out.  It is difficult to attribute it to Obama’s push against Brexit, but there does appear to have been a change in sentiment. Sterling is the best-performing currency not only today but for the past …

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The Week Ahead: FOMC, BOJ and More

The last week of April is eventful. The Reserve Bank of New Zealand, the Federal Reserve and the Bank of Japan hold policy meetings.  The UK, eurozone, and the US provide the first estimates of Q1 GDP. Japan, the eurozone, and Australia report consumer prices, while the US updates the Fed’s preferred (targeted) inflation measure, the …

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Dollar’s Technical Tone Improves

It is not that the US dollar had a particularly good week.  It was mixed.  The best performers were sterling and the Canadian dollar. The pound led with a 1.6% gain, followed closely by the Canadian dollar.  

The latest polls suggest that tho…

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The State of the Bull

(here is a draft of my monthly column for a Chinese paper)

The US dollar has had a rough few months.  It has fallen against most major and emerging market currencies this year.  A critical issue for global investors and policymakers is whether …

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Emerging Markets: What has Changed

(from my colleague Dr. Win Thin)China’s central bank may be leaning less dovish
Turkey has a new central bank governor
Argentina issued external debt for the first time since it defaulted 15 years ago
Brazil’s lower house voted to impeach Preside…

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Japanese Capital Flows: Six Observations

The following observations are drawn from the weekly report of Japan’s Ministry of Finance unless noted otherwise.  We use the weekly data instead of monthly to identify changes of trend earlier.  We use simple convention of the week by the last rather than the first day. That means that the report for the week ending April …

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FX Daily, April 21: ECB Takes Center Stage

The ECB meeting is the session’s highlight.  In recognition of the risk that ECB President Draghi expresses displeasure with the premature tightening of financial conditions through the exchange rate channel is encouraged a modest bout of euro s…

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Status of 9/11 Bill and the Saudi Threat

There continues to be much discussion among investors of New York Times report last weekend in which a Saudi official threatened to sell $750 bln of US Treasuries and assets if a bill that would allow families of victims to sue the Saudi governm…

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Some Thoughts on US Fiscal Policy

The US presidential selection process is well underway, and yet there has been no coherent discussion of fiscal policy. In part, this is because it does not appear particularly urgent. The US deficit peaked in 2009 at 10.1% of GDP.  Last year it stood at what for most OECD countries an enviable 2.6%.  This year and next …

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FX Daily, April 18: Doha Failure Sets Tone

Oil producers failed to reach an agreement yesterday at the meeting in Doha.  That is the main spur to today’s activity.  It is not that the outcome was a surprise.  One newswire poll found around half of the respondents thought an agreement was elusive.   Although not oil experts by any stretch, we too thought political …

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Beware of Particularly Challenging Week Ahead

It is never easy, but the week ahead may be particularly difficult for market participants. It will first have to respond to weekend developments.   First, the front page of the NY Times on Saturday was a report that the Saudi Arabia warned the US if a bill making its way through Congress that would allow it (Saudi …

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SDR Does Not Stand for Secret Dollar Replacement

At the IMF/World Bank meetings this week, Chinese officials are again pushing for greater use of the IMF’s unit of account, Special Drawing Rights.   It is China’s turn as the rotating host of the G20, which gives it greater influence over its ag…

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BOE and Brexit

No one can feign surprise that the Bank of England kept policy steady.  Nor was the 9-0 vote truly surprising, though there had been some speculation of a couple of dovish dissents.  Nevertheless, there are two important takeaways for investors. First, the BOE recognized what many in the market have already accepted; namely that the …

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Expectation for Doha may be Inflated

The weekend meeting between many OPEC and non-OPEC producers has helped spur the recent gains in the price of oil.  We are concerned that market may be getting ahead of itself. First, the freeze in output that had previously been agreed by Russia, Saudi Arabia, and a few other countries was conditional on participation by …

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Dueling Fed GDP Trackers

The decentralized nature of the Federal Reserve lends itself to both a division of labor and competitive analysis.  Some Federal Reserve branches have alternative inflation measures and trade-weighted indices of the dollar.  On the whole, this seems beneficial for investors and policymakers. One tool developed by the Atlanta Fed has been widely embraced.  It is …

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FX Daily, April 13: US Dollar Comes Back Bid

The US dollar is well bid in the Europe and is poised to start the North American session with the wind to its back.  Despite firmer equity and industrial metal prices, most emerging market currencies are also succumbing to the rebounding greenback. The euro has yet to convincingly breakout of the range that has confined …

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More Thoughts about the Yen

Every so often there is a market move that appears inexplicable.  The conundrum now is the yen’s strength.  Of course, there are numerous attempts to shed light on the yen’s rise, but many, like ourselves, are not very satisfied.  

Perhaps par…

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Revisiting the CRB Index

The CRB Index is building on last Friday’s gains, when it gapped higher.  That gap marked the end of the down move we anticipated on March 28.   The index fell through the two supports we identified (171.30 and 169.50), before bottoming on April…

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Great Graphic: Nonperforming Loans, Another Divergence

   Early in the financial crisis, the US forced all large banks to take an infusion of capital.  This helped put a floor under the US financial system.  Regulators and stakeholders encouraged US banks to address the significant nonperforming loan problem. The eurozone banking woes persist.  Before the weekend, the shares of the one the …

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FX Daily, April 10: Same Drivers, Different Direction

Over the past three months and the past month, the dollar has fallen against all the major currencies but the British pound.  Sterling’s underperformance can largely be explained by uncertainty created by the Tory government’s sponsored referendum on continued EU membership.   Most of the polls show those wanting to remain hold on to a slight …

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FX Daily: Yen Pares Gains, Dollar-Bloc Firms

The surging yen has been the main feature in the foreign exchange market in recent days, but its advancing streak has been stopped with today’s setback.  The greenback traded briefly dipped below JPY107.70 in North America yesterday but has not …

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Great Graphic: WSJ survey of Fed Expectations

This Great Graphic shows the results of the last three Wall Street Journal survey of business and academic economists on the outlook for Fed policy. The key take away is that despite all the talk and ink spilled on the shifting Fed stance and the split within the FOMC, economists views did not change much …

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FX Daily, April 7: Yen Continues to Climb

The main feature in the foreign exchange market continues to be the surge of the Japanese yen.  A convincing explanation of the yen’s strength seems elusive.  Until last week, which means through the fiscal year-end last month, Japanese fund managers have been buying foreign bonds at a near-record pace.  Foreign investors, for their part, have …

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Great Graphic: Head and Shoulders in Dollar-Yen

The old head and shoulders pattern in the dollar against the yen is back in vogue.  We first pointed it out in the first week of January here.

Recall the details.  The neckline is drawn around JPY116.30 and measuring objective is near JPY107.00….

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Dutch Referendum: Devil is not in the Details

In what is possibly one of the under-appreciated political events of the year, the Netherlands holds a plebiscite today on an associational agreement with Ukraine that has already been approved by the Dutch parliament, the European Parliament and all other 27 EU members.   When stated so baldly, it is difficult to see what is at …

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FX Daily, April 6: Greenback Finds A Little Traction

The US dollar is better bid today but remains largely in the ranges seen in recent days.  There a few developments to note, which together are lifting European equities after Asian equities softened.   First, the API oil inventory estimate showed an unexpected fall of 4.3 mln barrels.  An increase of half the magnitude was expected.  The …

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Talk of Secret Shanghai Agreement is a Distraction

(I have been sick with pneumonia but am just about back.  I expect to resume my commentary tomorrow.  Here is my overdue monthly column for a Chinese paper.   Thanks to everyone for their support.)
Conspiracy theories have run amok.  After sev…

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Four Keys to The Week Ahead

There are four events that will shape market psychology in the week ahead.  They are Yellen’s speech to the NY Economic Club, US jobs data, eurozone March CPI and PMI, and Japan’s Tankan Survey.   The broad backdrop is characterized by the rebuilding of risk appetites since the middle of February, though the MSCI emerging market …

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Weekly Speculative Position: Yen Longs Near Record Levels

The most extreme speculative positioning, judging from the futures market is the long yen position.  The bulls added another 3.4k contracts, lifting the gross long position to 82.8k contracts.  The record was set in 2008 at 94.7k contracts.   The gross short position was trimmed by 4.5k contracts, leaving 29.5k.  It is the smallest gross short position …

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FX Review Week March 21- March 25

The US dollar rose against all the major and most emerging market currencies last week. After selling off following the ECB and FOMC meetings, the dollar found better traction.  It was helped by widening interest rate differentials.  Regional Fed manufacturing surveys for March suggest the quarter is ending on a firm note.  With new orders rising, …

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Great Graphic: Has the Canadian Dollar Bottomed Out?

We have been looking for a bottom in the US dollar against the Canadian dollar.  It is been difficult, but now it appears that the technicals are turning.  This Great Graphic, from Bloomberg, shows that the US dollar is moving above a trend line…

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Is that Buzzing Sound Helicopter Money?

Helicopter money is the rage.  Central banks are talking about it.  Economists are debating it.  The media is rife with coverage.     While it sounds important, it is not precisely clear what helicopter money means. It appears to have originated with Milton Friedman.  In 1969, he wrote: “Let us suppose now that one day a helicopter … Continue reading »

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ECB, Corporate Bonds, and Credibility

The euro’s rallied shortly after the ECB announced numerous monetary measures that in their totality were more than expected.  Many saw this as proof that monetary policy had lost its effectiveness, and central banks have lost credibility.   

R…

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Great Graphic: Brexit Fears Boost Sterling Put Buying

The UK referendum is three months away.   Three-month options are a common benchmark for various market segments; from speculators, to fund managers to corporations.  Events over the past week have raised the risks that the UK votes to leave the EU. The market has responded forcefully today, and even if you only follow the spot …

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Brexit Risks Rising

  Many banks suggested that Swiss Franc long is the trade to hedge against the Brexit risk.Therefore this text by Marc Chandler is quite important for Switzerland. An ill-conceived strategy undermined by mismanagement and bad fortune is increasing the risks that the UK votes to leave the EU in June.    Nearly everything that could, has …

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Great Graphic: 10-Year Break-Evens and Oil

Until last September, the Federal Reserve seems to play down the market-based measures of inflation expectations, preferring the surveys that showed views were anchored.    At the September 2015 FOMC meeting where the Fed had been expected to tighten until the August turmoil, officials cited among other considerations, the decline in market-based measures of inflation expectations. …

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FX Daily: When a Quarter is Two Halves

The year started off poorly, to say the least. Equity markets plunged from the get-go.  The Nikkei, DAX and S&P 500 gapped lower on the first trading day of the year.   Emerging markets and commodities were smashed.   Many economists blamed the Federal Reserve for hiking rates in mid-December.   Pundits warned that the seven-year bull …

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FX Daily 03/17: When Doves Cry: Imprudently Cautious

If there was one word Yellen emphasized yesterday it was caution.  The dot plot reflected that as well.  Can one ask if the Fed is being too cautious? Yellen acknowledged that the Fed’s assessment of the US economy had not changed much from December.  There is little reason it should.  However, it is difficult to …

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Brexit, Cyprus and the EU Summit

The EU leaders summit on refugees begins tomorrow.   A conclusive agreement will likely be elusive.   There are three main obstacles.  First, the effort to reinforce the external borders to allow free internal movement requires Turkey’s cooperation, but it won’t be represented.  Second, that is important because Cyprus is demanding more concessions by Turkey.  Third, others …

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Dollar Firm Ahead of the FOMC, UK Budget Looms

Since the Federal Reserve hiked rates in December, both the European Central Bank and the Bank of Japan have eased policy further.  The idea that because they cut rates means that the Fed cannot raise rates is a not a particularly helpful way to …

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Anticipation of Osborne’s Budget Weighs on Sterling

If UK Chancellor of the Exchequer Osborne wants to position himself to be the next Prime Minister, the budget to be unveiled tomorrow may not be particularly helpful.  There is little room to relax fiscal policy, given the self-imposed constraints. The deficit for the current fiscal year was projected to be GBP73.5 bln, but through …

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Before the FOMC, Another Look at the ECB’s Actions

The market’s focus has shifted to the two-day FOMC meeting that begins today.  The Federal Reserve should be pleased with recent developments.  Labor market slack continues to be absorbed.  Core inflation measures continue to edge higher. Market-based measures of inflation expectations have risen, and the 10-year breakeven is a little above levels that prevailed before …

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FX Daily, 03/15: Dollar and Yen Firmer

The US dollar is steady to firmer against most of the major and emerging market currencies.  Equity markets are heavier, and oil continues to surrender some of its recent gains.  Profit-taking is weighing on eurozone bonds and JGBs while US Treas…

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Is the Oil Correction Over?

The price of oil is seeing its biggest decline today since February 23.   The ostensible reason is that Iran once again reiterated it would only consider capping its output after it reached four million barrels a day, its pre-sanction output. 

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One Investor’s Poison is Another’s Windfall

The introduction of negative interest rates in Japan and the subsequent chance for yields has seen domestic investors move further out on the curve.  They have also stepped up their purchases of foreign bonds. In three weeks (through March 4) since the negative deposit rate went into effect, Japanese investors bought JPY4.4 trillion of foreign …

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FX Daily, 03/14: Dollar Firmer to Start the Week

The US dollar is firmer but largely confined to the ranges seen before the weekend against most of the major currencies.  The yen is also firmer as dollar sellers reemerged near JPY114.00.    The dollar is gaining against most emerging market c…

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A Few Thoughts Ahead of the Weekend

The market reaction to Draghi’s indication, once again, that interest rate policy has run its course, will be debated for some time.    Draghi delivered the goods that many investors said was lacking last December.  The ECB policy more than an…

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FX Daily 03/10: Draghi Delivers, but Now What?

Draghi delivered.  He managed to get approval for everything.  Rate cuts, acceleration of purchases, including corporate bonds to the purchase program and new long-term repos were announced.   The knee-jerk reaction was favorable.  The euro fell over 1% and peripheral European bonds rallied. The deposit rate was cut 10 bp to minus 40 bp.  The …

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ECB Meeting Promises Fireworks

Fasten your seat belts.  The ride is going to get bumpy.   Economists may differ on what the ECB will do.   Investors may differ on the market response.  This uncertainty ensures a strong market reaction. The euro is off about 0.25% after recovering in the North American session yesterday.  The euro has spent this week thus …

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Thoughts on the Chinese Export Puzzle

Investors are skeptical of Chinese economic data.  However, news yesterday that Chinese exports fell by a quarter in February was shocking. Many worry about the implications not just for China, but for world growth.  It comes as the IMF is signaling it will likely cut its 3.4% global growth forecast next month. There are three …

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Merkel’s Challenge

German Chancellor Merkel was right. As the Greek crisis was winding down last summer, she noted that the refugee problem would be even more difficult.  And indeed, it is. The refugee issue is challenging Merkel’s leadership in Europe.  While her trademark has been her sensitivity to swings in sentiment, she has seemed rather tone-deaf in …

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A Few Things on Our Mind

A few weeks ago investors were bemoaning a new bear market for equities, and there was much ink spilled drawing parallels between now and 2008-2009.   Falling commodities, weakening growth, and prospects of Fed tightening saw the MSCI Emerging Market equity index fall 21.5% from early-November through the third week in January.  Since then it has …

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FX Daily 03/08: Greenback Lacks Momentum, While Profit-Taking Weighs on Dollar-Bloc

Recent trends which include firmer equities and oil, weaker euro and bonds, and stronger dollar-bloc currencies are in reverse today, a turn-around Tuesday of sorts. MSCI’s Emerging Market equity index is snapping a seven-day advancing streak, giving back yesterday’s gains and a little more.  However, Chinese shares managed to post small gains. China reported a …

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Japan: Data and Flows

Early Tuesday in Tokyo, Japan will announce revisions to Q4 GDP.  A downward revision to business spending risks shaving the initial estimate from a contraction of 1.4% at an annualized rate to 1.5%.  Regardless, the key takeaway is that the world’s third-largest economy contracted in two of the four quarters last year.   Recall Initially, the …

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Investment Climate Improves

Sometimes the news stream drives prices, and sometimes the price action drives the narratives.  We argued that the sharp decline in equities at the start of the year was fanned the doom and gloom in the media and market commentary.  Many had been taking about a new financial crisis and parallels were drawn between the …

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Near-term Dollar Outlook is Nuanced

The US dollar fell against all the major and most of the emerging market currencies last week.   Risk appetites have been rekindled, and the yen has gone from the best performer in recent weeks to the worst over the past week.   Major equity markets advanced for the third week.  The MSCI Emerging Market equity index …

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US Jobs Headline Better than Details

The optics of the US jobs report was better than the details, which is the exact opposite of the January employment report.  The US dollar strengthened on the news. The US created 242k jobs in February.  The consensus was for around 195k.  The January gain of 151k was revised up to 172k The household survey …

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Great Graphic: Inflation Expectations via 10-Year Breakevens

Over the next fortnight the major central banks, including the ECB, BOJ, Fed and BOE will hold policy-making meetings.  Of the four, expectations are the highest for the ECB to ease policy. Given the poor economic data, including deflationary pressures, and the tightening of financial conditions, the BOJ could also adjust policy.  However, after the …

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FX Daily, 03/03: Markets Calm; Waiting For…?

The global capital markets are quiet today, as investors await fresh impetus which could come in the form of tomorrow’s US national employment figures.  There is also next week’s ECB meeting that looms large for investors.  

The euro is tradin…

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Are Central Banks Exaggerating Deflation Risks?

Deflation is portrayed as the great economic scourge.  It exacerbates debt servicing costs and encourages consumers to defer purchases.  Central banks in Japan and Europe have responded with aggressive, unorthodox measures, often combining asset purchase programs with negative interest rates.   However, deflation is not very deep, and the measurement is not very precise.  In recent years, …

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FX Daily 03/02: Markets Take Another Step Away from the Edge

The angst that characterized the first several weeks of the year continues to dissipate.  Major equity markets are extending their two-week recovery into a third week. Immediate concerns about the US falling into a recession have eased.  The market have withstood some downward pressure on the Chinese yuan.  Late yesterday Moody’s cut its outlook for China’s credit …

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FX Daily, 03/01: Markets Find Steadier Footing

It could have been a disaster.  US faltered yesterday, with the S&P 500 again struggling in the 1945-1950 area, and China’s PMIs were weaker than expected.  However,  after initial weakness Asian shares turned higher.  The nearly 0.9% rise allowed the MSCI Asia Pacific Index to close at its best level in five sessions. European bourses …

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FAQ: UK’s Referendum on EU Membership

What is the issue?    The UK has long had a strained relationship with the EU and has never been comfortable with the ever increasing drive for greater integration and harmonization of rules and regulations coming from Brussels.  As the EU has …

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FX Daily, 02/29: Dollar Mixed, While Equities Skid

It seemed that it was only after Asian equity markets fell did reports begin suggesting disappointment with the G20 meeting.  The narrative followed the price action rather than the other way around.  Before that, at least, one newswire claimed China was the winner of at the G20 meeting.  Its currency policy was not criticized.  Many, …

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Weekly Speculative Positions: Small Changes

The position adjustment among speculators in the currency futures market were minor in the reporting week that ended February 23.  There was only one gross adjustment we regard as significant (more than 10k contracts).  The Mexican officials sprung a bear trap and forced speculators to cover.  There were 15.8k gross short peso in speculative hands that …

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Liberty and the 500 Euro Note

The internecine pitch battle between ECB President Draghi and the man who may very well be his successor, Bundesbank President Weidmann opened a new front this week.  It is over the future of the 500 euro note.   Practically, every initiative by Draghi has been resisted by the Bundesbank.  Sometimes it puts the Bundesbank at odds with …

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G20 Meeting is no Jedi Council

The G20 finance ministers and central bankers will meet in Shanghai starting tomorrow.   From some quarters, there is a sense of urgency.  The IMF, for example, is likely to cut its world GDP forecast of 3.4% this year.  That forecast is not even two months old.  The tightening of global financial conditions, exemplified by the sharp …

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The Return of Moral Economy?

The concept of moral economy was first used by 18th-century thinkers trying to make sense of the rising capitalist values.  In feudal society, a “fair price” was preferred over a free price especially for the necessities of the day.  

The reci…

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Sovereignty and Brexit

As the European Union grew, the unanimity in decision-making increasingly gave way to qualified majority voting.  This development took away an important weapon the UK deployed to pursue its national interest.  It use often to frustrate the collectivist decision-making in Brussels and exert its will for a broad union that preserved national sovereignty. National sovereignty is …

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Thoughts about the Price Action

The US dollar has begun the week with a strong advance against sterling and the euro. Sterling’s drop, the most in several years, is not a function of macroeconomic policy.  It is a function of Brexit and its endorsement by London Mayor Johnson….

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Re-Emergence of Divergence Helps Stabilize Markets

The main driver of the investment climate is not so much the incremental economic data as the capital markets themselves. The market turmoil contributed to the tightening of financial conditions, which in turn heightened risks, which monetary of…

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Investor: Heal Thyself

After a terrible first several weeks of the year, global capital markets stabilized in the past week.  Chinese markets re-opened after the extended Lunar New Year holiday and proved not to be disruptive.   Chinese equities did not decline to catch-up to the performance of global markets in its absence and instead gained 3% on …

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The World is not Ending (Yet), Panic To Subside

Investors have become unhinged. The increased volatility and dramatic market moves challenge even the most robust investment strategies. This sets off a chain reaction of money and risk management that further amplifies the price action, like an…

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Seeing the Forest for the Trees

The conundrum that everyone is wrestling with is the euro and yen’s strength given their negative interest rates and prospect for even lower interest rates.   The divergence of monetary policy, even if the Fed is on hold for the rest of this year and next, should be dollar-positive. We have tried making sense of what …

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Daily FX, 02/11: Stocks Crater, Yen Soars

The continued sell-off in global equities is the main driver of the capital markets.  It, along with the push lower in oil prices, are pushing core bond yields sharply lower. The US 10-year yield is nearing 160 bp having begun the year above 225 bp.    The 10-year gilt yield is at a new record low …

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Stealing Steel: A Microcosm of Macro-Forces

There are few industries that offer a picture glass window to see numerous macroeconomic forces as steel does.   Excess capacity, trade policy, and the yuan all intersect when looking at the steel industry.   Moreover, it also shed light on why the drop of energy and other commodity prices, such as iron ore, have not …

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Listen Carefully, She’s Yellen

After another soggy Asian session, European markets have begun on a firm note, and US shares are trading broadly higher in Europe as well.  Led by the beleaguered financial shares, and healthcare, the Dow Jones Stoxx 600 is up 2%.  Similarly, the peripheral bonds, including Portugal (though not Greece) are seeing a reprieve from the …

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Great Graphic: Dollar May Be Less Important for Fed

Investors and policymakers continue to wrestle with the economic impact of the dollar’s rise.  The Federal Reserve has argued that the dollar’s appreciation acts as a headwind on exports and dampens imported inflation.  At the same time, despite the dollar’s appreciation and the fall in oil prices, core inflation rose steadily last year. Core CPI …

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Europe Stabilizes After Asia Melts

After a meltdown in Asia, the global capital markets are stabilizing in Europe.   The US S&P managed to recoup about half of its losses before the close yesterday, but this gave not comfort to Japanese investors.  The yen’s strength and ongo…

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Germany–A Hegemonic Challenge for the Heartland

[unable to retrieve full-text content](co-authored with Matt Dabrowski) The great British geographer Halford Mackinder invented the term “geopolitics” over 100 years ago. He painted a grand vision of international relations that revolved around one f…

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Falling Stocks and Yields Drag Dollar Lower

Many markets are closed in Asia, and although Tokyo managed posted equity gain, most other markets in the region that were open fell.  And the selling pace picked up in Europe.  The Dow Jones Stoxx 600 is off 2.3%, led by information technology, industrials, and consumer discretionary.     It is trading at new lows …

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Dollar Beaten Back but Cynicism is Unwarranted

From a technical perspective, the dollar’s pullback has been largely corrective in nature. Leaving aside the yen, against the other major currencies, the dollar is correcting a run-up that began in mid-October.  The chief exception is sterling, which…

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Employment Details Better than the Headlines

The US created fewer jobs than anticipated and the December gain was revised lower.  However, the other details were favorable–better than expected.  The unemployment rate ticked down to 4.9%, a new cyclical low, despite the rise in the participation rate (62.7% from 62.6%). Average hourly earnings were stronger than expected at 2.5%.  The consensus expected …

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It is Not All About U.S. Jobs

The US nonfarm payroll report typically dominates the first Friday a new month.  In recent years, it has become among the most important economic reports globally.  Not today.   The market’s focus has shifted from Chinese stocks and yuan that dominated the first week or so, then oil, and now it is heightened concern about a …

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Great Graphic: Gold after its Trough?

It had taken out a three-month downtrend line, which we suggested was part of a triangle pattern.  Gold also traced out a double bottom pattern.  The triangle pattern pointed to a move toward $1110 and the double bottom projected to around $1135.

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Dollar Retreat Extends

The US dollar remains under broad pressure after yesterday’s sharp decline.  Neither dovish comments by ECB President Draghi, nor the Reserve Bank of New Zealand have managed to reverse the gains of their respective currencies.   Similar, the rise in US yields and firm equities have failed to push the yen lower.  Investors and policymakers are …

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When Irish Eyes are Smiling

Apparently, when Irish eyes are smiling, it’s time to call an election. And that is what Prime Minister Kenny has done.  The election will be held on February 26.  The polls suggest that the governing coalition (Fine Gael and Labour) may struggle to secure a majority.   In some ways, Kenny is making the same bet …

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Dollar Edges Lower, Markets Trying to Stabilize

The US dollar is sporting a softer profile today as the global capital markets are trying to stabilize.  Oil prices have steadied, with WTI back above $30.   Bond markets are narrowly mixed though the 10-year US Treasury is steady near 1.85%.  Asian and European equities followed US markets lower, but American equities have stabilized, and …

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Cameron vs Brexit: Mission Accomplished

  The EC draft proposals in response to the UK’s demands have been enthusiastically embraced by Prime Minister Cameron.  The wires quote Cameron as saying “I would opt in to EU membership on these good terms.” The proposals presented by European Council President Tusk are weak on details that are still to be decided, though …

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Familiar Patterns Return to Capital Markets

The decline in oil and equities are lifting European bonds and Treasuries.  The US dollar is firmer against most major and emerging market currencies.   We never put much stock in last week’s seemingly euphoric speculation of a deal between Russia and OPEC to support oil prices.  As the speculation is unwound, anticipation of another large …

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Dollar Mixed to Start the Week

Investors continue wrestling with the implications of last week’s surprise rate cut by the Bank of Japan. . The yen is little changed against the dollar, near its 200-day moving average (~JPY121.50).  The euro moved from the upper end of its two-cent range last Thursday to the lower end on before the week.  The absence …

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New Month, Same Drivers

On the very first trading day of the year, the Nikkei, DAX, and S&P 500 gapped lower, setting the tone to a particularly challenging month for investors.The last week and a half has been better, and this will likely carry over into the start of the new month.  Before January could slip into the history …

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The Dollar: Now What?

The US dollar turned in a mixed performance last week.  Firmer oil and commodity prices more generally helped lift the Australian and Canadian dollars, and many emerging market currencies.  These currencies initially extended their  gains ahead of the weekend in response to the Bank of Japan’s surprise 20 bp cut on some excess reserves ( to …

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Emerging Markets: What has Changed

1) Korea’s Financial Services Commission will introduce a so-called “omnibus account” for foreigners investing in local stocks 2) Malaysian Attorney General Apandi Ali closed the investigation into transfers of foreign money into Prime Minister Najib Razak’s personal bank accounts 3) The South African Reserve Bank increased the pace of its tightening 4) The Egyptian central bank …

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Implications of Amari’s Resignation

We had been tracking the budding scandal that implicated the office of Japan’s Economic Minister Amari.  We had expressed our concern earlier this week that the scandal could sap Amari’s office strength and be a distraction.  However, the situation unraveled quicker than we anticipated and Amari resigned earlier today. He is the fourth ministerial resignation …

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Dollar-Bloc Currencies Advance, Sterling Too

There is a mixed tone in the global capital markets today.  Asian shares were mixed with declines in the Nikkei (-.07%) and Shanghai (-2.9%) being offset by modest gains elsewhere.  European bourses are also mixed and the Dow Jones Stoxx 600 is o…

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Fed Says Little and Does Less

The Federal Reserve tweaked its economic assessment, but generally kept the underlying message the same.  It sees slack in the labor market continuing to be absorbed and believes the economic conditions warrant a gradual increase in rates.  The market was looking for a more dovish statement, but the message is little changed from December. The …

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Central Bank Credibility: What Does it Mean?

For at least a couple of years before the Great Financial Crisis, policymakers often cautioned that investors were mispricing risk.  Through the crisis, investors became painfully aware of many risks, including counterparty risk and reputation risk.  Now many observers are highlighting a new risk, what they call the credibility of central banks. The issue is …

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Mixed Dollar as Eyes Turn to FOMC

The US dollar is broadly mixed as attention turns to the FOMC statement later today.   The most important development has been the unexpectedly large oil inventory build reported by the API ahead of today’s government estimate.   The 11.4 mln barrel build is the largest in nearly two decades.  To put the rise in perspective, consider …

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Great Graphic: World Equities and Oil

Equities and oil continue to be moving in the same direction. During the first few weeks, they were moving down together and now up together.   It is frustrating for asset managers.   Large cap and small cap stocks moving together as if everything is being tarred with the same brush. We continue to try to tease …

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Getting a Handle on Italy’s Banks

Reports indicating that Italy is close to establishing a bad bank prompted one wag to ask if  Italy does not already have enough.  The country may be better served by setting up a good bank. The sharp sell-of in shares of Italian banks this year is an important driver of G7-leading 12.4% slide in the …

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It may Feel Bad, but Its Different

With equities sliding and oil pushing back below $30, it may feel like the resumption of moves in the first two and half weeks of the year, but it is different.  It is considerably more orderly.  The contagion from the equity and oil slide is mo…

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BOJ and TPP

The Bank of Japan meets later this week.  We do not think that it will expand its already aggressive monetary policy stance.   Given the largely operational adjustments announced last month, it seems premature to expect substantive adjustment no…

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Greece is Still in a Hot Spot

Greek Prime Minister Tsipras is celebrating the one-year anniversary of this election.  He offered Greek voters an opportunity to replace him last summer, but they stuck with him. Many economic issues remain unresolved. Pension reform promises to be a flashpoint between the Tsipras government and the official creditors.    Although the G10 has eleven members, official …

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Recovery Pauses in Europe

[unable to retrieve full-text content] Asia followed suit, extending the recovery seen in the last couple of sessions to end last week.  Equities rose as did oil prices.   The MSCI Asia-Pacific Index rose 1.2%, and the Nikkei posted its first back-to…

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Week Ahead: Picking Up the Pieces

Whatever force had gripped the global capital markets since the start of the year has been broken.   This simple characterization is rich.  It is not clear if or what macroeconomic considerations were driving the markets.  The markets had taken the unsurprising Fed rate hike in mid-December in stride. The dramatic moves in the market did not …

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Weekly Speculative Positioning before the Reversal

The latest Commitment of Traders report that covers the four sessions through January 19 saw speculators anticipating the continuation of the current moves.  Of the sixteen gross positions we track, only five were in reducing exposures.  Last week there was only six increased exposures. With the benefit of hindsight, we know that something changed a day …

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FX Outlook: New Phase has Begun

The first two and a half weeks of the new year saw persistent selling of equities, commodities, and emerging markets.  In the foreign exchange market, the dollar-bloc and sterling were crushed.  The yen was the single biggest beneficiary, and spe…

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Europe’s Third Challenge

ECB President Draghi made clear at yesterday’s press conference that new risks have materialized and the central bank’s job to reach its mandate is far from over. Current efforts may not suffice to achieve its legal prescribed mandate. Monetary policy will be reviewed and reassessed at the next meeting in March, when new staff forecasts …

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Emerging Markets: What has Changed

In the EM equity space, Russia (+5.9%), Colombia (+2.0%), and Thailand (+1.8%) have outperformed this week, while Qatar (-6.8%), UAE (-5.1%), and the Philippines (-3.7%) have underperformed.  To put this in better context, MSCI EM rose 0.1% this week…

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Collective Sigh of Relief Ahead of the Weekend

Like a car ignition that finally catches after several attempts, the global markets are building on the recovery seen in North America yesterday.   Asian stocks rallied, with the Nikkei leading the way with a 5.9% rally.  More modest 1.25% gain…

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Two Important Reforms

There have been two important reforms announced, one in the EU and other in the IMF, that many investors may have missed due to the carnage in the markets. 

While the economic challenges that Europe faces remain potent, the refugee problem appea…

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Fragile Calm Ahead of ECB Meeting

The Asian equity markets failed to retain the early gains that had at least partially been fueled by the US equities recouping half of their losses.  The MSCI Asia-Pacific Index lost about 1.7% and finished at new 3.5 year lows.    European markets are posting minor gains, with the Dow Jones Stoxx 600 up about 0.25% …

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Cool Video: Canadian Dollar Discussion on BNN

I had the privilege today to appear on Canada’s Business News Network. It is a great source for information on the Canadian economy and markets.  I was interviewed by Michael Hainsworth.
We discuss the Bank of Canada’s decision not to cut rates…

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Is Atlas Shrugging in Davos?

The World Economic Forum is underway in Davos.  The global capital markets are off to one of their worst years ever,  the threat of terrorism hangs over us, like the Sword of Damocles, GDP growth, except in a few countries, is not keeping pace with population growth.   As  2500 rich, powerful, and famous (mostly) …

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Markets Resume New Year Slide

The market meltdown is extending into the third consecutive week.  Once again, the attempt to stabilize has failed, and bottom pickers have been punished. It is easy to line up poor news developments, including IMF cutting world growth on the same day that the IEA warns of an extended glut in the oil market, the …

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Tomorrow’s News Today

There are three important economic events tomorrow.    The UK will release its December employment report and November weekly earnings data.  The US reports December CPI.  The Bank of Canada meets, and is widely expected to be the first centra…

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AIIB Launched, but Threat to Dollar Exaggerated

The China-sponsored Asian Infrastructure Investment Bank was formally launched over the weekend.  Many observers have seen it as a rival to the World Bank.  Others saw in another vehicle that would be used to facilitate the internationalization of the Chinese yuan.  We have consistently argued that these ideas are a serious exaggeration. News that AIIB …

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Emerging Markets: Week Ahead Preview

EM ended last week on a sour note. The most important factor for global risk appetite has become China, with the Fed tightening cycle now on the back burner.  Our base case remains that China muddles through, but policymakers there need to commu…

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Trying to Get One’s Bearings

The market is trying to get its bearings today. The large decline in the US equities before the weekend has had modest spillover effects elsewhere.  Equity markets, barring the Shanghai and Shenzhen Composites, are mostly modestly lower.  The M…

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Weekly Speculative Positions: Boosted Long Yen Positions, but Mostly Trimmed Exposures

Speculative activity in the CME currency futures picked up in the latest reporting period. There were six significant gross position adjustments, which in our work is more than 10k contracts.   The gross short speculative euro position was reduced by 17.9k contracts, leaving 209.6k. Since early December, 53k gross short euro contracts were covered.  During the same …

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Outlook for the Dollar: Dissecting the Bull

The US dollar remains strong against most currencies.  The exceptions are the Japanese yen, Swiss franc and euro though the franc and euro pulled back in the US afternoon before the weekend.  The greenback is still appreciating on a trade-weighted basis, which is the metric that counts in assessing its impact on the overall economy.   …

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Emerging Markets: What has Changed

1) The Hong Kong dollar posted its biggest two-day decline since 1992
2) Bank Indonesia restarted its easing cycle, cutting rates for the first time since February 2015
3) Poland’s current Monetary Policy Council (RPP) held its last policy meeti…

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When it Rains, It Pours

There are three developments today, which while not driving the market, are important for many investors.  The first are comments from German Finance Minister Schaeuble and EC President Juncker.  The second is an important development in Poland.   The third are growing problems in Greece. Schaeuble is formally acknowledging what investors have known for some time. The …

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A Bloody Friday

The recovery of US shares and oil yesterday provided short-lived.  Asian shares were dragged lower with the help of Chinese equities.  The 3.5% fall in the Shanghai Composite today brings the year-to-date decline to a little more than 18%. Taiw…

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Market Turmoil Continues, Risk Shunned

Investors still have not found solid footing this year.  Equity markets have continued to sink, even though China’s equities advanced.  Bond markets are mostly firmer, with the US 10-year yield seemingly being drawn back toward 2.0%.  Oil prices are little changed, after Brent slipped to marginal new lows.   There is much talk about the Iranian …

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Is Sterling almost Done Being Pounded?

Sterling fell 4.25% from the high on December 28 to yesterday.  It has been confined to yesterday’s range today.   After finishing below the lower Bollinger Band yesterday, it has moved back into the band today. 

The Bank of England meets tomo…

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Fishing for a Bottom to Dollar-Yen

While the euro often carves out a bottom, the dollar’s lows against the yen are frequently characterized by spikes.  That was the case, for example in the middle of October and late-August and the low (~JPY115.60) in December 2014.  Such a spike may …

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Hump Day’s Bump

Many of the capital markets are enjoying reversals today.  Equity markets are mostly higher. The MSCI Emerging Market equity index is up more than 1%. Several key commodities, like oil and copper, are firmer.  Bond markets, outside the US, are firmer, with the Japan’s 10-year yield slipping to new record lows slightly below 20 bp.   …

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The S.H.O.E. Crisis

The weak growth, large output gap, low return on capital, and a host of other economic malaise are widely recognized.  There seem to be two main schools.   One is associated with Reinhart and Rogoff.    They argue that “this time is not diffe…

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Great Graphic: Shanghai Composite and the S&P 500

I was canoeing recently.  When I looked that oar in the water, it looked bent.  It wasn’t my equipment, and I am a novice.  I cursed to myself and quickly pulled the oar from the water.  I smiled.  It was not bent.  It was an optical illusion.

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Pavlov’s Dogs Spot New Currency War

The broad measures of the US dollar are trending higher, and former Fed Chair Bernanke recently refuted claims the US was engaged in a currency war. Many observers had thought that with its unprecedented asset-purchase program, the BOJ was engage…

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Put on Your Red Shoes and Dance the Blues

Chinese shares continued last week’s plunge, with the Shanghai Composite off 5.3% and the Shenzhen Composite falling 6.6%.  Both indices closed on their lows.  With the apparenthelp of officials, the onshore yuan strengthened, though the real squeeze was in the offshore yuan, which strengthened by nearly 1%, the most in four months. Excluding the Japanese …

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Last Week’s Drivers Still with the Whip Hand.

Developments in China seemed to overshadow other considerations as investors returned from the New Year.  The offices were open and desks manned, yet many did not appear to be prepared to re-deploy resources.  The lack of participation helps …

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Emerging Markets: What has Changed

In the EM equity space, Qatar (+2.7%), Hungary (+1.3%), and Turkey (+1.1%) have outperformed this week, while Poland (-4.6%), Hong Kong (-4.1%), and the Philippines (-3.8%) have underperformed.  To put this in better context, MSCI EM fell -3.6% this …

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US Growth Accelerates, Dollar Advances

US grew nearly 300k jobs in December.  The October and November jobs growth were revised up by 50k.  The unemployment rate was unchanged at 5.0%, even though the participation rate ticked up. If there was  a disappointment it was that hourly earnings did not rise as much as expected.  The 2.5% year-over-year growth from 2.3% …

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Markets Calm Ahead of US Jobs Data

For the first time this week, the PBOC set higher central reference rate for the yuan and Chinese shares rallied, with the apparent assistance of officials, after the circuit breakers were abandoned.    This, coupled with somewhat firmer oil pri…

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Don’t Believe Your Lying Eyes

Chinese equities continued their precipitous decline, interrupted by the new circuit breakers, which reportedly will be suspended.  Global equity markets are also in a dramatic decline.   However, do not be misled.  Knowing the direction of China’s blue chips (CSI 300) does not really help predict the direction of the US equity market, even though …

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Is it Too Early To Talk about Annus Horribilis?

One might be forgiven for believing that nail-baiting start to the year is all China’s fault.  It has repeatedly for eight sessions fixed the yuan lower, including earlier today, at a seemingly accelerating pace.  The new circuit breakers, introduced on Monday, appear to be adding to the volatility.  Chinese share trading was stopped today after …

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Great Graphic: The Euro Touchstone

This Great Graphic is a favorite of mine.   Created on Bloomberg, it depicts the 2-year spread between Germany and the US on two-year money (white line) and the euro-dollar exchange rate (yellow line).  The chart covers the past five years. The scales of the two time series are different so it makes little sense to …

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The Enigmatic Yen–It is More than an Equity Story

Last year was the fourth consecutive year that the yen fell against the dollar.   However, what is obscured by this factoid is that over the past  six months, the yen has been the strongest of the major currencies, rising almost 3.2% against the US dollar. While some may be tempted to attribute the yen’s strength …

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Sweden’s Riksbank Prepares for Intervention

Many countries may look with envy upon Sweden.  Growth last year was probably around 3%, with household consumption rising a little more than 2%.   Its current account surplus is 7.5% of GDP.  Exports were up by 4.3%.  Its budget deficit is around 1% of GDP.    Earlier today Sweden reported its manufacturing PMI rose to 56.0 …

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Europe’s Banking Union Begins Taking Shape

The knock-on effects of the meltdown in Chinese shares and the tension among major Middle East rivals are dominating the re-opening of the global capital markets after the New Year holiday.  The US dollar has recouped its earlier losses against t…

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Emerging Markets: Week Ahead Preview

Brazil reports December trade later today.  Exports are expected at -1% y/y and imports at -35% y/y.  That would result in a $6.1 bln surplus, one of the largest on record.  Brazil then reports November IP Thursday, and is expected at -10.3% y/y vs. …

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Dramatic Start to the New Year

The markets are in turmoil.   Global equity markets are sharply lower, dragging bond yields down.  The risk-off move has propelled the yen sharply higher.  Its 1.4% advance has seen the dollar slump to JPY118.70, its lowest level since-mid-October. The dollar is also weaker against the euro (~0.65%) and sterling (~0.25%).  However, the dollar-bloc has been …

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Dollar: State of Play

The start of a new calendar year does not necessarily mean the rise of new market drivers.   In fact, the key issues investors face at the start of 2016 are the same that dominated Q4 2015.   These issues center around pace of Fed tightening, the outlook for the world’s second largest economy and its …

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2015 Draws to a Close

Many financial centers in Asia and Europe are on holiday today, and those that are open, are experiencing a minimum of activity.  Turnover may pick up briefly in the North American morning, but conditions will remain thin and only those who need to transact will.   The US reports weekly jobless claims and the Chicago PMI.   …

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Yen is Lower for Fourth Year, Euro for Second

The US dollar will finish 2015 higher against both the euro and yen.  Sometimes those of us who follow the economic and financial news closely can get caught up with the short-term fluctuations.  As traders that is what we do.  . Investors, however, can take a longer look at developments.   Taking a step back, …

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Quiet but Choppy Markets as Activity Winds Down

The foreign exchange market is becalmed, leaving the US dollar narrowly mixed in uneventful and light turnover. The euro has been confined to less than a third of a cent range. Yesterday it briefly dipped below its 20-day moving average for the first time since the ECB met earlier this month. It remains in the …

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US-European Threat Perceptions Diverge

The trajectories of the monetary policy at the Federal Reserve and the European Central Bank are diverging.  It is the keystone of our anticipation of further euro weakness in the year ahead.  In addition to this monetary divergence, there is a…

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Three Rate Differentials to Note

During this holiday period, participation is light and order-driven activity can push prices more than usual.  Investors should not let the noise and gyrations obscure the bigger picture.   We continue to place the divergence of monetary policy at the center of our narrative.     Barring a significant negative surprise from the labor market, we expect the …

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Good Holiday Reads

1.  Outlook for 20162. Interesting comparative look at consumer inflation (US, UK, Japan, and EMU)3. Great Graphic illustrating the refugee/asylum migration to Europe4. Great Graphic depicting how US stocks trade in December for past two decades5.  The behavior of cartels and the outlook for oil

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Hump Day Update

The thinness of the order-driven capital markets is making price action that seems more inexplicable than usual.  The US dollar is mixed. It has recouped all the ground it lows against the euro yesterday, as the single currency briefly dipped below $1.09 in the North American morning.  It was unable to build on yesterday’s gains that …

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Tuesday’s Highlights

1.  China’s Central Economic Work Conference is responsible for setting the annual GDP target. Although it was not formally announced, President Xi previously indicated that the goal for the economy to expand by around 6.5% a year through 2020.  More telling than the GDP target is the intentions expressed in the new slogan:  flexible monetary policy, …

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A Few Takeaways

1.  The election in Spain did not lift the uncertainty but re-redoubled it.  Given the outcome, it is difficult envision a majority government.  Purely looking at the numbers, a coalition between the Popular Party and the Socialists is simplest…

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Measuring Inflation

(co-authored with my colleague Sam Waters)

Inflation or indeed its opposite has driven monetary policy among the largest high income economies. With nominal rates thought to be bounded by zero, the US, UK, and Japan engaged in operations to inc…

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Four Drivers of the Investment Climate in 2016

The broad interpretative framework we developed since late 2014, one that centers the de-synchronization of the major economies, will retain its usefulness into the New Year and beyond.  The first phase of divergence was characterized by the Fe…

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Near-Term Dollar Outlook: May the Force be With You

The dollar rose against all the major currencies over the past week.  The divergence meme we have emphasized has continued to unfold.  The ECB eased policy at the start of the month.  Less than 48 hours after the Fed hiked rates, the BOJ tweaked its asset purchase program to sustain it.  Holiday-thin markets make for more …

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Emerging Markets: What has Changed

In the EM equity space, Poland (+5.6%), Colombia (+5.6%), and China (+4.4%) have outperformed over the last week, while Brazil (-2.1%), Qatar (-0.8%), and Russia (+0.1%) have underperformed.  To put this in better context, MSCI EM rose 2.3% over the …

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BOJ Surprises, but Substance Minor

The Bank of Japan was the fourth major central bank to meet this week.  Sweden and Norway kept policy unchanged.  The Fed hiked.  The BOJ was not expected to do anything.  Governor Kuroda surprised the market with largely operational tweaks to what Japan calls Qualitative and Quantitative Easing.  Initially, and perhaps with the help of …

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Odds Improving for IMF Governance Reforms

For five years, governance reforms at the IMF have been stymied by the refusal of the US Congress to accept a new and higher quota (money) to the IMF.  This has frustrated efforts to integrate the developing countries, especially the large ones, like China, better into the global economy.  It may have also helped spur …

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The World Survives Fed Hike

Asia extended the US dollar’s post-Fed gains while Europe has seemed content to consolidate the move, perhaps waiting for US leadership. 

Much of the commentary about the Fed’s action have noted that the FOMC statement used the word “gradual” no…

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We have Lift-Off

The Federal Reserve delivered a hawkish hike.  The dot plot reflects expectations for four rate hikes in 2016.   There were no dissents.  This is important. It underscores the decisiveness of the decision.  There have been three voting Fed mem…

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Great Graphic: US Bill Yields and Fed Hikes

There are many investors and observers who do not think the Fed ought to raise interest rates today.   The Fed’s targeted inflation measure, the core PCE deflator, stood at 1.3%, well below the 2% target.   They see the fresh sell-off in oil prices and are more concerned disinflation than inflation.  Over the past week or so, …

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Fe Fi Fo Fed

The much awaited Fed meeting is here.  A 25 bp increase in the Fed funds range to 25-50 bp is widely expected.  The near certainty of this contrasts to the high uncertainty of the immediate impact stocks, bonds, and the dollar.   There are five components of the Fed’s decision that will command attention.  First, is …

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Great Graphic: US Equities in December

This Great Graphic shows how different measures of US equities perform in December by day for the past 20 years.  I got it as a tweet from Urban Carmel, who got it from the Stock Almanac.   Today is eleventh session of the month.  Equities typically rallied starting now in December.   Since 1994, the S&P …

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Corrective Forces Dominate

The euro made marginal news highs near $1.1060 while sterling and the yen have been confined to yesterday’s ranges.  European equities are bouncing off ten-week lows.   The dollar-bloc is firm; the upbeat RBA meetings provided only a short-lived…

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Great Graphic: Large Yuan Devalution in 2016?

Following the mini-devaluation in August, the yuan appreciated in September and October.  It began depreciating again in November and this has continued through the first half of December.   The dollar finished the local session at new multi-year highs against the yuan.  Many observers see in the pre-weekend announcement about monitoring the yuan against a basket …

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Emerging Markets: Week Ahead Preview

Indonesia reports November trade Tuesday.  Exports are expected at -11.5% y/y, while imports are expected at -21.3% y/y.   Bank Indonesia then meets Thursday and is expected to keep rates steady at 7.5%.  We believe an easing bias is in place, given …

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Outlook for Spain’s Election

The pace of reform in Spain has slowed, with electoral considerations likely playing a role.  A new center-right government may resume efforts to reform the labor market, even if leading a government costs Rajoy his job.   Representation of Podemos i…

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Great Graphic: Euro Forecast by Global Banks

The dollar-euro is the most actively traded currency pair in the world.  It is often what is meant when people ask where is the dollar trading.   Dollar bullish sentiment prevailed in 2015, but many large banks doubt that it will continue in 2016.  This Great Graphic from the Wall Street Journal shows the euro forecasts …

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Weekly Speculative Position Limited: Adjustment Warns USD Correction may not be Over

1. Activity increased during the Commitment of Traders reporting week ending 8 December.  There were four significant (10k+ contracts) gross currency adjustments by speculators.  Given that this period covers the second largest gain in the euro’s history, it is surprising that it did not meet the threshold.  It is astounding that only that speculators added only …

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Emerging Markets: What has Changed

1) South African President Jacob Zuma fired Finance Minister Nene and replaced him with little-known ANZ lawmaker David Van Rooyen 
2) S&P revised the outlook on South Africa’s BBB- rating from stable to negative 
3) People’s Bank of Chi…

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Insight into the ECB

Investors, fellow central bankers, and the media continue to try to make sense of last week’s ECB surprise.    We had argued that given the market positioning, especially the dramatic accumulation of speculative short euro positions since the m…

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Greenback Recovers, but Antipodeans Advance

There are two broad themes among the major currencies today.  The first is the pullback in the euro and yen after yesterday’s run-up.  Position adjustments with the help of stop losses seemed to be the key consideration.  Both the euro and yen extended the recovery seen in the second half of last week.  Year-end considerations, …

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France, Schengen and the Future of Europe

The second round of French regional elections will be held this weekend.  The first round last weekend saw the National Front do best in terms of popular votes and led in six of the twelve regions.    The National Front is not simply anti-austerity, but it is anti-EMU.  In regions that NF garnered more than 40% … Continue reading »

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Oil: WWJD–What would JD Rockefeller have Done?

Many observers conclude OPEC is dead.  Oh, its demise has been claimed before, but after the oil cartel failed to provide a quota (output goal) in last week’s statement, the claim has been given new life.  The problem is that OPEC’s action under Saudi leadership may be perfectly rational for a cartel.  Suppose you were …

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Great Graphic: Divergence is Still the Euro Driver

This remains one of my favorite Great Graphics that illustrate the divergence theme that I think is the main driver of the euro-dollar exchange rate.  Composed on Bloomberg, it shows two time series.  The first (white line) shows the German two-y…

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Dollar Mixed, Equities Head South, Oil Stabilizing

The US dollar is firm against the dollar-bloc currencies, and sterling, but is heavier against the euro and yen.  

The 13th consecutive year-over-year decline in China’s imports helped keep the pressure on the commodity producers.  Despite New …

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Emerging Market Preview: Week Ahead

Taiwan reports November CPI Tuesday, and is expected to rise 0.36% y/y vs. 0.31% in October.  The central bank does not have an explicit inflation target, but low price pressures should allow the easing cycle to continue at the December meeting.  Nov…

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Why China’s Reserves Fell $87.2 bln in November

Economists expected China’s reserves to fall by around $33 bln in November.  Instead, they fell by a little more than $87 bln.   This is the third largest decline it has recorded, and a little below the $94 bln drop reported in |August. China’s reserves peaked in June 2014 near $3.993 trillion.  At the end of …

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Dollar Continues to Recover

The exaggerated response to last week’s ECB meeting continues to unwind.   Draghi’s dovish comments and the strength of US employment data have helped keep the divergence meme front and center.  

The euro traded quietly in Asia before breaking…

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After Gorging On News, Time To Digest

Last week lived up to the hype. It was indeed a momentous week. China joined the SDR, with a weight that puts it in third place behind the dollar and euro.  The ECB did ease policy. It delivered a 10 bp cut in the deposit rate (now -30 bp), extended its asset purchase program for six …

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Once Unleashed, Corrective Forces Dominate

The market’s disappointment with the ECB unleashed pent-up corrective forces in the foreign exchange market.   This leg up in the dollar began in mid-October.  Through the day before the ECB, the euro was the weakest of the major currencies, losing 7.5% against the dollar.  The yen and sterling shed a little less than half as …

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Emerging Markets: What has Changed

(from my colleague Ilan Solot) 1) The Chinese yuan will be in the SDR.  2) Brazil had one of the most important weeks of the year, and possibly of its history.  3) Russia enacted sanctions against Turkey, while Turkey got a deal from the EU.  4) Moody’s raised Russia’s credit-rating outlook to stable from negative.  …

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Jobs Data Keeps Fed on Track to Hike

After the ECB’s disappointment yesterday market nerves were shattered, but the largely as expected US jobs data may help the focus return to the underlying fundamental fact.  The ECB just eased policy.  Not as much as the market expected, and t…

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ECB Fireworks

Market participants knew that volatility would rise today with the ECB meeting.  What they got was far worse than could have been anticipated.  

It started with a report on the Financial Times a few minutes before the ECB’s official announceme…

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Draghi’s Day to Deliver

The much anticipated ECB meeting is at hand.   Yesterday’s disappointing eurozone CPI figures only fanned the anticipation. Today the service PMI was softer than expected at 54.2, down from 54.6.  

What will Draghi do?  There are four moving…

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Is Grexit Back on the Table?

Defying the expectations a few months ago, Greece remained in the Economic and Monetary Union.  It recently succeeded in implementing sufficient reforms to earn another tranche of aid.   However, the entire exercise exhausted whatever trust the…

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Great Graphic: Canadian Growth and Rate Expectations

Canada reported its monthly GDP estimate for September, and at the same time, provided its first estimate of Q3 GDP.   The Great Graphic, created on Bloomberg, shows both time series.

The monthly GDP is depicted by the yellow line and the quart…

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Dollar Trades Heavier, Key Events Awaited

The US dollar is trading with a heavier bias today amid some last minute position squaring ahead of the key events of the week, which are stacked in the second half.  The ECB meeting and US jobs data are the two most important events in a jam pa…

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Cool Video: CNBC Discussion about China and the SDR

I had the privilege of being on CNBC to discuss the significance of China being included in the IMF’s Special Drawing Right. Here is the link to the discussion.  The decision was announced shortly after the interview on CNBC.  It was largely a foregone conclusion that China would join.  Besides the confirmation, the new news …

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Emerging Markets: Preview of the Week Ahead

(from my colleagues Dr. Win Thin and Ilan Solot) This is set to be one of the most important weeks of the year. EM is likely to take a backseat between the ECB monetary policy decision, the OPEC meeting and the US jobs report. That said, there are several potential sources of idiosyncratic risk to …

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How Dangerous are Technical Conditions for Dollar Bulls?

Anticipating a yawning divergence of monetary policy between the world’s largest central banks, market participants continued to drive the dollar higher over the past week.  In fact, the greenback appreciated against all the major and emerging market currencies except the Malaysian ringgit and South Korean won.     Next week is one of the most eventful …

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France’s Revival or Politics Trumps Economics

With the ECB poised to take additional steps down the unorthodox monetary policy route, financial and economic forces are as potent as ever.  However,  there is a subtle shift taking place that few seem to recognize.  It is the re-emergence of…

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Dollar Rides High into Month-End

The US dollar is firm against the major currencies and nearly all the emerging market currencies as well to close out the week (and month) Participants are clearly focused on next week’s events, and in particular, the prospect of additional easi…

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Table is Set, Dollar Consolidates

The US dollar remains firm, even if it has eased from its seven-month high against the euro and five-year high against the Swiss franc recorded yesterday.  The US October personal consumption expenditure was disappointing, and prompted some downward revision to Q4 GDP forecasts. The Atlanta Fed estimates that Q4 GDP is tracking 1.8% rather than …

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Discount Rate Follow-Up: And Then There were Nine

On Monday, the Federal Reserve met to discuss the discount rate.   There has been a steady increase in the number of regional Federal Reserve presidents requesting an increase in the discount rate.  The minutes of the October 26 meeting were reported yesterday. The meeting was held before the FOMC met on October 27-28.  At that meeting, …

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Euro Bears Aren’t Hibernating

The divergence of monetary policy is discounted, they argued. Ahead of next week’s big events, which include the IMF’s SDR decision, the ECB meeting, OPEC meeting, and the US jobs data, the euro, against which speculators have amassed a large sh…

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Dollar Recoups January Loss Against the Swiss Franc

The US dollar recorded its high for the year against the Swiss franc on January 14 near CHF1.0240.  It closed that day a little below CHF1.0190.  The next day the Swiss National Bank surprised the world by lifting its cap against the euro.  The …

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Why Portuguese Politics Matter

A NATO country has shot down a Russian plane.  The refugee influx is threatening to unravel the Schengen Treaty of free movement.    Germany’s Merkel celebrated her tenth anniversary as Chancellor this past weekend, but she faces one of the most serious challenges of her tenure.    Portugal accounts for less than 2% of the eurozone GDP.  …

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Dollar Softens, Consolidation Phase Continues

The US dollar is trading choppily but with a distinct softer bias.  The economic news has been limited, and the apparent downing of a Russian plane by Turkey caused a flurry of activity, with Turkish assets coming under initial pressure which has abated somewhat.   The euro briefly dipped below $1.06 yesterday for new seven-month lows, …

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Parsing Gradually

With the vast majority of economists and primary dealers expecting the Federal Reserve to lift rates next month, the subject of discussion has shifted toward the pace of the hikes and the peak or terminal rate.   The Federal Reserve has used various word cues to help guide market expectations.  There was, for example, going to …

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Emerging Markets: Preview of the Week Ahead

(from my colleagues Dr. Win Thin and Ilan Solot)EM starts the week on an uncertain footing. Commodity prices were off sharply until comments by Saudi Arabia lifted them, reversing the trend in commodity-sensitive assets. The dollar is also back …

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Could the Fed Hike the Discount Rate on Monday?

(Correction: The analysis first presented here was based on voting at the August discount rate meeting, not the September meeting.  Here is the link to the Fed statement following the August and September.   At the September meeting, eight of the 12 Federal Reserve banks advocated a hike in the discount rate.  Note that despite …

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Weekly Speculative Positions: Observations

1.  The continued build of short currency futures positions characterizes the changes in the speculative positioning.  All the currency futures we track saw an increase in gross short positions. This is what drove the large net short positions.  One thing this means is that late shorts are in weak hands, and as we have seen …

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Emerging Markets: What has Changed

 (from my colleagues Dr, Win Thin and Ilan Solot)
1) Mexico’s FX commission tweaked its intervention program slightly 
2) The political tide in Brazil has turned slightly better for the government 
3) The PBOC announced a rate cut for its Standi…

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US Corporate Earnings, Overseas Sales and the Dollar

How much of a headwind is international exposure causing US-based companies?  Factset did a study earlier this month, drawing on a combination of companies that had already reported Q3 earnings and used estimated results for those who had not reported.   It sheds light on the much-discussed earnings recession.  The blended earnings (as of November 5) …

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Dollar Corrects Lower

The US dollar is trading heavily today.  The losses are not particularly steep against either the majors or the emerging market currencies.  A common narrative is attributing the dollar’s pullback to “dovish minutes,” but this is not a fair asse…

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A Less Terrible Political Moment for Brazil

(from my colleagues Dr. Win Thin and Ilan Solot)
Brazil’s government scored an important set of political victories yesterday, many of which impact the fiscal accounts. It’s too soon to say that the tide has decidedly changed, but there are some positive signs

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Security, Refugees and European Fiscal Policy

The EU is warning that Austria, Italy, and Lithuania are at risk of not achieving their 2016 budget goals. It also warned Spain that is too may miss its target. Nevertheless, the EU said there were no serious violations.

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Weekly Speculative Positions: Observations

1. In the Commitment of Traders reporting week ending November 10 covers the few days before the US employment data and a few days after. Speculative participants made five significant (10k contracts or more) adjustments to gross positions in the currency futures. The prior reporting period saw only three significant adjustments,…

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Weak Yen, Is it Really a Currency War?

Japanese yen

Some journalists, like Ambrose Evans-Pritchard of the U.K.’s Telegraph and Michael Casey of the Wall Street Journal, have already claimed this to be a shot in the currency wars. Casey focuses exclusively on the BOJ activity and does not even mention GPIF.

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Net Speculative Positions, Technical Forecast, Week February4

Submitted by Mark Chandler, from marctomarkets.com   The main drivers of the foreign exchange market have strengthened.  This means that the current trends, especially euro strength and yen, sterling and dollar bloc weakness are likely to persist.  The recent price action will likely reinforce the trader behavior of buying euros on pullbacks and selling into bounces …

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Net Speculative Positions, Week January 28

Submitted by Mark Chandler, from marctomarkets.com   It is difficult to talk about the US dollar’s performance over the past couple of weeks.  There has been a key divergence.  The dollar has been trading higher against most currencies except the euro and those currencies, like the Swiss franc or the Scandis, that move in the euro’s …

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Net Speculative Positions, Week January 21

Submitted by Mark Chandler, from marctomarkets.com The technical tone of the major foreign currencies deteriorated in recent days.  It appears to be a cascading effect.  Favorite risk-on currencies, like the dollar-bloc, failed to participate in the move against the greenback.  The Swiss franc took the dubious honor of being the weakest currency last week, losing 2.2% …

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Net Speculative Positions, Week January 14

Submitted by Mark Chandler, from marctomarkets.com   There have been some large moves in the foreign exchange market in recent days.  The euro posted its largest rally in four months last week.  The yen has fallen to its lowest level against the dollar since June 2010 and extended the declining streak to nine consecutive weeks, something …

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Net Speculative Positions, Week November 19

cards

  Submitted by Mark Chandler, from marctomarkets.com   The US Dollar Index bottomed on September 14, the day after QE3+ was announced.  It reached a 2-month high before the weekend.  It has now retraced half of the ground lost from ECB President Draghi’s pledge to “to do whatever it takes” through hints, and then delivery, of …

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The Three Main Forex strategies: Trend Following, Mean Reversion and the Carry trade. Is the Carry Trade Dead ?

sorry

  Submitted by Mark Chandler, from marctomarkets.com   Net Speculative Positions, FX Outlook, Global Stock Markets, Week October 15    Market participants have to confront a stark asymmetry.  There are many ways to lose money, but there appears to be only three ways to make money. Nearly all strategies seem to come down to some variant …

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It’s not simply QE3

Fed Programs and Markets

Submitted by Mark Chandler, from marctomarkets.com The outcome of the FOMC meeting is not just a new round of quantitative easing, some might call it QE3. What the Fed announced represents a new chapter in its policy response. The first distinguishing aspect of its decision is the open-ended nature of it. While it has not indicated …

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Net Speculative Positions and Outlook, week of August 13

Chess 2

Currency Positioning and Outlook, week of August 13 Submitted by Marc Chandler from MarctoMarkets.com   Market positioning in the week ending August 10 suggests that speculators in the futures market generally agree with our assessment that ECB President Draghi’s recent proposal was not a game changer.  The recent pattern continued.  Essentially what this entails is buying …

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