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
The euro is lower for the second consecutive
session. It has not fallen two days in a row since the middle of last
month. It is the first session in five that the euro has traded below
$1.20. Recall that last week, it had stalled in front of last
year's high. It has tested initial support near $1.1980. The next
target is in the $1.1920-$1.1950 area. There is a large
option (2.3 bln euros) struck at $1.1985 that expires tomorrow.
The eurozone reported stronger than expected
survey and real sector data today. Sentix investor confidence rose
more than expected (32.9 from 31.1), and other confidence surveys were
firmer. November retail sales rose 1.5% after October's 1.1%
decline. The median forecast from the Bloomberg survey was for a 1.3%
increase. On the other hand, Germany's November factory orders
disappointed by falling 0.4% after a revised 0.7% gain in October (initially
0.5%). The year-over-year rose an impressive 8.7%. The market had
expected 7.8%. Domestic orders slipped 0.4%, while foreign orders fell 1.2%,
though orders from EMU rose 0.7%.
Japan's markets were on holiday earlier today.
The greenback traded to almost JPY113.40 after flirting with JPY112.00 early
last week. The dollar has approached the JPY113.65-JPY113.75 area
that capped upticks last month. The US 10-year yield, which the
exchange rate still seems sensitive to, is near 2.47%. That is the upper
end of the recent range, but there is no momentum to speak of and the yield
appears to be consolidating in a 2.40%-2.50% range. In the futures
market, speculators are net short10-year Treasuries (for the third consecutive
week) for the first time since last April.
Over the weekend, Abe urged the BOJ to
continue its efforts to reflate the economy, but stopped short of endorsing
BOJ's Kuroda for a second term. Abe noted that job availability is
near a 43-year high. Core inflation of 0.9% is the same as in the
eurozone, though measured differently. Abe encouraged companies to
boost wages by 3% of more, but there is no compelling reason to expect businesses
to do so.
The UK's Halifax reported disappointing
December house prices. The 0.6% decline contrasts with expectations
for a slight increase, and adding insult to injury the 0.5% gain in December
was revised to 0.3%. The three-months, year-over-year rate eased to 2.7%
(from 3.9%), to return to levels not seen since last August. The slowest
pace in 2017 was seen in July at 2.1%.
There is much talk about a cabinet reshuffle
in the UK, but nothing has been announced yet. While many senior
posts are not expected to change, there are reports suggesting that a minister
will be appointed for a "no-deal Brexit." Sterling's losses
today appear more a function of the dollar's bounce than specific UK concerns.
Sterling has traded a couple of ticks on both sides of the pre-weekend
range. Unlike the euro, it has not slipped through last week's lows
The Australian dollar is the weakest of the
majors, losing about 0.33% at about $0.7840. We note that large
speculators in the futures market are carrying a net short Aussie
position. A break of last week's lows (~$0.7795) is needed to signal a
proper correction. Separately, note that a government department warned
that iron ore prices fall on average by 20% this year.
The corrective pressures in the foreign
exchange market have not spilled over to equities. The MSCI Asia
Pacific Index, excluding Japan, rose (~0.4%) for the fifth consecutive
session Nearly all markets in the region rose. European
bourses are mostly higher, as well. The Dow Jones Stoxx 600 is adding
0.2% to last week's gains. It is the fourth consecutive advancing
session. Today's gains are led by real estate, financials and
materials. Consumer staples and information technology are drags.
US equities are flat to slightly higher. This week's earnings include JP
Morgan Chase, Well Fargo and Blackrock.
Bond markets in Asia may have been dragged
higher by US Treasuries action after the jobs data. European benchmark
10-year yields are slightly softer. Peripheral bonds are doing best
(off 1-3 bp), but Italian bonds are lagging.
The US reports consumer credit late in the
session. It is expected to have risen around $18 bln in
November. Consumer credit has slowed in the US, and without a stronger
pick-up in November and December, it could be the weakest year since
2014. Three regional Fed presidents speak today. Bostic provides an
economic overview, while Williams and Rosengren speak at a conference on
inflation targeting. The market appears to be discounting
around a 75% chance of a March hike.
The Bank of Canada releases the results of its
senior loan officer survey. It is the last important economic data
point ahead of next week's rate decision. There are quantitative and
qualitative aspects to the report. Another negative reading (-0.5 in Q3)
would be disappointing. After the impressive jobs report at the end of
last week, the odds of a rate hike next week increased to a little more than
80%. The odds were closer to 50% a week ago.