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

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

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

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,

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

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

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

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

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

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,

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

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.

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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,

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

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

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

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

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

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.

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%

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

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

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

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

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

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,

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

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

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

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

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

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

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,

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

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

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.

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.

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

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,

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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.

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

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%.

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

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,

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

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

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

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

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

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

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

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

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%

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

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

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

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

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

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

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

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

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

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

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

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%).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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,

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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,

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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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,

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

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

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

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

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

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

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

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

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

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

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

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

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.

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.

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.

(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

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

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.

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

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

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

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

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.

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.

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

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

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

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.

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.

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

Overview: Amid sharp losses in the US equity futures, the US dollar is mostly firmer against the G10 currencies. The notable exception is the Australian dollar, where high-than-expected inflation boosts the risk of a more aggressive central bank.

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

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.

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

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%

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

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

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.

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,

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.

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

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.

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.

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.

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

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. 

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.

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

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

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

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.

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

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

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.

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.

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

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

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

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.

The G10 currencies traded with a heavier bias against the dollar last week. The Swiss franc was the sole exception, and it edged up about 0.25%. The thwarted putsch in Germany and the relaxation of vaccine and quarantine protocols in China were notable developments.

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.

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

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%

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,

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.

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

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.

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

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

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

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.

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.

Overview: Chinese officials using the carrot and the stick have succeeded in dampening the protests and easing some anxiety and rekindled the animal spirits. Hong Kong’s Hang Seng rallied 5.25% and its index of mainland shares surged 6.20%.

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

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

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

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

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

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

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.

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

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.

The situation in central Europe is still intense but it appears top US, European and Polish officials are more reluctant than some market participants to attribute the darkest of intentions and paint extreme narratives.

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

Overview: China’s new initiatives to support the property sector helped lift the Hang Seng. And while the China’s CSI 300 edged higher both the Shanghai and Shenzhen composites fell. Most Asia Pacific markets fell, while Europe’s Stoxx 600 is posting a small gain.

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.

Policymakers have often said that exchange rates should reflect fundamentals. What does that really mean? Can they do anything but that? It begs the question of which fundamental factors they should reflect.

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.

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.

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.

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

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

The apparent hawkishness of Fed Chair Powell’s comments at the press conference following the FOMC’s fourth consecutive rate hike extended the dollar’s recovery, which had begun in late
October. 

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

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

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.

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

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

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.

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.

The week ahead is important from a macro perspective. The data highlights include China’s PMI, eurozone preliminary October CPI and Q3 GDP, and the US (and Canadian) employment reports. In
addition, the Federal Reserve meeting on November 2 is sandwiched between the Reserve Bank of Australia meeting and the Bank of England meeting.

Bonds and stocks are being sold ahead of the weekend.  Poor corporate earnings and higher inflation in Japan and Europe are weighing on sentiment.  The dollar is mostly higher. Hong Kong and mainland China led large Asia Pacific markets lower.  India and Singapore were notable exceptions.

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.

Overview: The US dollar is having one of toughest days of the year. It has been sold across the board and taken out key levels like parity in the euro, $1.15 in sterling, and CAD1.36. The Chinese yuan surged over 1%. Chinese officials promised healthy bond and stock markets.

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.

Overview:  Japanese efforts to curb the weakness of the yen provided drama today. What many suspect was intervention before the weekend was wearing off and officials may have sold dollars again today in front of JPY150.

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.

Overview: The continued surge in US rates and inability of the equity market to sustain gains saw the post-Truss sterling rally unwind amid a broader recovery of the dollar. Sterling has been sold to new lows for the week.

Overview: China and Japan continue to struggle to stabilize their currencies, while global interest rates rise. The offshore yuan has fallen to new lows but in late dealings the onshore and offshore yuan have recovered.

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.

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.

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.

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. 

The latest US employment and inflation figures are passed. The market is confident of a 75 bp rate hike next month. While a 50 bp in December is still the odds-on favorite, the market has a slight chance (~15%) of a 100 bp move instead after the robust jobs report and stronger-than-expected September CPI.

There has been little follow-through dollar selling so far today after yesterday’s dramatic downside reversal after the initial flurry of buying in response to the stronger than expected 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.

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.

Overview:  The dollar continues to ride high. It reached its highest level against the yen since the recent intervention. The Canadian dollar has fallen to its lowest level in two-and-a-half years and the New Zealand dollar is approaching the 2020 extreme.

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.

We suggested that the US jobs data and the CPI would be a 1-2 punch that would strengthen the greenback after it pulled back from extremes seen in late September. 

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.

Asia Pacific bourses followed yesterday’s US loss, but after opening lower Europe’s Stoxx 600 has steadied. US futures are narrowly mixed ahead of the US jobs report. Benchmark 10-year yields are higher across the board.

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.

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.

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.

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. 

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

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.

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.

(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.

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.

The dollar surged last week. Sure, the push of the Fed was notable, but the larger move from Sweden’s Riksbank failed to impress. In fact, the Swedish krona was the poorest performer among the G10 currencies, tumbling 5% last week.

As September winds down, three sets of economic reports will draw the most attention. We will review them and then offer a snapshot of the emerging market central bank meetings.

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

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

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

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.

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.

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

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

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.

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.

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.

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.

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.

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.  

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.

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.

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.

Overview: A GBP130 bln initiative by the new UK government to protect households from the surge in power costs helped lift sterling from 2.5-year lows. The Reserve Bank of Australia delivered the expected 50 bp rate hike, but the prospect of smaller moves going forward saw the Australian dollar sold through yesterday’s lows.

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.

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

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

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

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.

Overview: The precipitous fall in equities continues while the dollar remains buoyant. Nvidia’s warnings about US curbs on sales to China and the first drop in South Korea’s chip exports in two years, coupled with the largest lockdown in China since Shanghai encouraged investors to move to the sidelines.

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.

Corrective pressures were evident yesterday and they extended today in Asia and Europe but seem to be running their course now. Market participants should view these developments as countertrend and be wary of waning risk appetites in North America today.

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.

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.  

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

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

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.

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%.

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.

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). 

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.

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. 

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,

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

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

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.

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

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

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.

Overview: The US dollar is trading with a heavier bias ahead of the July CPI report. The intraday momentum indicators are overextended, and this could set the stage for the dollar to recover in North America.

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. 

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.

(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

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

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

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

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.

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.

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.

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.

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.

Overview: The Federal Reserve delivered its second consecutive 75 bp rate hike, and Chair Powell left the door open for another large hike at the next meeting in September. Yet, the market took away a dovish message and the dollar suffered, rates slipped, and equities rallied.

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.

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

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

The dollar fell against all the major currencies last week but pared the losses ahead of the weekend. The sub-50 EMU flash composite PMI unwound the half-cent gain the euro recorded after the ECB delivered a 50 bp hike to kick off its first tightening since 2011.  

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

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

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.

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.

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.

The price exchange in the foreign exchange market was a story separate from the macro developments. The euro traded below parity for the first time since 2002. The yen fell to its lowest level against the dollar in 22 years.

Overview: The higher-than-expected US CPI and the strong expectation of a 100 bp hike by the Fed in two weeks is propelling the dollar higher.

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.

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.

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.

High political drama in recent days included the assassination of former Japanese Prime Minister Abe and the resignation of UK Prime Minister Johnson. Yet, the capital markets in general, and the currency market in particular, were not roiled.

News that former Prime Minister Abe was assassinated while campaigning in Japan ahead of the weekend election shocked the nation and world. The immediate market impact looks minimal. Asia Pacific equities mostly advanced.

Overview: The resignation of a UK prime minister makes for high political drama, but the markets hardly moved on it. Sterling, like most of the major currencies, are recovering against the dollar today.

Overview: The dollar jumped yesterday making new highs against most of the major currencies, including the euro, sterling, the dollar-bloc and the Scandis. The yen and Swiss franc held in better, but the greenback still closed firmly against the yen despite a six-basis point decline in the 10-year yield.

Overview: The dollar is soaring today, and the euro is trading at new 22-year lows having traded below $1.03. Even a 50 bp hike by the Reserve Bank of Australia has failed to prevent a sharp drop in the Australian dollar.

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. 

(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.

Overview: Central banks are committed to combatting inflation even as the economies weaken. This is taking a toll on investor sentiment and is dragging down equities.

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.

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.

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%.

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. 

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.

Overview: Equities are higher and bonds lower as the week’s activity winds down. Asia Pacific markets rallied, paced by more than 2% gains in Hong Kong and South Korea.

Overview: Asia Pacific equities were mixed. Gains were recorded in China, Hong Kong, Australia, and India, among the large markets, while Japan was mostly flat and South Korea and Taiwan shares fell.

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%.

Stocks are rallying. Nearly all the large bourses in the Asia Pacific region rose with China being the noted exception.

Overview: Most equity markets in the Asia Pacific region lost ground today. China’s Shenzhen, Hong Kong, and India were notable exceptions.

The dramatic moves in the money market were investors discounting the acceleration of the tightening cycle among the major economies. 

Overview: Better than expected Chinese data and an unscheduled ECB meeting are the highlights ahead of the North American session that features the May US retail sales report and other high frequency data before the outcome of the FOMC meeting.

Overview: The markets’ evolving expectations of a more aggressive monetary policy is not limited to the Federal Reserve, where the terminal rate is now straddling the 4% area, around 100 bp above late May levels.

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%.

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.

Three G7 central banks meet in the coming days, and they dominate the macro stage. The Federal Reserve’s meeting concludes on Wednesday, the Bank of England on Thursday, and the Bank of Japan on Friday.

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%.