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%. 

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

Overview: The jump in US interest rates helped lift the greenback to new 20-year highs against the Japanese yen and pushed the euro back below $1.07. US equities saw initially strong gains pared and this set the tone for today’s activity.

The divergent performances make it challenging to talk about the G10 currencies last week. The Canadian dollar led the advancing major currencies with a 1.2% gain last week.

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

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

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

(On vacation for the rest of the month.  Going to Portugal.  Commentary will resume on June 1.   Good luck to us all.) The market is a fickle mistress. The major central banks were judged to be behind the inflation curve.

Equities are recovering from dramatic losses.  Today, the Nikkei, Hang Seng, and Kospi surged by more than 2%. 

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

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

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

The Fed’s 50 bp rate hike is behind us.  Another 50 bp hike is expected next month. The April
employment report will do little to calm the anxiety about the “too tight” labor market. 

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

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

Overview: The US dollar begins the new week on a firm note ahead of the mid-week conclusion of the FOMC meeting.  Many centers are closed for the May Day holiday, making for thinner market conditions.  Equities are mostly lower in the markets that traded today.  This includes Japan, South Korea, Australia, and India in the Asia Pacific. 

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

Overview: Speculation that a midday statement by China’s Politburo signals new efforts to support the economy ahead of  next week’s holiday appears to have stirred the animal spirits. 

Overview:  Fears that the Chinese lockdowns to fight Covid, which have extended for four weeks in Shanghai, are not working, and may be extended to Beijing has whacked equity markets, arrested the increase in bond yields, and lifted the dollar. 

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

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

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

The dollar rose against the major currencies last week, but the British pound, which eked out a small gain in the holiday-shortened week.  The weakest was the Japanese yen, where rising US yields exerts an irresistible tug lifting the dollar to new 20-year highs. 

Arguably the most important data next week is the flash PMI.   It is not available for all countries, but for those generally large G10 economies, the preliminary estimate is often sufficiently close to the final reading to steal its thunder.

After posting the daily analysis, the PBOC announced a 25 bp cut in required reserves. This is said to free up around CNY530 bln or around $83 bln. It may help explain the failure to cut the benchmark Medium-Term Lending Facility. Some rural banks may see a 50 bp cut in reserve requirements.

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

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

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

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

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

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

Overview:  A pullback in US yields yesterday and the Bank of Japan’s stepped-up efforts to defend the Yield Curve Control policy helped extend the yen’s recovery.  This spurred profit-taking on Japanese stocks, where the Nikkei had rallied around 11% over the past two weeks. 

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

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

The recent themes in the foreign exchange market continued last week. On the one hand, the dollar-bloc currencies and Norwegian krona trended higher, while the euro, and especially the yen, traded heavier.

This year was supposed to be about the easing of the pandemic and the normalization of policy. Instead, Russia’s invasion of Ukraine threw a wrench in the macroeconomic forecasts as St. Peter’s victories broke the brackets of the NCAA basketball championship pools.

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

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

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

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

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

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

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

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

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

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

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

After a slow and mixed start in Asia, where Australia and India are on holiday, equity markets have turned higher.  Europe’s Stoxx 600 is up around 1.9% near midday in Europe, which if sustained would be the biggest gain of the year.  US futures are snapping backing too, with the S&P 500 popping more than  1% and NASDAQ by 2%. 

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

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

Overview:  US stocks built on the recovery started on Monday and Powell’s suggestion of letting the balance sheet shrink later this year eased some speculation of a fourth hike this year, which seemed to allow the Treasury market to stabilize. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The absence of negative developments surrounding Omicron over the weekend appears to be helping markets stabilize today after the dramatic moves at the end of last week.  Asia Pacific equities traded heavily, and among the large markets, only South Korea and Australia escaped unscathed today. 

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

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

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

The downside reversal in US stocks yesterday seemed to accelerate after the first case of the Omicron variant was found in the US.  In itself, it should not be surprising, but perhaps, what was especially disheartening is that the person had been fully vaccinated. 

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

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

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

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

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

The new covid variant and quick imposition of travel restrictions on several countries in southern Africa have injected a new dynamic into the mix.

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

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

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

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

Strong US consumption and production figures kept the greenback well supported last week on the heels of the jump in CPI to 6.2%.  Meanwhile, the surge of Covid cases in Europe underscores the divergences with the US, sending the euro to new lows for the year.  

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

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

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

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

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

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

The jump in US headline CPI above 6% crossed some Rubicon and injected dynamic into the process.  The dollar rallied, and new highs for the year were recorded against the euro and sterling.

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

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

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

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

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

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

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

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

The US dollar turned in a solid week’s performance, rising against most currencies and recording a marginal new high for the year against the euro.  Sterling and the Australian dollar competed for the worst performer. 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Overview: The markets lack a clear direction today and await fresh incentives.  After gaining almost 1% yesterday, the MSCI Asia Pacific Index slipped.  Japan, Hong Kong, and Australia are among the few equity markets that rose.

Overview:  While equities and bonds are firmer, it is the dollar’s sell-off that stands out today.  The greenback has retreated broadly.   

The Antipodeans and the Scandis led last week’s move against the dollar, registering more than 1% gains.  The yen was the weakest of the major currencies, falling almost 1.75%, its worst week since March 2020. 

In assessing the trajectory of Fed policy the market is discounting, we prefer using the Fed funds futures contracts over the Eurodollar futures.  The Fed funds settle at the average effective rate, while the Eurodollar futures contracts are three-month deposit rates.

 The US dollar is trading with a lower bias ahead of the September CPI report due early in the North American session.  Long-term yields softened yesterday and slipped further today, leaving the US 10-year yield near 1.56%.  European benchmark yields are 3-4 bp lower.  The shorter-end of the US coupon curve, the two-year yield is firmer.

Overview:  A weak close in US equity trading yesterday and the widening of China’s “cultural revolution” for a two-month investigation of the financial sector stopped a three-day advance in the MSCI Asia Pacific Index.  China, South Korea, and Taiwan saw more than a 1% decline in their major indices. 

Overview:  Equities are softer and yields higher to start the new week.  The dollar is mixed.  Oil and industrial metals are higher. There are several developments over the weekend, but the focus seems to be on central bank action, inflation reports by the US and China, and the start of the Q3 earnings season. 

US rates and the dollar hardly responded to the disappointing jobs report.  The 194k rise in the nonfarm payrolls was the least this year, but of course, it is subject to revisions the way the August series was revised by more than 50% to 366k.

The Pando (pictured here) appears to be 107 acres of forest, but scientists have concluded that the nearly 47,000 genetically identical quaking aspen trees share a common root system.

Overview:  The animal spirits have been reanimated today.  Encouraged by the dramatic reversal in oil and gas prices, a deal in the US that pushes off the debt ceiling for a few weeks and talk of a new bond-buying facility in the euro area spurred further risk-taking today, ahead of tomorrow’s US employment report. 

Overview: Investors worry that surging energy prices will sap economic activity and boost prices.  It is sparking a sharp drop in equities and bonds while lifting the dollar.  The Nikkei fell for the eighth consecutive session, and today’s 1% drop brings the cumulative decline to 9%.  South Korea’s Kospi also fell by more than 1%. 

The dollar’s strong upside momentum, which accelerated after the FOMC meeting, stalled in recent days.  If interest rate considerations were the key driver, the Fed funds futures strip appears to have made the necessary adjustment. 

Overview: Energy prices pulled back late yesterday, but it offered little reprieve to the bond market where the 10-year benchmark yields in the US, UK, Sweden, and Switzerland reached new three-month highs.  November WTI traded to almost $76.70 before reversing lower and leaving a potentially bearish shooting star candlestick in its wake. 

Overview: Rising energy prices and yields are helping lift the US dollar and weighing on equities.  November WTI has pushed above $76, while Brent traded above $80, and natural gas is up for the fourth consecutive session, during which time it has risen by about 25%. 

The dollar was lifted at the start of the last week by safe-haven demand as China’s Evergrande multi-month collapse triggered a sort of panic attack by global markets.  The dollar strengthened after the initial drop following the FOMC meeting.  The Fed’s confirmed tapering announcement is likely at the next meeting (Nov), but this has been well tipped.  The market also expected that a few more officials would see a hike next year as appropriate  This too was delivered as expected.  

Overview:  The market’s reaction to the FOMC statement was going according to our script, with the dollar backing off on a buy rumor sell the fact type of activity until Powell provided an end date for the tapering (mid-2022) before providing a start date (maybe next month).  This spurred a dollar rally. 

Overview: The markets have stabilized since Monday’s panic attack but have not made much headway.  China and Taiwan returned from the extended holiday weekend.  Mainland shares were mixed. Shanghai rose by about 0.4%, while Shenzhen fell by around 0.25%.

Overview: Coming into yesterday’s session, the S&P 500 had fallen in eight of the past ten sessions.  It closed on its lows before the weekend and gapped.  Nearly the stories in the press blamed China and the likely failure of one of its largest property developers, Evergrande. 

Overview: Investors’ mood did not improve over the weekend, and the lack of risk appetites are rippling through the capital markets today.  Equities have tumbled, yields have backed off, and the dollar is well bid.  Hong Kong and Australia led the sell-off in the Asia Pacific region, off 3.3% and 2.1%, respectively. 

The US dollar continued to trend higher last week, helped by the unexpectedly strong retail sales report.  Despite disappointing August jobs growth and the moderation in consumer prices, the Fed has no compelling reason not to move forward with plans to taper before the end of the year.

The sixth decline of the S&P 500 in the past seven sessions set a negative tone for equity trading in the Asia Pacific region, and the poor Chinese data did not help matters.  News that China’s troubled Evergrande would miss next week’s interest payment weighed on sentiment too.

Overview:  The markets are in a wait-and-see mode, it appears, ahead of the US CPI figures, as it absorbs bond supply from Europe and monitors the potential restructuring of China’s Evergrande.  A new storm may hit US oil and gas in the Gulf before recovering from the past storm and helping to underpin prices.

Overview:  There are two big themes in the capital markets today.  The first is the ongoing push of the Chinese state into what was the private sector.  Today’s actions involve breaking Ant’s lending arms into separate entities, with the state taking a stake.  This weighed on Chinese shares and Hong Kong, where many are lists. On the other hand, Japanese markets extended their recent gains.

The US dollar enjoyed a firmer bias last week despite the disappointing jobs growth reported on September 3.  The Norwegian krone was the only major currency that gained against the greenback.  Brent was less than a quarter of a dollar firmer, so the likelihood of the central bank raising rates later this month offers a more compelling explanation. 

Overview: Yesterday’s retreat in US indices was part of and helped further this bout of profit-taking. The MSCI Asia Pacific Index ended an eight-day advance yesterday and fell further today. Japanese indices, which had set multiyear highs, fell for the first time in nine sessions. Hong Kong led the regional slide with a 2.3% decline as China’s crackdown on the gaming industry continued. 

Overview:  The US dollar continues to pare its recent losses and is firm against most major currencies in what has the feel of a risk-off day.  The other funding currencies, yen and Swiss franc, are steady, while the euro is heavy but holding up better than the Scandis and dollar-bloc currencies.  Emerging market currencies are also lower, and the JP Morgan EM FX index is off for the third consecutive session. 

Overview: After an ugly week, market participants have returned with strong risk appetites.  Equities are rebounding, and the greenback is paring recent gains.  Bond yields are firm, as are commodities.  Asia Pacific equities got the ball rolling with more than 1% gains in several large markets, including Japan, China, Hong Kong, and Taiwan. 

Overview:  The dollar is consolidating yesterday’s advance and is confined to fairly narrow ranges in quiet turnover.  Most of the major currencies are within 0.1% of yesterday’s close near midday in Europe. The $1.1700-level held in the euro. 

Overview:  Concern about the economic impact of the virus and new efforts by China to curb "unfair" competition among online companies has triggered a dramatic response by investors.  A lockdown in New Zealand and the Reserve Bank of Australia signaling it will respond if the economic fallout increases sent the Antipodean currencies sharply lower.

Profit-taking on long dollar positions was seen ahead of the weekend.  The yield on the December 2022 Eurodollar futures slipped to finish unchanged on the week that saw CPI and PPI reports.

Overview: The global capital markets are subdued today as investors wrestle with the rising virus, the shifting stance of several central banks, and a more tense geopolitical backdrop.  Equity markets are struggling today. 

Overview: The US dollar remains firm ahead of the July CPI release, and even though Chicago Fed Evans demurred from the hawkish talk, the market is getting more comfortable with the idea of a rate hike next year. 

Overview:  A flash crash saw gold drop more than $70 an ounce in early Asia. Silver was dragged lower too.  The precious metals have stabilized at lower levels, but it signals a rough adjustment to a higher interest rate environment as a hawkish BOE and strong US employment data suggest peak monetary stimulus is at hand. 

The second consecutive monthly surge in US non-farm payrolls of more than 900k ensured that the five-week decline in the 10-year yield was over and sent the dollar to new highs for the week against most of the major currencies. 

Overview: Record high closes yesterday for the S&P 500 and NASDAQ have done little to help global equities today.  Most of the Asia Pacific region markets, but Japan and Australia slipped ahead of the weekend while still holding on to gains for the week.

Overview: US interest rates and the dollar turned higher following comments by the Fed’s Vice Chairman Clarida, who appeared to throw his lot with the more hawkish members. The dollar recovered from weakness that had seen it fall to almost JPY108.70, its lowest level since late May, and lifted the euro to $1.19. 

Overview: Risk appetites snap back after easing in the waning hours last month. The MSCI Asia Pacific equities jumped back after dropping 1.8% last week for the second week in a row. Japan’s Topix and China’s CSI 300 rose by more than 2%, and Hong Kong, Taiwan, and Australia gained more than 1%. 

Overview: The rally in US shares yesterday, ostensibly fueled by strong earnings reports, is helping to encourage risk appetites today.  The MSCI Asia Pacific Index is posting its biggest gain in around two weeks, though Japan’s markets are closed today and tomorrow.  The Dow Jones Stoxx 600 is building on yesterday’s rally, and with today’s ~0.8% gain, it is up on the week.

Overview:  The biggest rally in US equities in four months has helped stabilize global shares today.  In the Asia Pacific region, Japan, China, and Australian markets advanced.  Led by information technology and consumer discretionary sectors, Europe’s Dow Jones Stoxx 600 is up around 1.35% near the middle of the session. 

Overview:  The capital markets have begun stabilizing after yesterday’s dramatic moves.  The MSCI Asia Pacific Index did, though, see follow-through selling, and the third consecutive loss saw the benchmark close below its 200-day moving average for the first time in a year.  Europe’s Dow Jones Stoxx 600 is posting small gains to snap a four-day drop. 

The markets head into the weekend with little fanfare. Most large equity markets in the Asia Pacific region slipped earlier today. Hong Kong, which will be exempt from the need to secure mainland’s cybersecurity approval for foreign IPOs, and Australia were notable exceptions. European bourses are edging higher, while US futures are oscillating around unchanged levels.

Strong inflation prints this week have not prevented the long-term US interest rates from tumbling. The 10-year yield is about 10 bp lower than where it closed on Tuesday after the lackluster 30-year auction. The 30-year yield itself is 11 bp lower.

The Reserve Bank of New Zealand jumped to the front of the queue of central banks adjusting monetary policy by announcing the end of its long-term asset purchases. New Zealand’s s 10-year benchmark yield jumped seven basis points, and the Kiwi is up almost 1%, to lead the move against the greenback today.

New record highs in the US S&P 500 and NASDAQ coupled with China allowing Tencent to acquire a search engine helped lift Asia Pacific equities. It is the first back-to-back by MSCI’s regional index for more than two weeks. Australia’s market was a notable exception.

The new week has begun quietly. The dollar is drifting a little higher against most major currencies, with the Scandis and dollar-bloc currencies the heaviest. The yen and Swiss franc’s resilience seen last week is carrying over.

There is quite an unusual price context for new week’s economic events, which include June US CPI, retail sales, and industrial production, along with China’s Q2 GDP, and the meetings for the Reserve Bank of New Zealand, the Bank of Canada, and the Bank of Japan.

The capital markets are winding down what has been a challenging week that has seen equity markets slide and the dollar and bonds rally. The MSCI Asia Pacific fell for the fourth consecutive session, but the more interesting story may be the intrasession recovery that could set the stage for a better performance next week.

The dramatic move in the capital markets continues. The US dollar is soaring as yields and equities slide. The US 10-year yield has fallen below 1.30 to 1.26%  European benchmark yields are 1-4 bp lower, while Australia and New Zealand have seen a 7-9 bp drop today.

The dollar has steadied after surging yesterday and has so far retained the lion’s share of its gains, though it remains lower against most major currencies today. The dollar-bloc and Norwegian krone are the best performers while the yen is underperforming.

Follow-through dollar selling stalled as key levels were approached, including $1.19 in the euro, $1.3900 in sterling, $0.7600 in the Australian dollar, and CAD1.2300. Sentiment is mixed after the greenback sold-off before last weekend despite the fastest jobs growth in 10-months.

The US jobs report and OPEC+ decision are awaited. The dollar remains bid.  Only the yen and Canadian dollar are showing a hint of resilience, though, on the week, the Scandis and dollar-bloc currencies are off between around 1-2%. The greenback is also firmer against the emerging market currency complex, and the JP Morgan index is off for the sixth consecutive session.

Soft Asian manufacturing PMIs weighed on local shares after the S&P 500 set new record highs yesterday. European shares are recouping yesterday’s month-end losses, while US futures indices are bid. The US 10-year yield is around 1.47%, and European yields are 1-2 bp higher. 

The dollar is finishing the quarter on firm footing, gaining against most of the major currencies today. The euro is straddling the $1.1900 area, having begun the month above $1.22. Sterling has tested the $1.38 area. It had traded at a three-year high near $1.4250 at the start of the month.

Fear that the new mutation of the covid virus will slow the global recovery has sent ripples across the global capital markets. The foreign exchange market has the clearest reaction, and the dollar is bid.

The global capital markets are off to a quiet start of what promises to be a busy week. Quarter and month-end adjustments, Japan’s Tankan survey, the eurozone’s preliminary June CPI, the US employment report, and an OPEC+ meeting are featured.

New record highs in the S&P 500 and NASDAQ yesterday helped lift most Asia Pacific markets today. China and Hong Kong led the regional gains and were sufficient to lift the MSCI regional benchmark to halt a two-week drop.

The US dollar is trading slightly lower against most of the major and emerging market currencies. The Scandis are leading the major currencies, while the Russian ruble leads the central and eastern European currencies higher. Emerging market currencies mostly firmer, though the Turkish lira and South African rand are notable exceptions.

Federal Reserve officials, lead by Chair Powell, pushed gently against the more hawkish interpretations of last week’s FOMC meeting. Tapering not a rate hike was the focus of discussions. Powell reiterated that price pressures would prove transitory and would ease after the re-opening disruptions settled down.

Firming long-term US yields have lent the dollar support after trading heavily yesterday. The greenback is around 0.15%-0.50% higher against the major currencies. The Japanese yen and Canadian dollar are among the more resilient, and the Australian dollar and sterling among the heaviest.

Pressure on equities seen last week carried over into Asia and Europe today. The MSCI Asia Pacific Index fell for the fourth consecutive session, led by more than a 3% decline in the Nikkei. Australia, Taiwan, and Hong Kong bourses fell by more than 1%. European equities opened lower, but have turned higher.

After some dramatic moves over in the immediate post-Fed period, the markets have quieted. The kind of volatility that is sometimes associated with triple witching expirations in the US may have already taken place. Asia Pacific equities were mixed, but the MSCI benchmark finished with its second consecutive weekly decline. 

A more hawkish than expected Federal Reserve sent the US dollar and interest rates higher and spurred an equity sell-off. The knock-on effect sent ripples through the capital markets today. Most equity markets in the Asia Pacific region fell. China, Hong Kong, and Taiwan were notable exceptions.

With the outcome of the FOMC meeting awaited, the dollar is narrowly mixed in quiet turnover. The Scandis are the weakest (~-0.3%) among the majors, while the Antipodeans are the strongest (~+0.25%). JP Morgan’s Emerging Market Currency Index is snapping a three-day decline

The new record high in the S&P 500 and the NASDAQ’s sixth gain in seven sessions may have helped lift Asia Pacific markets today. Only China and Hong Kong did not participate. MSCI’s regional index rose for its fourth consecutive session. Europe’s Dow Jones Stoxx 600 is moving higher for the eighth session in a row. 

The short squeeze that lifted the US dollar ahead of the weekend has seen limited follow-through buying, and instead a consolidative tone emerged. Europe is searching for direction and perhaps waiting for US leadership after a quiet Asia Pacific session, with several centers closed for holiday today (China, Hong Kong, Taiwan, and Australia).

The 10-year US Treasury yield steadied after reaching a three-month low near 1.43%, despite the US CPI rising more than expected to 5% year-over-year. On the week, the decline of around a dozen basis points would be the largest in a year. Australia, New Zealand, and Italy benchmark yields have seen a bigger decline this week.

The ECB meeting and the US May CPI report is at hand. The US dollar is consolidating at a higher level against most of the major currencies. Softer than expected, inflation readings are weighing on the Scandis, which are bearing the brunt. The US 10-year yield closed below 1.50% for the first time in three months yesterday, and this may have helped underpin the Japanese yen.

Falling US yields weigh on the US dollar. The 10-year Treasury yield is flirting with the 1.50% mark, and the greenback is trading heavily against all the major and most emerging market currencies. European and the Asia Pacific benchmark yields are lower as well.

The capital markets appear to be in a holding pattern ahead of this week’s big events, including the US CPI and the ECB meeting. Equities are little changed but with a heavier bias evident. Most of the large bourses in the Asia Pacific region were lower, except Australia, which eked out a small gain.

After falling to 1.55% after the US employment data, which, while mixing expectations, could hardly be considered weak, the US 10-year yield has come back firmer today (1.58%) This may be lending the greenback a better tone. Equity markets are quiet. Most markets in the Asia Pacific region edged higher.

Stronger than expected US employment data, ahead of today’s monthly report and compromise proposal on corporate tax by the White House to help secure a deal on infrastructure sent US bond yields and the dollar high. Late dollar shorts were forced to cover.

Market participants appear to be biding their time ahead of tomorrow’s US jobs report as they digest recent developments. The dollar is firmer, equities are mixed, and benchmark bond yields are a little firmer. China and Hong Kong shares continue their recent underperformance, while most of the large markets in the Asia Pacific region edged higher.

The US dollar is enjoying broad, even if not large, gains today following yesterday’s recovery from three-year lows against sterling and four-year lows against the Canadian dollar. The greenback is firmer against all the major currencies.

The US dollar fell against most major currencies following the PBOC’s modest move to reduce the upward pressure on the yuan. Follow-through selling was seen earlier today, and sterling reached a new three-year high. However, the dollar found a bid in the European morning, while the Scandi currencies held on to most of their earlier gains.

US and UK markets are closed for holidays today, contributing to the rather subdued price action today. The MSCI Asia Pacific Index rallied two percent last week, the most in three months, and most markets began off the week with modest gains. Japan, Australia, and Singapore, for notable exceptions.

The recovery of the US 10-year yield, so it is flat on the week near 1.61% coupled with month-end demand, is helping the US dollar firm. While the yen is bearing the burden on the week, with a 0.8% loss, the Antipodeans are leading the downside on the day.

Dollar demand linked to the month-end gave the greenback a bit of a reprieve, helped by firmer bond yields. Some momentum players may have been forced out of the euro and yen when the $1.22 and JPY109 levels yielded. However, follow-through dollar buying has been limited, and it has come back a little softer but broadly so.

The decline in US rates and the doves at the ECB pushing back against the need to reduce bond purchases next month have seen European bond yields unwind most of this month’s gain. The inability of US shares to hold on to early gains yesterday did not deter the Asia Pacific and European equities from trading higher.

The decline in US 10-year rates to two-week lows below 1.59% is helping rebuild bullish enthusiasm for stocks and weighing on the US dollar. The NASDAQ reached two-week highs yesterday, and almost all the large markets in the Asia Pacific region rose, though India struggled.

The US dollar is firmer in the European morning after starting out with a softer bias in Asia Pacific turnover. The dollar-bloc currencies, sterling, and the Swiss franc are heavy, but ranges are narrow, and consolidation seems to be the flavor of the day.

US equity indices finished lower, but the real story was their recovery. Asia Pacific equities were mixed, with Australia’s 1.5% rally leading the recovery in some markets, including Tokyo and Singapore. Europe’s Dow Jones Stoxx 600 is up a little more than 0.5% near mid-session, led by information technology and industrials, while energy and financials lagged with small gains.

A setback in commodities and technology are roiling equity markets today. The inability of US equities to sustain yesterday’s rally provided an initial headwind to trading in the Asia Pacific region today. Hong Kong and South Korea markets were closed for holidays, but most of the bourses fell, led by Australia, where the market tumbled nearly 2%, the most in almost three months as the drop in mining and energy took a toll.

In Asia, equities markets rallied strongly, led by the more than 5% gain in Taiwan, the most in over a year as Monday’s 3% drop was more than overcome. The Nikkei gained more than 2% despite the deeper than expected contraction in Q1 GDP. Hong Kong, South Korea, and India also rose more than a 1% gain as tech came roaring back.

There are two general developments as the busy week gets underway. First, despite accelerated price readings in the US (CPI, PPI, import prices, and University of Michigan survey), US rates are soft. The 10-year yield is near 1.61% after rising to 1.70% after the CPI surprise last week.

The surge in consumer prices reported on Wednesday saw rates jump and the dollar push higher. Stronger than expected producer prices yesterday, and news of wage increases (average 10%) at Mcdonalds and for 75,000 people Amazon wants to hire, saw rates ease and the dollar’s upside momentum stall.

It is as if the bond vigilantes were pushed too far. US inflation is accelerating more than expected, and it cannot all be attributed to the base effect, and the Federal Reserve, to many investors, is tone-deaf. With powerful fiscal stimulus, nominal growth above 10%, and the economy re-opening, albeit unevenly, does the monetary accelerator need to be fully engaged?

The markets remain on edge. Asia Pacific and US equities have yet to find stable footing, and inflation fears are elevated. The foreign exchange market has turned quiet as the dollar consolidates its recent losses.

The sell-off in US shares yesterday has triggered sharp global losses today, and there is no flight into fixed income as benchmark yields are higher across the board. Nor is the dollar serving as much as a safe haven. It is mostly softer against the major currencies.

Last week’s cyberattack on the largest US gasoline pipeline continues to lift oil and gasoline prices. The June gasoline futures gapped higher to extend last week’s 2.4% gain but has subsequently moved lower to enter the gap. 

One of the stark developments since the initial shock of the pandemic has been the aggressiveness of the US monetary and fiscal response. This was also true in dealing with the Great Financial Crisis. The divergence then and now had shaped the investment climate.

The US dollar traded heavily most of last week but rebounded ahead of the weekend, with some month-end flows impacting.  The Japanese yen was a notable exception.  The rise in US yields helped lift the greenback nearly a percent against the yen.  The Fed’s standpat stance in light of the surging economy and signals the Norwegian central bank and the Bank of Canada seemed dovish.  The contrast carried the Norwegian krone and Canadian dollar to new three-year highs last week.  Even if the greenback’s pre-weekend advance was exaggerated, it looks to be turning after trending lower in April.  The Federal Reserve’s broad trade-weighted nominal dollar index fell by about 7.5% in the last three quarters of 2020 after rising by 4.6% in Q1 as the pandemic struck and the dollar was bought partly as

Overview:  The market’s initial reaction to the Federal Reserve statement and the press conference was that it was dovish: the 10-year yield slipped, and the dollar was sold to new lows.  In fact, the two countries that appear to be ahead of the curve among high-income countries, Canada and Norway, saw their currencies rally to new three-year highs.

Overview: It appears that the backing up of US yields is giving the dollar a better tone and challenging the Eurosystem, which has stepped up its bond purchases.  The US 10-year yield is around 1.65%, roughly a two-week high and back above the 20-day moving average. 

Short-covering ahead of the FOMC’s outcome tomorrow appears to be lending the US dollar support today. It has extended yesterday’s gains against the euro, sterling, and yen.  Among emerging market currencies, the Turkish lira, along with the South Korean won and Taiwanese dollar, lead the few advancers.

Overview: What promises to be a notable week has begun off quietly: the US, EMU, and South Korea report Q1 GDP.   The eurozone also provides its first estimate of April inflation.  Corporate earnings feature tech and financial firms.  Equities are mostly firmer in the Asia Pacific region and Europe.

Overview:  Many narratives link the prospect of higher capital gains tax on about a third of 1% of Americans as the catalyst for losses in US equities yesterday (and Bitcoin) and weakness in some global shares today.  Of the large markets in the Asia Pacific region, only Japan, which is reimposing a formal emergency in Tokyo, Osaka, and two other prefectures, fell. 

Overview:  Even as US yields edge higher, the dollar struggles. With the 10-year Treasury yields now at 1.62%, nine basis points above last week’s lows, the greenback has turned mixed against the major currencies. After briefly slipping below JPY108, the dollar has recovered to around JPY108.55. 

Overview: Risk appetites have not returned from the weekend.  Equities are heavy, and bond yields softer.  The dollar is drifting lower in Europe.  China’s unusually candid admission of the shortcomings of its vaccine and record new cases in India saw all the equity markets in the region fall.  Only South Korea and Taiwan escaped the carnage that saw the Indian market tumble 3.5%. 

Overview:  Global stocks are moving higher today.  Fears of a new lockdown in Tokyo amid rising covid cases weighed on Japanese stocks, a notable exception as the MSCI Asia Pacific Index rose for its fifth session of the past six.  Europe’s Dow Jones Stoxx 600 is edging to new record highs today and is advancing for its fifth session of the past seven. 

Overview: Many financial centers in Asia and Europe remain closed for the extended holiday. Although several markets that were open were higher in the Asia Pacific region, India was an exception as a record contagion sent stocks down the most in five weeks. US futures are pointing higher, led by the Dow, while the NASDAQ lags.

Four major forces shaped the investment climate in the first quarter:  the evolution of the virus and the rollout of the vaccine, the rising long-term interest rates driven by higher oil prices, America’s large fiscal stimulus, and optimism about the outlook, a sharp divergence between the US and other high-income countries, and a recovery in the US dollar after sliding in November and December 2020.

The US 10-year yield is at new highs since January 2020, pressing above 1.77% and helping pull up global yields today.   European benchmarks yields are up 4-5 bp, and the Antipodean yields jump 8-9 bp.  The impact on equities has been minor, and the talk is still about the unwinding of Archegos Capital. 

The large block trade (~$20 bln) before the weekend, apparently from a family office, continued to have ripple effects today, but the MSCI Asia Pacific Index barely noticed.  It extended its pre-weekend rally of 1.3%, and only South Korea and Australia fell among the major markets.

Overview: Asia Pacific equities mostly advanced after the US benchmarks recovered following the dovish FOMC. Australia, New Zealand, and India did not participate in today’s gains. European bourses edged higher, but US shares are struggling, and the NASDAQ futures are off nearly 1%, threatening to end the three-day rally. 

Overview: Yesterday’s new record highs in the S&P 500 and Dow Jones Industrial helped set the tone for today’s advance in the Asia Pacific region and Europe. The MSCI Asia Pacific Index snapped a two-day decline, with other major markets rising today. 

The capital markets are beginning a new and busy week in a non-committal fashion.  Equities are mixed.  Except for Japan, Hong Kong, and Australia, most markets in the Asia Pacific region were lower, led Chinese and Indian shares. 

Overview: Even though the NASDAQ closed lower yesterday and the reception of the 10-year Treasury auction did not excite, market participants are growing more confident.  Led by China, the major markets in the Asia Pacific region rallied.  The Shanghai Composite’s 2.35% gain not only snaps a five-session slide but is the largest rally since last October.

Fear that yesterday’s reversals represent little more than one-day wonders is contributing to the overall consolidative tone today. Most equity markets in the Asia Pacific region and Europe edged higher. China’s stocks tumbled yesterday, despite reports of official assistance, were mixed with the Shanghai Composite posting small gain and Shenzhen a small loss.

It is not clear the trigger, but risk-taking appetites rebounded smartly today after the NASDAQ completed a more than 10% pullback from its highs yesterday.  Ironically, the Dow Jones Industrials set new record highs yesterday too.  Most equity markets in the Asia Pacific region rallied.  The notable exceptions were South Korea and China. 

Overview: The attack on Saudi Arabia’s largest crude terminal reverberated through the capital markets, where sentiment was already fragile, despite the lack of disruption.   Brent rose to nearly $71.40, and April WTI to almost $68 extended their gains for the fourth consecutive session before being fully unwound.

Overview:  Equities are under pressure following yesterday’s sharp losses in the US.  The MSCI Asia Pacific Index suffered its biggest decline of the week today as Japanese, Chinese, and Hong Kong benchmarks slid by more than 2%.  The Dow Jones Stoxx 600 Index in Europe is buckling under the pressure and is posting its first decline of the week. 

Overview: A warning from China’s top banking regulator about the frothiness of foreign markets appeared to blunt the knock-on effect of yesterday’s largest rise in the S&P 500 since last June (~2.4%) and weighed on global equities.  The large markets in the Asia Pacific region but India and South Korea fell.

Overview:  Equities and bonds jump back.  Most Asia Pacific markets advanced 1.5-2.5% after the regional MSCI benchmark dropped 3.65% before the weekend and 5.3% last week.  The recovery in European stocks was even more impressive. 

A poor seven-year note auction and ideas that the first Fed hike can come as early as the end of next year spurred a steep sell-off in bonds and equities. Technical factors like the triggering of stops losses, large selling in the futures market, which some also link to hedging of mortgage exposure (convexity hedging), also play a role.

Overview:  The sharp recovery in US shares yesterday that saw the S&P 500 snap a five-day slide failed to carry into Asia Pacific trading earlier today.  All the markets fell save India and Singapore.  Losses were led by a 3% drop in Hong Kong as the first increase in the stamp duty (financial transaction tax) since 1993 was announced (0.13% from 0.10%). 

Overview:  Rising rates continue to spur a rotation and retreat in stocks.  Yesterday the NASDAQ sold-off by nearly 2.5% while the Dow Industrials eked out a minor gain.  Equities are mostly higher in the Asia Pacific region while Japanese markets were on holiday. 

Higher interest rates, driven by inflation expectations, is forcing an adjustment to equity markets.  The S&P 500 is poised to gap lower today following slides in the Asia Pacific region and Europe. Japanese and Taiwanese indices advanced by steep losses were seen in China, Hong Kong, and India.

Overview: The bond and equity markets are trying to stabilize ahead of the weekend.  The dollar remains under pressure.  In the Asia Pacific region, Hong Kong, China, and South Korean markets advanced, but most markets could not overcome the profit-taking pressures.

The bout of profit-taking in equities continued today, and most markets in Asia Pacific and Europe are lower. China’s markets re-opened but struggled to sustain early gains. However, the Shanghai Composite rose by about 0.5%, and a smaller increase was recorded in Taiwan and an even smaller gain in Australia.

Overview:  After reversing higher yesterday, the US dollar sees follow-through gains today, leaving the euro around a cent lower from yesterday’s highs. Sterling’s surge is also being tempered. Most emerging market currencies are lower as well. 

The equity rally appears undeterred by the rise in interest rates or the surge in oil prices.  Led by Tokyo and Hong Kong, Asia Pacific equities advanced.  China, Taiwan, and Vietnam markets remain closed. After gapping higher yesterday and extended the gains in early turnover today, the Dow Jones Stoxx 600 is consolidating.

US and Greater Chinese markets are closed today, but the markets are moving. Equities are bid. The Nikkei led the Asia Pacific region with a 2% gain and pushed above 30000 for the first time since 1990.

Profit-taking weighs on equity markets, and the dollar is trading higher ahead of the weekend. Most Asia Pacific markets are still closed for the holiday, but Victoria’s snap lockdown dragged Australian shares lower.

Overview: The S&P 500 and NASDAQ were unable to sustain the gap higher opening to new record levels and reversed lower and fell to new three-lows. The settlements were just inside Tuesday ranges, though the Dow Industrials set a record close. Yet, there was spillover to equity trading in the Asia Pacific region and Europe today.

Despite a soft close in US indices yesterday, global shares are on the march again today.  Led by China and Hong Kong, most large markets in the Asia Pacific region advanced today.  Officials gave approval for a new game from Tencent, which helped lift the Hang Seng.

The rally of US benchmarks to new record highs helped lift most Asia Pacific markets today, but the bulls are pausing in Europe, and there has been little follow-through buying of US shares.  Australia, South Korea, and Indonesia did not participate in today’s regional advance led by a 2% rally in China’s main indices.

Overview: The US dollar has drifted higher against the major currencies and most of the freely accessible emerging market currencies, paring the losses seen before the weekend in response to the disappointing employment report. Easing pressure from the pandemic as the surge in cases after the holidays may also be encouraging risk-taking to extend the global equity rally.

Overview:  While equities continue to march higher, the dollar is softer amid position squaring ahead of the US jobs data.  Gold has stabilized after yesterday’s shellacking.  Estimates for US nonfarm payrolls appear to have been creeping higher, encouraged by the ADP, PMI, and weekly initial jobless claims.

Overview:  The euro has been sold through $1.20 for the first time since December 1 and has now given back roughly half of the gains scored from the US election (~$1.16) to the early January high (~$.1.2350).  More broadly, the greenback is bid against most of the major currencies, with the Australian dollar more resilient after reported record iron ore exports and all but a handful of emerging market currencies. 

Equities have charged higher, and the greenback is mostly firmer.  News that Draghi may become Italy’s next Prime Minister has boosted Italian bonds.  The PBOC unexpectedly drained liquidity, and this may have deterred buying of Chinese stocks, a notable exception in the regional rally.

Global equities are snapping back today, while the greenback retained the strength seen last week that was attributed to safe-haven flows. The MSCI Asia Pacific Index snapped a four-day decline led by Hong Kong, South Korea, India, and Indonesia.

Powerful corrective forces continue to grip the market. After a large rally to start the New Year, the correction is punishing. Most Asia Pacific equities markets were off again today to bring the week’s loss to 2.5% to 5.5% throughout the region. Europe’s Dow Jones Stoxx 600 is a little more than 1% lower on the day. 

The steepest loss in US equities since last October is rippling through the capital markets in the form of de-risking.  The rout is not over, and the S&P 500 is poised to gap lower.   Many of the largest markets in the Asia Pacific region were off around 2%. 

Overview:  Risk appetites seem subdued even if GameStop’s surge draws attention. Asia Pacific equities mostly slipped lower, and profit-taking was seen in Hong Kong and Seoul, which are off to an incredibly strong start to the year. Small gains were reported in Tokyo, Beijing, and Taipei.

Overview:  After rallying strongly to start the year, Asia Pacific equities, led by the high-flying Hang Seng, sold-off, led by Tencent.  Most markets in the region were off at least 1%.  Australia and India escaped the profit-taking due to holidays.  Europe’s Dow Jones Stoxx 600 is faring better and looks poised to snap a two-day fall, led by materials, financials, information technology, and consumer staples.

What promises to be an eventful week has begun off on a mostly subdued note. Asia Pacific equities moved higher, again led by Hong Kong and ostensibly mainland buying. The Hang Seng rose 2.4% to bring this year’s gain to 10.75%. South Korea’s Kospi also increased by more than 2%, and, so far this month, it is up almost 11.7%. 

Fear that social restrictions may have to be broadened and extended is helping spur a wave of profit-taking and de-risking, which has also been encouraged by disappointingly high-frequency data. The equity rally seemed to falter a bit in the US, as the S&P 500 eked out a minor 0.03% gain yesterday.

Overview:  The S&P 500 and NASDAQ gapped higher yesterday to record-levels, and the reflation theme lifted Asia Pacific shares for the third session today.  South Korea, Taiwan, and China led the advance. 

Global equities are moving higher today. Led by continued strong buying of Hong Kong shares, the MSCI Asia Pacific Index rose to new highs. The Hang Seng is up 6% this year and is approaching the 2019 record high. Australia’s shares set a new record today. Japan and Taiwan bucked the trend.

Overview: The animal spirits are on the march today.  Equities are mostly higher, peripheral European bonds are firm, and the dollar is mostly softer. After posting the first back-to-back decline this year, the MSCI Asia Pacific Index bounced back today, led by a 2.7% gain in Hong Kong (20-month high) and a 2.6% rise in South Korea’s Kospi. 

Overview: The new week has begun like last week ended.  Equities are a bit heavy.  The MSCI Asia Pacific Index fell for the second session, its first back-to-back loss since before Christmas.  China and Hong Kong were the notable exceptions, perhaps helped by stronger than expected GDP. 

The US dollar is firm against most of the major and emerging market currencies today. Among the majors, the Japanese yen and Swiss franc are resilient. For the week, sterling and the yen appear poised to eke out small gains, while the Scandi’s are the weakest performers with around a 1% decline.

Overview:  The capital markets are becalmed today. There does not appear to be much reaction to the news that the House of Representatives impeached President Trump an unprecedented second time with greater bipartisan support than previously (10 GOP voted with the Democratic majority). 

The US dollar is regaining ground lost in yesterday’s setback against the major currencies. Sterling is the notable exception. It was toying with the $1.37 area, perhaps helped by the Governor of the Bank of England signal that there still are hurdles to adopting negative interest rates, which the futures market is still discounting for as soon as midyear.

Overview:  The capital markets were stabilizing today after dramatic moves yesterday. Equity markets are recovering, and the dollar is paring yesterday’s gains.  Most equity markets in the Asia Pacific region rose, though Taiwan, South Korea, and Australia were notable exceptions. 

Julius Ceasar is said to have "crossed the Rubicon" on January 10, 49 BCE, taking the 13th Legion into Rome, defying orders from the Senate, and precipitating the Roman Civil Wat that marked the end of the republic and the birth of the empire.

The global equity rally picked up this week as it closed in 2019. The MSCI Asia Pacific Index gained today and is up in nine of the past 10 sessions. It has fallen only in one week since the end of October. South Korea’s Kospi led today’s advance with a nearly 4% rally on the back of talks that were later played down between Hyundai and Apple. 

Overview:  After the National Guard were called to put down an insurrection in Washington, DC, the dollar is having its best day in around a week.  The euro’s three-day rally has been halted even though German factory orders surprised on the upside. 

Overview:  One of the two Georgia Senate contests remains too close to call, but the market appears to be pricing in a Democrat sweep.  The 10-year yield has punched above 1% but has offered the greenback little support.  Yesterday, the dollar-bloc currencies rose to highs since early Q2 2018 and are extending those gains today. 

Overview:  The first day of the New Year, but it feels a lot like last year.  The dollar is under pressure, and equities are higher.  Outside of Japan and Malaysia, The MSCI Asia Pacific Index extended last week’s 3.6% gain. It has not rallied for seven consecutive sessions.

It might not feel like a New Year, as the pandemic continues to ravage most countries. On top of the human toll, the economic fallout will continue to depress activity in the first part of 2021.  However, policymakers throughout the G7 provided more stimulus in late 2020 and extended many emergency facilities well into the New Year.

Rising prices feature in many economic forecasts for the US.  It is seen as part of the reflation meme as the vaccines roll out.  There seem to be three threads to the discussion.  The first is practically mathematically certain.  Economists refer to it as the base effect.  As the pandemic struck and the economy shut down, prices fell.  Headline CPI fell by 0.4% in March 2019, by 0.8% in April, and another 0.1% in May.  The PCE deflator, which the Fed targets, fell by 0.3% in March and by 0.5% in April.  It rose by 0.2% in May. The point is the negative prints will drop out of the year-over-year comparisons, and barring a new sharp economic downturn, they will be replaced by higher numbers. This will be reflected in an increase in the year-over-year rate and provide the grist for an

I joined Ben Lichtenstein, host of the morning futures program at TDAmeritrade.  It is in the futures market that I began my career, and where I gained respect for local traders, who do not have a large institutional backing such as a bank or hedge fund, and are trading their own capital, and taking the risk often from those institutional participants. 

The foreign exchange market sees an average daily turnover of something on the magnitude of $6.6 trillion a day.  In a week, the turnover is sufficient to more than cover world trade for a year.  It is the largest of the capital markets.  Trends in the currency market can last for years.  

No daily commentary until the New Year, but watch this space for thematic pieces over the next two weeks. Here is to a safe, healthy, and prosperous 2021. Thank you for your support.  

Overview: The prospects of a UK-EU deal and US stimulus continue to underwrite risk appetites and weigh on the dollar.  Equity markets are moving higher.  Led by Australia and China, the MSCI Asia Pacific Index rose to new record highs, while Dow Jones Stoxx 600 in Europe is at its best level since February.

Overview:  The S&P 500 snapped a four-day downdraft helped by optimism over the progress toward fiscal stimulus and some hope that a new trade deal can still be negotiated between the UK and EU.  Europe reported better than expected PMIs.  Equities are broadly higher, as are interest rates, while the dollar slumps. 

The S&P fell for the fourth consecutive session yesterday, the longest losing streak of the quarter, and this seemed to encourage profit-taking in the Asia Pacific region today.  The MSCI Asia Pacific Index slipped for the second consecutive session, and even confirmation of the Chinese recovery failed to lift the Shanghai Composite. 

I had the privilege to join Sri Jegarajah at CNBC Asia at the start of today’s Asia Pacific session.  We had a broad chat about the dollar, Brexit, and the euro.  He gave me the opportunity to sketch out my views:1.  The dollar’s entered a cyclical decline, and the "twin deficit" issue will likely frame the narrative.