Category Archive: 4.) Marc to Market

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Euro: Thumbnail Sketch Ahead of the ECB Meeting

2023-06-14

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2023-06-14

The euro has traded between roughly $1.0485 and $1.1100 so far this year. The average is about $1.08, where it traded above yesterday for the first time in 2 ½ weeks. Recall that the euro rallied from around $1.05 in mid-March (amid speculation that the banking stress was going to force the Fed to cut) to around $1.1100, where it stalled in late April and early May. We argued that the rate cut expectations had swung too far and that as they...

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

2023-06-14

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2023-06-14

Overview: The year-end effective Fed funds rate implied in the futures market is about 5.11%. The rate has been averaging 5.08% since the Fed hiked rates last month The Fed may go to pains to explain that the steady that to be announced later today is just a pause to get a better read on the economy, the market favors this to be the end of the tightening cycle. The dollar is trading softer against nearly all the G10 currencies. Emerging market...

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

2023-06-13

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2023-06-13

Overview: A surprise cut in China's seven-day repo and a stronger than expected UK employment report are session's highlights ahead of the US CPI. The base effect alone suggests a sharp fall in the year-over-year rate, while the median forecast in Bloomberg's survey has been shaved to a 0.1% month-over-month gain. The dollar is under pressure and is weaker against nearly all the G10 currencies. It is mixed against the emerging market currencies....

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

2023-06-12

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2023-06-12

Overview: Today may be the calm ahead of a tomorrow's US CPI and rate decisions by the Fed, ECB, BOJ, and PBOC over the next few days. Most large bourses in the Asia Pacific region rose and Europe's Stoxx 600 is snapping a three-day decline. US index futures are trading higher. US 10-year yield is slightly firmer as are core European benchmark yields. The dollar is under broad pressure and is weaker against the G10 currencies. Against emerging...

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

2023-06-10

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2023-06-10

Of the three G3 central banks that meet in the days ahead, the market is the most confident of a rate hike by the European Central Bank. The market sees a hawkish hold from the Federal Reserve. However, the idea of a skip, a topic which even Fed officials have broached, would seem to pre-commit to another hike, and this is not typically the central bank's modus operandi. Moreover, it may be difficult for the Fed to resume hikes in July if inflation...

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Dollar Stabilizes Ahead of the Weekend

2023-06-09

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2023-06-09

Overview:  Long US dollar positions were pared yesterday as rates unwound the gains scored in the wake of the Bank of Canada's surprise hike on Wednesday. It is consolidating today as the market looks toward next week’s central bank meetings (FOMC, ECB, and BOJ) and a flurry of data. It is also possible that China shaves the benchmark one-year medium-term lending facility rate. Broadly speaking the greenback is still tracking rates, and the more...

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

2023-06-08

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2023-06-08

Overview: The back-to-back surprise rate hikes by the Australia and Canada spurred speculation that the Fed could hike next week, and this lifted US rates and helped the dollar recover. The odds of a hike increased, according to the indicative pricing in the Fed funds futures market from about a 20% chance to a little above 35%. now. At yesterday's high, the two-year yield was up a little more than 25 bp since the low before the US employment data...

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

2023-06-06

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2023-06-06

Overview: The Reserve Bank of Australia surprised many with a quarter-point hike and German factory orders unexpectedly fell. Reports suggest that China has asked banks to cut deposit rates. The next result is the Australian dollar is the strongest currency in the G10 and helped lift the Canadian dollar ahead of the Bank of Canada meeting tomorrow. Australian stocks sold off (~1.2%) while large markets outside of China rose in the region. Europe's...

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

2023-06-05

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2023-06-05

Overview:  The US dollar has extended its post-employment gains today, helped by firmer rates and several countries seeing downward revisions from the preliminary May PMI. The greenback is trading with a firmer bias against all the G10 currencies and most of the emerging market currencies, including Turkey, India, and China. July WTI gapped higher after the Saudi Arabia announced a voluntary and unilateral cut of one million barrels a day in output...

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

2023-06-03

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2023-06-03

True to the historic pattern, the US debt ceiling was used by the party not in control of the executive branch to exact spending concessions. Despite the extreme partisanship, the brinkmanship tactics, and fears that this time would be different, there was no default. As Bismarck once quipped, "Laws are like sausages and it is best not seen them being made." Still, as a consequence, the rebuilding of the Treasury's account and bill...

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

2023-06-02

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2023-06-02

Overview: Another bizarre US debt-ceiling episode is over. President Biden will sign the bill that was approved by the Senate late yesterday. It is a bit anticlimactic for the market, for which the US jobs data is the key focus now. Outside of the fiscal drama, the Federal Reserve leadership has effectively push against market expectations for a hike later this month. The odds were around 70% earlier this week, and ahead of the jobs report, is...

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Dollar Steadies After Fed’s Push Back

2023-06-01

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2023-06-01

Overview: The market was gearing up for a June Fed hike and officials and this helped lift the greenback. However, the Fed Governor Jefferson, nominated to be the next vice-chair, pushed back against it. His views are thought to reflect the Fed's leadership. Philadelphia Fed's Harker, who is a voting member of the FOMC also backed a pause. This is not quite what we expected when we suggested the US interest rate adjustment was complete or nearly...

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

2023-05-31

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2023-05-31

Overview: The US budget agreement passed a House committee vote by 7-6 and the bill is scheduled to be voted on by the entire House today before the Senate take it up with the idea of passing it Monday. The procedural step plus the weakness of China and Japanese data and soft CPI figures from Europe has lifted the greenback against all the major currencies. The euro and Australian dollar have been sold to new lows, while the dollar holds ever so...

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The Dollar Reverses Early Gains

2023-05-30

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2023-05-30

Overview:  The debt ceiling drama is not over. The agreement between the negotiating teams of President Biden and House Speaker McCarthy sets the stage for the next act in the drama: each side must deliver the votes. A preliminary vote today in the House of Representatives is likely today ahead of floor vote tomorrow. Still, the market is optimistic, and risk is favored. Asia Pacific bourses were mixed today. We note that the chip sector helped...

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June 2023 Monthly

2023-05-27

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2023-05-27

June is a pivotal month. The US debt-ceiling political drama cast a pall over sentiment even if it did not prevent the dollar from rallying or the S&P 500 and NASDAQ from setting new highs for the year. It is as if the two political parties in the US are playing a game of chicken and daring the other side to capitulate. Both sides are incentivized to take to the brink to convince their constituents that they secured the best deal possible. No...

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

2023-05-26

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2023-05-26

Overview: Yesterday's dollar surge has stalled. It is consolidating its gains and is softer against all the G10 currencies. After popping above JPY140 yesterday, there were no follow-through greenback buying in Tokyo. Most emerging market currencies are also firmer, including the South African rand, which plummeted by 2.8% yesterday on the back of the central bank's warning of downside currency risks as it delivered a 50 bp hike. The Chinese yuan...

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

2023-05-25

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2023-05-25

Overview: Concerned about the political wrangling over servicing US debt, Fitch put the US on negative credit watch. Besides chin wagging and finger pointing, it has had little perceptible impact. The dollar is mostly higher, reaching new highs for the year against the Japanese yen, Chinese yuan, and the Antipodean currencies. The euro and sterling met retracement objective we have targeted (~$1.0735 and $1.2435, respectively). The greenback is...

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

2023-05-24

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2023-05-24

Overview: Equities in the Asia Pacific region and Europe are being led lower by the sell-off in the US yesterday. All the large Asia Pacific markets fell with Hong Kong and mainland shares setting the pace. Europe's Stoxx 600 is off nearly 1.5%, which would be the largest loss in two months. Consumer discretionary, financials and real estate sectors are off nearly 2%. US equity futures have a softer bias. European 10-year yields are mostly 2-3 bp...

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

2023-05-23

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2023-05-23

Overview:  The dollar is bid. Only the Japanese yen is holding its own against the greenback but only after it fell to new lows for the year. The Scandis and Antipodeans are the heaviest among the G10 currencies, while sterling has fallen to a new low for the month. The prospect of a rate hike tomorrow has not protected the New Zealand dollar much and it is off nearly 0.5%. Emerging market currencies are more mixed. Outside of the Russian rouble,...

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The Dollar Consolidates after Powell Sapped its Mojo

2023-05-22

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2023-05-22

Overview:  Federal Reserve Chair Powell's offered a stronger case for a pause in the monetary tightening before the weekend and this sapped the dollar's mojo. The greenback is mostly consolidating through the European morning in quiet turnover. The JP Morgan Emerging Market Currency Index is trying to snap a four-day decline. The South African rand is recovering from its recent slide and is up nearly 1%. The South Korea won is benefitting from...

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