Dollar Outlook Worsens as Pandemic Rages in US

  • The dollar continues soften; virus numbers in the US show no signs of slowing; given Europe’s past success in controlling the virus, we have more confidence that policymakers there can do it again; tensions are growing over the lack of a fiscal package
  • October PPI data will be the highlight for the US; preliminary November University of Michigan consumer sentiment is expected at 82.0 vs. 81.8 in October; Mexico surprised markets by holding rates at 4.25% yesterday
  • UK Prime Minister Johnson’s powerful (and controversial) aide Dominic Cummings will reportedly resign by year-end; the latest round of Brexit negotiations comes to an end with little to show for it; Poland is threatening to block the EU budget over the rule of law clause, just as Hungary has done
  • RBNZ continues to push back against negative rates; the US fired another salvo at Chinese corporates; Improved risk appetite over the last couple of weeks is already showing up in foreign equity flows into Asian markets Continue reading “Dollar Outlook Worsens as Pandemic Rages in US”

Dollar Softens Ahead of CPI Data

  • Pressure on the dollar has resumed; October CPI data will be the US highlight; US bond market was closed yesterday but yields have eased a bit today
  • Weekly jobless claims data will be reported; monthly budget statement for October will hold some interest; Mexico is expected to cut rates 25 bp to 4.0%; Peru is expected to keep rates steady at 0.25%
  • UK Q3 GDP rebounded strongly but September data show a loss of momentum; Brexit talks remain unresolved; the domestic political outlook is getting (even more) turbulent; eurozone reported weak September IP
  • Crude prices remain well supported by the dual engines of positive vaccine news and continued OPEC output restraint; Japan reported soft September core machine orders and October PPI; India reports October CPI and September IP Continue reading “Dollar Softens Ahead of CPI Data”

Dollar Continues to Consolidate

  • Virus numbers continue to rise globally; the upswing in yields continues across most developed countries and there is probably more to go; the dollar continues to consolidate its recent gains
  • It will likely be a quiet day in the US due to the Veterans Day holiday; the White House has told federal agencies to prepare budget plans for the next fiscal year; Senate Majority Leader McConnell released 12 spending bills to fund the government through next September
  • Brexit talks will continue beyond the November 15 deadline that most had penciled in; EU officials have reached a compromise on the size of its next seven-year budget; Turkey reported September current account data
  • Japan reported improved October machine tool orders; RBNZ kept rates steady at 0.25% and expressed skepticism about negative rates; fears of regulatory crackdown in China’s tech sector led to heavy losses in some of its largest companies; China’s latest credit numbers continue to show a supportive story Continue reading “Dollar Continues to Consolidate”

Dollar Consolidates, Weakness to Resume

  • Despite rising infections worldwide, the virus news stream has turned positive; the dollar is consolidating its gains today
  • With the 10-year yield rising to near 1.0%, US financial conditions are tightening; the Fed released its Financial Stability report yesterday and it pulled no punches; with the Fed media embargo over, many officials will speak today
  • UK House of Lords altered the Internal Market Bill; UK employment numbers were slightly better than expected; eurozone data were largely disappointing; Turkish President Erdogan appointed Lutfi Elvan as the new Treasury and Finance Minister
  • Japan reported September current account data; China unveiled new regulations to rein in its big tech companies and reported October CPI and PPI; Philippine Q3 GDP came in weaker than expected at 8.0% q/q Continue reading “Dollar Consolidates, Weakness to Resume”

Dollar Stabilizes With Markets Moving to Risk-On Mode

  • The weak dollar trend remains intact’ President-elect Biden is already preparing for a change in America’s policy response towards the virus
  • We think chances of a stimulus package during the lame duck session are low; Mexico reports October CPI
  • Brexit talks continue in London this week; President-elect Biden has a very different take on Brexit, especially as it pertains to the Irish part of the negotiation; the Turkish lira is starting the week off strong despite some major reshuffling in key policymaking positions
  • The summary of opinions from the latest Bank of Japan meeting were released; China reported October trade data over the weekend; Taiwan reported October trade data as well Continue reading “Dollar Stabilizes With Markets Moving to Risk-On Mode”

Dollar Weakness Continues Ahead of Jobs Report

  • The dollar continues to weaken; President Trump’s path to reelect ion is narrowing; both Georgia Senate seats will likely go to a runoff in January
  • The Fed delivered a dovish hold, as expected; October jobs data will be the data highlight; Canada also reports October jobs data
  • UK announced that the furlough scheme will be extended to the end of March; German September IP came in weaker than expected; Denmark imposed mobility restrictions in reaction to a new Covid-19 strain; reports suggest Russian President Putin will step down in January due to health reasons
  • Japan reported September household spending and real cash earnings; RBA issued its quarterly Statement on Monetary Policy Continue reading “Dollar Weakness Continues Ahead of Jobs Report”
Dollar Struggles; More Losses Likely Before Better Demand is Found

Dollar Soft as Risk On Sentiment Dominates Ahead of FOMC Decision

  • Dollar weakness has resumed as risk on sentiment dominates; the US election outcome is starting to take shape
  • Senate Majority Leader McConnell said passing a stimulus bill is a top priority during the lame duck session; the two day FOMC meeting concludes today with a likely dovish hold; weekly jobless claims will be reported
  • BOE increased its asset purchases by GBP150 bln vs. GBP100 bln expected; UK government is due to announce more details of the growing fiscal measures today; eurozone data came in soft; Norges Bank left rates unchanged at 0.0%, as expected
  • Japan reported firmer final services and composite PMI readings; Australia reported September trade; Indonesia is climbing out of recession Continue reading “Dollar Soft as Risk On Sentiment Dominates Ahead of FOMC Decision”

Markets Gyrate Ahead of Protracted Period of Uncertainty

  • Markets likely facing an extended period of uncertainty; the dollar is seeing some safe haven bid but is well off its highs
  • Despite President Trump’s claim of victory and his call to halt vote counting and go to the Supreme Court, it’s important to emphasize that the election is simply not over yet; asset prices are sending a cacophony of signals as investors struggle to price multiple possibilities
  • The two day FOMC meeting starts today and concludes with a likely dovish hold tomorrow; ADP provides its private sector jobs estimate
  • Europe and Asia reported final services and composite PMIs Continue reading “Markets Gyrate Ahead of Protracted Period of Uncertainty”

What Are Markets Telling Us?

The reflation trade appears to be still alive and well as the US goes to the polls.  Global equities are up, bond prices are down, and the dollar is weaker.  What are markets telling us?  It appears that markets are pricing in solid odds of a Blue Wave today, implying significant fiscal stimulus and debt issuance in 2021.  Because of the perceived risks of another surprise victory by President Trump, we do not think the Blue Wave is fully priced in and so there is room for further movement if Biden does indeed win.  That said, “there’s many a slip twixt the cup and the lip” and so these directional bets can quickly reverse.  Markets should not be lulled into a sense of complacency and should instead be prepared for greater volatility across all markets over the coming days. Continue reading “What Are Markets Telling Us?”