Dollar Slips, though Emerging Markets Trade Heavily

The US dollar is seeing its pre-weekend gains pared.  Trade tensions are running high as the US is said to be preparing to levy new tariffs on China as early as today.  Meanwhile, the better tone of Brexit talks lends sterling a hand.  Emerging market strains are re-appearing after a brief hiatus in the second half of last week.  

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Near-Term Dollar Outlook

The US dollar finished last week on a strong note, snapping four-day drop against the euro, sterling, Australian dollar, and Norwegian krona. and rose above JPY112.  The S&P 500 and NASDAQ gapped higher early last week, and entered the gap, without filling it before the weekend and rebounded, suggesting good underlying demand.  US 10-year yield is flirting with the upper end of its range.  Will it break out? 

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Dollar Losses Extended

  • The US dollar remains on the defensive after retreating yesterday
  • A weaker than expected Swedish CPI report is weighing on the krona
  • The Turkish lira rallied in response to yesterday’s surprising 625 bp hike
  • US data highlights include retail sales, IP, and the University of Michigan’s consumer confidence survey
  • Central Bank of Russia is expected to keep rates steady at 7.25% Continue reading “Dollar Losses Extended”

Draghi Sticks to Script

The euro went bid in response to the ECB meeting and Draghi’s seeming optimism.  The staff shaved the GDP forecasts for this year and next while keeping inflation forecasts steady.  Risks were seen as broadly balanced.  

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Markets Vulnerable to Disappointment

  • There is an eerie calm in the markets ahead of the highlight for the day and week
  • Australia reported 44k new jobs in August, nearly three times more than expected
  • After deciding unanimously to lift rates last month, there is practically no chance of another BOE rate hike today
  • The main feature of the ECB meeting may be the staff’s forecasts.
  • US CPI may not get much attention as the ECB press conference commands more attention
  • Central Bank of Turkey is expected to hike rates 325 bp to 21%; ahead of the decision, Erdogan explicitly called for rates to be cut
  • Peru central bank is expected to keep rates steady at 2.75% Continue reading “Markets Vulnerable to Disappointment”

WTO Reforms

The WTO is in need of modernization.  Canada will formally kick off the process next week.  Expectations should be kept low as rising protectionism and trade tensions warn that a consensus for change will be elusive.  

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Dollar Chops in Narrow Ranges

  • Eurostat confirmed that EMU industrial output fell for a second consecutive month in July
  • We anticipate that the ECB staff will shave its growth forecasts, which are announced tomorrow
  • The EC’s confrontation with Hungary may come to a head today
  • The Canadian dollar is firm on reports that it is willing to make a concession on dairy, a sector not included in the current NAFTA
  • The US session features the August PPI and the Fed’s Beige Book ahead of the meeting on September 26
  • China reported weaker than expected money and loan data for August
  • Singapore retail sales contracted -2.6% y/y in July vs. +0.7% expected; India reports August CPI and July IP Continue reading “Dollar Chops in Narrow Ranges”

Did the CRB Bottom?

Commodity prices have been retreating for the past several months.  It is possible that a low of some importance is in place.  Commodity prices often move inversely with the dollar, but that inverse correlation appears near an extreme so that a recovery in commodity prices does not necessarily prejudice our dollar outlook, even if there is a small negative bias.  

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US Policy Mix Reconsidered

The US policy mix an important driver for the dollar.  We briefly review the outlook for both monetary and fiscal policy and anticipate the mix to be dollar constructive for at least the next six months.

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