Dollar Broadly Weaker As Markets Consolidate

Display of stock market quotes in china

  • Finland’s Foreign Minister Soini said his country should never have joined the euro.
  • German GfK consumer confidence came in at 9.4 for January, slightly better than the expected 9.3.
  • The US reports revisions to Q3 GDP.
  • The PBOC injected cash into the financial system via 7-day reverse repos.
  • Turkey’s central bank meets and is expected to hike the benchmark rate 50 bp to 8%.

Price action: The dollar is mostly weaker against the majors as year-end positioning appears to be in play. The Antipodeans are outperforming, while sterling and the Swiss franc are underperforming. The euro has held on to yesterday’s gains and is trading near $1.0935, while sterling is lagging and is still stuck below $1.49. Dollar/yen is trading near 121. EM currencies are mostly firmer. IDR, PLN, and BRL are outperforming while TRY and ZAR are underperforming. MSCI Asia Pacific was up 0.4% on the day, with the Nikkei down 0.2%. MSCI EM is up 0.4%, rising for the second straight day and for 5 of the past 6 days. The Shanghai Composite was up 0.3% while the Shenzen Composite was up 0.9%. Euro Stoxx 600 is up 0.3% near midday, while US futures are pointing to a lower open. The 10-year UST yield is up 1 bp at 2.20%, while European bond markets are mostly softer. Commodity prices are mostly higher, with oil up 0.5% and copper up over 1%.

  • Finland’s Foreign Minister Soini said his country should never have joined the euro. He was responding to a question at a press conference in Helsinki. He noted that Finland would have been able to weaken its currency had it not adopted the euro. Soini added that efforts to organize a referendum on the euro mean that the debate “will gather steam.” This is a very unusual (and provocative) statement to hear from a senior government official.
  • Elsewhere in Europe, German GfK consumer confidence came in at 9.4 for January, slightly better than the expected 9.3. Bank of Spain estimates that Spanish GDP will rise 0.8% in Q4, slightly better than it expected back in September. The Socialists said they would block Rajoy from seeking another term. With Podemos also saying they will vote against Rajoy, this supports the notion that the process of forming a government will be long and drawn out. Sweden retail sales were stronger than expected, rising 0.4% m/m (5.2% y/y) vs. the consensus 0.3% m/m (4.0% y/y).
  • The US reports revisions to Q3 GDP. Consensus is for a slight mark-down to 1.9% SAAR from 2.1% previously. The US will also report November existing home sales (-0.2% m/m expected) and December Richmond Fed manufacturing index (-1 expected).
  • The PBOC injected cash into the financial system via 7-day reverse repos. The move comes after top policymakers said monetary policy must be more “flexible” and fiscal policy more “forceful.” Statements were made at the end of the Central Economic Work Conference, and suggest more stimulus ahead. The PBOC also fixed USD/CNY slightly lower, the second down day after ten straight up days. Elsewhere, Chinese regulators have asked some banks to conduct tests for longer trading hours for onshore CNY. This would be another step in its internationalization.
  • Turkey’s central bank meets and is expected to hike the benchmark rate 50 bp to 8%. The market is truly split, however. Of the 22 analysts polled by Bloomberg, 6 see no change, 4 see a 25 bp hike, 9 see a 50 bp hike, and 3 see a 100 bp hike. We believe the bank will be under great pressure from the government not to hike rates, and so we think there is a risk of a dovish surprise with no hike.