US treasury yields tumbled sharply as markets corrected the post election rally. Surge in yields since November was driven by anticipation of Donald Trump's policies of higher spending, lower taxes and higher debt. Markets seemed to turn cautious as Trump prepares to take office later in the month. 10 year yield dropped to 2.368 comparing to December's high at 2.621. 30 year yield also dropped to close below 3.000 handle at 2.962, comparing to December's high at 3.196. The development dragged Dollar broadly lower with the dollar index hitting as low as 101.30. The developments confirmed that yields and Dollar turned into a correction phase which could last for the the rest of the month. It's doubtful whether a strong non-farm payroll report could trigger sustainable comeback in the Dollar in near term. In other markets, gold rode on Dollar weakness and reached as high as 1185.9. DJIA continued to stay in tight range below 20000 handle.
Dollar stays soft in early US session after mixed job data as the post FOMC minutes selloff might extend. Initial jobless claims dropped 28k to 235k in the week ended December 31, much lower than expectation of 260k. That's also just 2k above the 43 year low of 233k made back in November. In addition, initial claims stayed below 300k for 96 straight weeks, the longest since 1970. Continuing claims rose 16k to 2.11m in the week ended December 24. ADP report showed 153k growth in private sector jobs in December, missing expectation of 175k. Challenger report showed 42.4% yoy rise in planned layoffs in December. Also release in US session, Canada IPPI rose 0.3% mom in November. RMPI dropped -2.0% mom.
The financial markets reacted differently to the FOMC minutes overnight. Stocks seemed to have taken the more optimistic view of the minutes. DJIA closed up 60.4 pts, or 0.30%, at 19942.16. S&P 500 also gained 12.92 pts, or 0.57%, to close at 2270.75. Both indices are heading back to historical high with DJIA set to take on 20000 handle again. However, Dollar and yields seemed to pay more attention on the "consider uncertainties" that policy makers believed would alter the policy path. In particular, Dollar index drops sharply to as low 101.86 so far today and is threatening a near term reversal. Gold rides on dollar weakness and is back above 1170.
Dollar trades mildly softer today as markets await FOMC minutes. Besides the discussion over the 25 bps rate hike decision made on the month, we are closely watching for the discussion of potential monetary policy changes as Trump takes office. The president-elect has been proposing pro-growth fiscal policy. We would also look for the rationale behind the more hawkish shift in the dot plot which signals 3 rate hikes in 2017. Currently, fed fund futures are pricing in around 70% chance of another rate hike by June this year.
2017 is year of high uncertainty, mainly hinging on the shift of global political agendas, from the new policy direction under Trump's administration, to the beginning of negotiations between the UK and the EU on Brexit, to the leadership transition in China. On the currency outlook, we remain constructive over USD this year, anticipating Trump's pro-growth policy would drive higher economic expansion and inflation, and facilitate a tighter monetary policy stance. With the market shy of pricing in three Fed funds rate hikes (as signaled in the December dot plot) this year, there is room for USD to rally further should incoming macroeconomic data eventually convince traders that more rate hikes are possible. We are bearish on Treasuries and expect US yields to move higher, especially at the front-end. Monetary policy divergence should bold well for the greenback, especially against the euro.
Dollar surged with stocks and yield overnight but momentum was unconvincing. Dollar index hit as high as 103.82 but failed to sustain above recent resistance at 103.65. The index is currently trading back at around 103.20. DJIA gained 119.16 pts, or 0.60% to close at 19881.76. However, that close to yesterday's open at 19872.86 which indicates indecisiveness. S&P 500 performed slightly better as it closed up 19.00 pts, or 0.85% at 2257.83, comparing to the open at 2251.57. 10 year yield jumped to as high as 2.518 but closed at 2.450, sharply below the open at 2.511 even though it ended up 0.004. 30 year yield perform worse, opening at 3.123 but closed at 3.047, down -0.016 from prior close. In the currency market, EUR/USD breached 1.0351 near term support briefly but failed to stay below and is back at 1.0410. Markets are generally staying cautious ahead of employment data from US.
Dollar surges broadly today, except versus Aussie, as helped by the selloff in Euro. Dollar index reaches as high as 103.52 and is set to test recent high at 103.65. Nonetheless, Dollar bulls could stay cautious ahead of key economic data to be released this week, including Friday's non-farm payroll, as well as FOMC Minutes. Euro is weighed down by talk that Italy might eventually leave the Eurozone, and receives little help from better than expected German data. Oil price resumes rally as the agreement of OPEC and non-OPEC countries on production cut kicks start. WTI crude oil surges to 18-month high at 55.24. Gold is weighed down by the strength in dollar and dips below 1150 handle.
Aussie and Kiwi open the year mildly higher as lifted by China data. The Caixin PMI manufacturing for China rose to 51.9 in December, much better than expectation of being unchanged at 50.9. That's the best reading in three years since January 2013. Caixin noted that "a further rise in production at Chinese manufacturers supported the higher PMI reading in December. Notably, the rate of output growth accelerated to a 71-month high, with a number of panelists commenting on stronger underlying demand and new client wins." And, "data indicated that improved domestic demand was the key driver of new business growth, however, as new export sales were unchanged in December." Nonetheless, released earlier in the week, the official PMI manufacturing dropped to 51.4, down from 51.7 and below expectation of 51.6. Technically, AUD/USD just defended 0.7158 temporary low and more sideway trading would be seen above this level in near term.
Euro spiked higher in Asian session on ultra thin market condition but quickly retreated. EUR/USD hit as high as 1.0653 but is back at 1.0530 at the time of writing. The pair is also limited well below 1.0669 resistance so far which maintains near term bearishness. EUR/JPY jumped to 122.14 but failed to take out 124.08 near term resistance and is back at 122.70. EUR/JPY is still seen as engaging in sideway consolidation. The more important move is in EUR/GBP which took out 0.8577 resistance and is staying above for the moment. It's seen as a sign that recent pull back from 0.9304 is completed and we'd probably seen more upside in the cross soon. The development is in line with the outlook in EUR/AUD which suggests some near term bullishness. We'd be paying attention to whether Euro would gain additional momentum against Sterling and commodity currencies.
Dollar stays soft in early US session but selling momentum is limited so far. Indeed, the greenback has pared back some losses against Yen, which is the relatively stronger one. Released from US, trade deficit widened to USD -65.3b in November, larger than expectation of USD -61.5b. Exports rose 1.0% to USD 121.7b while imports rose 1.2% to USD 187.0b. Initial jobless claims dropped 10k to 265k in the week ended December 24, below expectation of 277k. Continuing claims rose 63k to 2.1m in the week ended December 17.
US equities closed lower overnight as DJIA suffered the second triple digit loss since presidential election. DJIA closed down -111.36 pts, or -0.56%, at 19833.68. S&P 500 lost -18.96 pts, or -0.84%, to close at 2249.92. NASDAQ also dropped -48.88 pts, or -0.89%, to close at 5438.56. While a day of decline in thin holiday trading is not enough to warrant reversal in trend, the synchronous move with other markets suggest that the markets overall is turning into a consolidation phase. To be more specific, 10 year yield closed down -0.057 to 2.506. 30 year yield also lost -0.055 to close at 3.084. Dollar index is back at 102.90 after edging higher to 103.63. Gold breaches 1150 again, comparing to recent low at 1124.3. We'd probably see more consolidative trading ahead, at least before US non-farm payroll to be released on January 6.
Trading in financial markets are generally subdued in holiday mood. DJIA closed up 11.23 pts, or 0.06%, overnight at 19945.04, still struggling to take out 20000 handle. S&P 500 also closed up 5.09 pts, or 0.22%, at 2268.88, but stays in recent range. Asian markets are mixed with little movements. US yields closed higher with 10 year yield up 0.02 to 2.563 but like others, stayed in tight range. Notable strength is seen in gold this week, hitting as high as 1151.7, comparing to recent low at 1124.3. There is prospect of a stronger rebound in gold in near term. WTI crude oil also strengthened mildly this week and breached 54 handle. But recent price actions suggest that it's staying in consolidation since hitting 54.51 and more sideway trading is in favor.
The Japanese Yen edges mildly lower in very quiet holiday trading today. A bunch of weak economic data is weighing slightly on the currency. Japan national CPI core dropped -0.4% yoy in November, unchanged from October's reading and missed expedition of -0.3% yoy. That's also the ninth straight month of decline in prices. Tokyo CPI core dropped -0.6% yoy, worsened from October's reading of -0.4% yoy and missed expectation of -0.4% yoy. Nonetheless, it's hopeful that the sharp depreciation in Yen since November would eventually provide some inflationary effect on prices that help lift the burden from BoJ for additional stimulus. Also from Japan, unemployment rate rose to 3.1% in November, above expectation of 3.0%. Household spending dropped -1.5% yoy in November, much worse than expectation of 0.2% yoy rise. Housing starts rose 6.7% yoy in November, much lower than expectation of 9.6% yoy.
The financial markets are generally steady ahead of holiday weekend. Dollar index is back below 103 handle but is staying in tight range between 102.50/103.50. Gold follows and stays in range between 1125/1140 for the moment. Meanwhile, crude oil is engaging in consolidative in a relatively wider range between 50/54. Trading in stock markets are also subdued with FTSE and DAX trading nearly flat in European morning. In the currency markets, bigger movement is found in Sterling today which trading broadly lower except versus Aussie and Lonnie. In particular, GBP/USD's break of 1.2301 support should confirm completion of recent corrective rise from 1.1946. And deeper fall would likely be seen back to 1.1946 in near term.
Dollar stays in tight consolidation against European majors but strengthens against commodity currencies in holiday trading. In particular, Canadian dollar is weighed down by the dip in oil price. Released in US, initial jobless claims rose to 274k in the week ended December 17, above expectation of 255k. Durable goods orders dropped -4.6% mom in November, slightly better than expectation of -4.9%. Ex-transport orders rose 0.5% mom, above expectation of 0.2% mom. Q3 GDP was finalized at 3.5% annualized, GDP price index at 1.4%. From Canada, retail sales rose 1.1% mom in October while ex-auto sales rose 1.4% mom. Both were above expectation. But headline CPI slowed to 1.2% yoy and BoC core CPI slowed to 1.5% yoy, missing expectations.
New Zealand dollar stays soft today in spite of better than expected data. GDP grew 1.1% qoq in Q3, up from prior quarter's 0.7% qoq, and beat expectation of 0.8% qoq. Statistics New Zealand noted that the data points to "broad-based growth" with 13 of 16 industries up. Main weakness came from agriculture. Household spending "continued its strong growth" and jumped 1.6%. Exports volumes "remain high" even though growth fell over the quarter. Manufacturing activity also rose "on the back of food beverage, and tobacco manufacturing; and transport equipment, machinery and equipment manufacturing." Also from New Zealand, current account deficit widened to NZD -4.89b in Q3.
Yen trades mildly higher in otherwise quiet markets today. The Japanese Cabinet Office upgraded assessment of the economy for the first time in 21 months. The office said in its December report that "the Japanese economy is on a moderate recovery, while delayed improvement in part can be seen." That compared to prior description that the economy was in a moderate recovery "while weakness can be seen recently." In particular, exports and private consumptions outlook are more upbeat, showing "movements of picking up". Nonetheless, improvement in business investment "appears to be pausing", same as prior assessment. Also, the government cautioned that "attention should be given to the uncertainty in overseas economies and the effects of fluctuations in the financial and capital markets."
US equities surged yesterday on Santa rally, yet DJIA failed to take out 20k handle and closed at 19974.62, up 91.56 pts, or 0.46%. It was, nonetheless, a record high. Meanwhile, S&P 500 also gained 8.23pts, or 0.36%, to close at 2270.76. Treasury yields also closed higher with 10 year yield gained 0.026 to 2.568 but stayed in recently established range. Dollar stays firm and is trading higher against most major currencies for the week, except versus Yen as USD/JPY is stuck in consolidation. In other markets, Gold trading sin tight range between 1125/1145 as sideway consolidation extends. WTI crude oil is trading higher at 53.6 but is held below recent resistance at 54.51..
The recent selloff in Japanese yen and widening in US-Japan yield differentials have been driven by the FOMC rate hike and expectations of further tightening in US monetary policy. Indeed, BOJ’s action has minimal impact on the phenomena of late. BOJ on Tuesday left its interest rate targets unchanged with the short-term and -10 bps and the 10-year JGB yield at around 0%. The asset purchase program also stays at approximately 80 trillion yen of JGBs annually. The central bank also upgraded its current economic assessment and outlook.
Dollar jumps today on safe haven flows on report of "probable terrorist attack" in Germany. In addition, markets were also nervous on the Russia/Turkey issue after Russian ambassador to Turkey was fatally shot. Meanwhile, the greenback is supported by Fed chair Janet Yellen's upbeat comments on the employment conditions. The dollar index surges to as high as 103.65 so far, breaking near term resistance at 103.56 to resume recent up trend. The index is on course to medium term projection target at 105.19. In the currency markets, Sterling is so far the weakest one for the week, followed closely by commodity currencies and Euro. Yen, despite today's weakness, is supported mildly by risk aversion with the Swiss Franc.