Dollar Extends Rally as US Issues New Debt; European Stocks Mixed

Here are the latest developments in global markets:

FOREX: The dollar continued to stretch higher, breaking slightly above the 107 key-level versus the yen (+0.51%) and rising towards 89.67 (+0.65%) against a basket of major currencies. Despite risks remaining in the background, including a ballooning US budget deficit and potential policy tightening by other central banks which might attempt to play catch up with the Fed, the dollar finally found support from rising US Treasury yields. Pound/dollar jumped above 1.40 to touch an intra-day high of 1.4014 on the news that the EU parliament was planning to offer Britain a "privileged" single market access and membership in EU agencies. Meanwhile, the Brexit Minister David Davis, talking in Vienna on Tuesday, sounded certain that the UK and the EU could secure an agreement. However, the pair stepped back towards 1.3970 (-0.26%) afterwards as investors remained cautious given that the British Prime Minister wants the UK to operate free of EU laws. Euro/dollar was on the backfoot on the face of a strengthening dollar, last seen at 1.2339 (-0.56%). Aussie/dollar dropped to 0 .7893 (-0.23%) and kiwi/dollar was moving sideways around 0.7350 (-0.12%).

STOCKS: European stocks were mixed on Tuesday following a weak session in Asia where equities closed lower. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were down by 0.18% and 0.20% respectively at 1030 GMT, driven by losses in the consumer cyclical and non-cyclical sectors. Banking shares were also under pressure after HSBC’s earnings missed expectations and the bank reported that it needed $7 billion ( 5 billion pounds) in additional capital. The German DAX 30 declined by 0.17%, the French CAC 40 was up by 0.09% and the Spanish IBEX 35 rose by 0.17%. The British FTSE 100 tumbled by 0.55%, while futures for major US indices were in the red, pointing to a negative open ahead of Wall Street’s return from the President’s day holiday.

COMMODITIES: WTI crude and Brent continued to follow different directions, with the former touching a fresh two-week high at $62.76 before pulling back to 61.82 (+0.39%), while the latter gave up all its gains made yesterday, falling to $64.87 (-1.22%). A stronger dollar was a drag in the markets, whereas reduced supplies from Canada to the US due to restricted capacity of the Keystone pipeline were said to support WTI crude oil prices. In other news, the Saudi Arabian Energy Minister stated that the OPEC and non-OPEC members including Russia are likely to extend their cooperation beyond 2018 when the supply cut deal expires at their next meeting in Vienna in June. In precious metals, gold was on track to post losses for the third consecutive day, slipping towards $1337.60/ounce.

Day ahead: US Treasury auctions new debt; Kiwi waits for dairy prices

Looking forward, the calendar will be relatively light in terms of economic releases, with investors turning their focus to the bond markets where the US Treasury Department will issue new debt in the order of around $258 billion. This is seen as an effort to fund the recent tax reforms (said to add $1.5 trillion to the federal debt overtime) and the two-year government budget plan (said to increase government spending by $300 billion the next two years).

The Treasury is expected to auction 1-month, 3-month, and 6-month bills at 1630 GMT and a 2-year note at 1800 GMT.

The global dairy auction is also scheduled for today at a tentative time, with changes in prices having the potential to shake the kiwi.

Canada will see the release of monthly wholesale trade data for December at 1330 GMT, while in Eurozone, initial estimates on consumer confidence at 1500 GMT are expected to reflect a drop in February, with the measure seen falling by 0.3 points to +1.0.