Friday, November 3, 2017

"Dollar Firms Ahead of What is Expected to Be Strong US Jobs Data"

So you're saying any upside is priced in?
(note to self: snark is not wit, snark is not wit)

From Brown Brothers Harriman's Head of Global Markets Strategy:
The US dollar is firm but is not going anywhere quickly. The lack of fresh interest rate support and uncertainty over the US tax proposals, which the Brady, the Chair of the House Ways and Means Committee hopes to have a revised version out after the weekend so the committee work can begin on Monday.

The popular press seems to focus on some objections by Democrats, but this misses the point. The Republicans hope to pass tax reform without relying on Democrats. It is the same strategy employed for health care reform, and the problem then and the challenge now is within the Republican Party and its constituencies. A wing of the GOP wants no increase in the deficit, and another wing wants lower taxes. Immediately upon the release of the proposals, the National Federal of Independent Business objected that the bill would not help most small businesses. The National Association of Realtor objected and homebuilder shares sold-off yesterday.

Tokyo markets were closed, which contributed to a subdued Asian session. The Nikkei closed the week with a 2.4% gain after a 2.6% gain the prior week. The Nikkei is sitting on 20-year highs and is on an eight-week run. Foreign investors are re-weighting toward Japanese shares after having cut exposure earlier in the year. There is some chunky option expires today. There is $2.2 bln struck at JPY114.00 and another $1.1 bln at JPY114.50. On the downside, there is an option at JPY113.80 for $400 mln that expire today.

Many observers think that the Chinese government may flatter its economic data, and they give private data more credence. However, the situation is more complicated, and this is born out with the PMI. The official measure showed weakness in the non-manufacturing sector (54.3 from 55.4), but the Caixin measure reported earlier today showed a modest increase to 51.2 from 50.6.

The more important development in China was the PBOC's large injection via one-year money that helped calm the government bond market. The 10-year yield had risen nearly 20 bp in recent days and the official action this week which injected nearly CNY1 trillion this week, which essentially replaced the maturing loans. The US dollar closed higher against the yuan for the second consecutive session, but all this did was pare its weekly loss to about 0.3%.

The Australian dollar is the weakest currency on the day, thus far, and is off nearly 0.5%. It was sold in response to the disappointing retail sales. Rather than recover from August's 0.5% decline as the market expected, they were unchanged. The central bank meets next week but is on a decidedly steady course with a 1.5% cash rate. The Aussie is nearing support near $0.7665, and a break of it would signal a test on the recent low from late October near $0.7625 initially.

Sterling continues to trade heavily and has marginally extended yesterday's losses.... MORE