From Marc to Market:
Overview: The corrective forces seen at work in the foreign exchange market yesterday are still intact today after the flurry around US President-elects pushback against reports of a narrower application of his tariff threat. Led by the Antipodean currencies that were so beaten up at the end of last year, most of the G10 currencies are firmer even if mostly in yesterday's range. The yen and Swiss franc are the weakest performers and are sporting small losses near midday in Europe. A busy US economic calendar (trade, JOLTS, and ISM services) and a $39 bln sale of 10-year notes are the highlights. News that Mark Carney is considering running to replace Trudeau as leader of Canada's Liberal Party is a talking point today, but the initial impact seems marginal. Emerging market currencies are mostly higher against the dollar, as well. Yesterday, the Mexican peso was the top performer, but it is a laggard today, along with the Turkish lira.
Most of the large Asia Pacific equities rallied with the Nikkei rising nearly 2%. The Hang Seng was a notable exception. It fell by 1.2%, weighed down by the US Department of Defense blacklisted Tencent and the liquidity squeeze in Hong Kong. The US "small yard and high fence" approach is appearing less small. Europe's Stoxx 600 is extending yesterday's gains, while US index futures are slightly firmer. European benchmark 10-year yields are 2-4 bp higher. The 10-year US Treasury yield is up one basis point to 4.64%. Gold is firm near $2643, showing little response to news that the PBOC added to its holdings last month. February WTI initially extended yesterday's pullback but has come back better bid and is near $73.75 ahead of the US open.
USD: The greenback unwound a good part of last week's gains with yesterday's pullback. The 0.8% decline in the Dollar Index was the largest since late November. After recovering to around 108.40 earlier today, it is back below last year's settlement (108.00). Nearby support is seen in the 107.50-75 area. A break could spur a move to 107.00. It seems to be driven by some position squaring, perhaps ahead of the employment report at the end of the week. Today's high-frequency economic data are expected to show a widening of the US November trade deficit due primarily to an increase in imports of industrial supplies and capital equipment, while consumer goods imports eased (according to preliminary data), a small increase in JOLTS jobs openings, and a modest rise in the ISM services PMI (the S&P version, confirmed yesterday, saw services activity rise to 58.5 from 56.1, a new cyclical high).
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