From Marc to Market:
Overview: The US dollar has come back bid from the weekend against most currencies following the talk by a couple of Fed governors about the possibility of accelerating the tapering at next month's FOMC meeting. The weekend also saw protests against the social restrictions being imposed by several European countries in the face of a surge in Covid cases. The Swedish krona, yen, and sterling are the weakest, while the dollar-bloc currencies are resisting the greenback's tug. Most of the freely accessible and liquid currencies among emerging market currencies, including Russia, Hungary, South Africa, and Mexico, are heavy. At the same time, the Turkish lira recoups a little of the ground lost last week, and the Chinese yuan shrugged off apparently warnings from the PBOC to post its first gain in three sessions. Equity markets in the Asia Pacific area mostly fell, though China and South Korea were notable exceptions. Europe's Stoxx 600 snapped a six-week advance last week but has begun the news week with a small gain through the European morning. US futures are trading higher. The bond market is heavy, with the 10-year US Treasury up about three basis points to around 1.58%. European benchmark yields are 2-3 bp higher. Gold finished last week on a softer note and edged lower today to trade below $1840 for the first time since November 10. Resistance is around $1850. News that Japan may join the US to release oil from reserves saw January WTI slip below $75 but recover back above $76. It met the (38.2%) retracement of the rally from the late August low near $60.75. European natural gas (Netherlands) is lower for the fourth consecutive session, during which time it has fallen around 11%. Iron ore extended the 5.6% gains before the weekend with another 4% gain today. On the other hand, copper rose 3.3% in the past two sessions and has come back offered today. Lastly, the CRB Index eased less than 1% last week and is off two of the past three weeks. Its seven-month rally is at risk.
Asia Pacific
Despite China's economic success, it remains clumsy and heavy-handed. As the US and some other countries were considering a symbolic diplomatic boycott of the winter Olympics in Beijing, the tennis star Peng Shuai is being censored or worse for allegations against a former Politburo member. Meanwhile, at the end of last week, three Chinese coast guard vessels launched water cannons against two Filipino boats sent to resupply a garrison on the Second Thomas Shoal (Ayungin Shoal), which is within the Philippines' Kalayanan Island Group. The aggressive harassment brought a rebuke by the US, which reminded Beijing of its mutual defense agreement with Manila. The Philippines will attempt to bring provision again this week. Separately, note that after being notified by the US of the military nature of the Chinese construction project in the UAE, the project has been halted.
With the yuan at six-year highs against a trade-weighted basket, Chinese officials have begun expressing more concern about the one-way market. The FX Committee, composed of industry participants, wants members to do a better job monitoring prop trading, and it follows the PBOC works of caution about risk management at the end of last week. In its quarterly monetary review, the PBOC made a few tweaks that suggest it could ease policy.
Japan's Prime Minister Kishida acknowledged that releasing oil from its strategic reserve was under discussion. China indicated it would tap its reserves last week for the second time since September, while it is still under review in the US. Currently, Japan keeps reserves that are intended to last 90 days, while the private sector must hold reserves to last 70 days, according to reports. Japan is considering selling oil and using the funds to subsidize the rising gasoline prices. It may also reduce the duration of the reserves....
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