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Futures Jump, Yields And Dollar Slide After Gundlach Says He’s A “Buyer” Of Treasuries

Futures Jump, Yields And Dollar Slide After Gundlach Says He’s A "Buyer" Of Treasuries

US equity futures and European stocks staged a solid…

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Futures Jump, Yields And Dollar Slide After Gundlach Says He's A "Buyer" Of Treasuries

US equity futures and European stocks staged a solid rebound after the recent rout which saw the S&P close at a fresh 2022 low on Monday, as the dollar finally weakened against all of G-10 peers, snapping a five-day gain of new record highs as Treasury yields fell and the pound rebounded from a record low, even as (or perhaps because) Goldman Sachs and BlackRock soured on equities for the short term and Citigroup said bearish positioning continues to rise. As of 715am, S&P Futures traded 43 points, or 1.2% higher, at 3,714 while Nasdaq futures were 1.3% higher. 10Y yields dropped to 3.80% after rising above 3.90% late on Monday.

The dollar gauge dipped but held near the record high set Monday, when a barrage of Fed officials repeated hawkish comments on policy. Meanwhile, European authorities are probing “unprecedented” damage to the Nord Stream pipeline system that transports Russian gas to the region. Benchmark European gas prices climbed as much as 12% on Tuesday, after four days of losses. Oil and gold also rose.

One potential catalyst for the bounce in risk sentiment, and drop in TSY yields, was a tweet from bond king Jeff Gundlach just after midnight EDT, in which we said that "the U.S. Treasury Bond market is rallying tonight.  Been a long time.  I have been a buyer recently."

Which is good- it means that there’s at least one major investor who thinks the worst global bond rout in decades is creating a buying opportunity. Now if only all the others shared his sentiment. In any case, his contrarian position was enough to avoid 10Y yields surging above 4% tonight... it remains to be seen if this persists tomorrow and subsequently.

In premarket trading, tech giants such as Apple, Amazon.com and Alphabet advanced more than 1% in premarket trading as US index futures rebounded with Europe’s Stoxx 600. Here are some other notable premarket movers:

  • Cryptocurrency-exposed shares rise in premarket trading, as Bitcoin jumped to breach the closely watched $20,000 level. MicroStrategy (MSTR US) +4.9%, Marathon Digital (MARA US) +5.8%, Hut 8 Mining (HUT US) +6.4%, Coinbase (COIN US) +5%, Riot Blockchain (RIOT US) +4.8%.
  • Shares in 9 Meters Biopharma (NMTR US) jump as much as 40% in premarket trading, with Oppenheimer raising its price target on the biotech to a Street-high after the company reported data from a Phase 2 study of vurolenatide.
  • US-listed Macau casino and China travel stocks are on track to rise for a second day, after those listed in Hong Kong extended gains on growing optimism in a tourism revival. Wynn Resorts (WYNN US) +1.8% and Melco Resorts (MLCO US) +2% in premarket trading.
  • Grab (GRAB US) stock climbed 1.1% in premarket trading after the Southeast Asian internet giant said it pursues profitability in 2024, though expects revenue to slow significantly.
  • Keep an eye on Keurig Dr Pepper (KDP US) as Goldman Sachs downgraded the stock to neutral, saying that the company is still executing well in a tough environment, but the risk-reward seems more balanced from here.
  • Keep an eye on Arcos Dorados (ARCO US) as the stock was initiated with an overweight rating at Barclays, with broker saying that the McDonald’s franchisee is solidly positioned amid headwinds.

Even as dip buyers emerged on Tuesday, global markets remained on edge as investors braced for a heightened risk of global recession.  Volatility across markets was also reflected by the risk of future price swings, which reached the highest since the beginning of the pandemic, as shown by a Bank of America index.

Despite today's bounce, the turmoil in markets shows little sign of turning Fed officials away from hawkish rhetoric. Boston Fed President Susan Collins and her Cleveland counterpart Loretta Mester said additional tightening is needed to rein in stubbornly high inflation and Atlanta Fed President Raphael Bostic also said the central bank still has a ways to go to control inflation.

“The market is pricing in some Fed increases, but we’re a bit worried that it might not be pricing in everything,” Laila Pence, president of Pence Wealth Management, said on Bloomberg Television. “Everyone is nervous.”

In Europe, the Stoxx 50 rose 0.6%, also bouncing after a rout, but traded off session highs as risk sentiment took a small hit after Nord Stream said the damage to the Russian gas pipeline is unprecedented, even as the pullback of the dollar gave some relief to assets. Travel, miners and tech are the strongest performing sectors. Italy’s FTSE MIB index fell 0.9% as of 11:16am, the worst performer among major European stock markets on Tuesday, with utilities and financials dragging the benchmark lower. The BTP-bund spread widens as much as 256bps, climbing above 250bps for the first time since May 2020. FTSE MIB had climbed as much as 1.4% in early trading. Worst performers on the index include: Terna -3.9%, Enel -3.4%, FinecoBank -3.3%, Saipem -2.8%, A2A -2.3%, Generali -2.2%, Intesa Sanpaolo -1.3%. UK markets clawed back some losses after a meltdown triggered by the government’s fiscal plan late last week. Here are some of the biggest European movers this morning:

  • Nexi shares jump as much as 8%, the largest intraday advance in two months, after announcing net revenue and Ebitda growth goals for 2021-2025, which analysts said are ahead of or meet their expectations. Payment peers Adyen, Worldline and Network International also rise
  • Biffa shares rise as much as 29% after investment firm ECP agrees to buy the UK waste-management company at 410p/share in cash
  • SSP rises as much as 6.8% after the company boosted its full-year forecast, which Goodbody says should provide some near-term relief
  • Quadient gains as much as 6.8% after the French postal- and document-services company reported 1H results that Portzamparc says show recovery
  • Vitrolife drops as much as 20%, its largest intra-day decline since February, as Bank of America-Merrill Lynch initiates coverage calling the share overvalued, while spotting risks on the horizon
  • Close Brothers shares decline as much as 8.1% after the financial services group reported adjusted operating profit for the full year that missed the average analyst estimate
  • Akzo Nobel shares slide as much as 3.3% after the company reported preliminary 3Q adjusted operating profit that was well below estimates. Analysts notied that raw material cost inflation is expected to peak in 3Q
  • Real estate was the worst performing European equity sector for a second day, dragged down by UK and Swedish property stocks. Segro -3.3%, Rightmove -5.1%, LXI REIT -3.3% and Samhallsbyggnadsbolaget i Norden -4.7%, Fabege -2.9%, Castellum -2.5%

Earlier in the session, Asian stocks rose from their lowest level in more than two years as equities in China and Japan advanced.    The MSCI Asia Pacific Index added as much as 0.5%, poised to snap four-days of losses. Consumer staples and materials led the measure higher as Meituan, BHP and Toyota gave the biggest boosts to the measure.  Equities in mainland China were notable winners, with the CSI 300 Index finishing 1.5% higher. Several big mutual funds and brokers were asked by Chinese regulators to refrain from large sales of stocks before the party congress in October, Bloomberg News reported. The Hang Seng Tech Index gained, erasing a loss of as much as 1.8%.  The region’s stocks suffered days of selling after the Federal Reserve last week signaled more interest-rate hikes are in store, further strengthening the dollar and tightening global finances. Asian currencies tumbled, raising capital outflow risks and driving key equity gauges lower. 

“Although we could see quant traders likely to swoop and trigger a rally, we emphasize that headwinds still remain in place,” including higher bond yields as well as the dollar, Saxo Capital Markets analysts including Redmond Wong wrote in a note.   Japan’s stocks were among Tuesday’s biggest gainers as the yen weakened, bolstering the profit outlook for exporters. The Philippine benchmark fell to a two-year low, approaching a bear market, as trading resumed after one-day closure due to a typhoon. Key stock gauges in Hong Kong, China, South Korea, Taiwan and Vietnam are all down more than 20% so far this year, along with MSCI’s broadest regional measure.  Tech-heavy markets have suffered as rising rates and a stronger dollar fan valuation concerns. Taiwan will evaluate stock-stabilizing measures cautiously as they are a double-edged sword that may help prices but hurt liquidity, the Financial Supervisory Commission chief said Tuesday. 

Japanese equities climbed, rebounding from a three day drop, as a weaker yen boosted shares of exporters.  The Topix rose 0.5% to close at 1,873.01, while the Nikkei advanced 0.5% to 26,571.87. The yen strengthened slightly after dropping 1% against the dollar Monday. Toyota Motor Corp. contributed the most to the Topix gain, increasing 1.2%. Out of 2,169 stocks in the index, 1,245 rose and 785 fell, while 139 were unchanged. “As long as US stocks don’t fall drastically, Japanese shares have shown an ability to be resilient,” said Hideyuki Suzuki, a general manager at SBI Securities. Japanese stocks have been supported by low valuations as well as Prime Minister Kishida’s moves to raise the limit for tax breaks on individual investment and relax border controls.

In Australia, the S&P/ASX 200 index rose 0.4% to close at 6,496.20, boosted by gains in mining and energy stocks.  In New Zealand, the S&P/NZX 50 index fell 1.9% to 11,214.49.

In FX, the Bloomberg Dollar Spot Index retreats as all G-10 peers advance and as treasuries gained led by the belly as Fed tightening wagers were pared.

  • The pound bounced, reclaiming 1.08 against the dollar and trading around where it closed Friday against both the euro and dollar, with measures of implied volatility remaining elevated as investors brace for more swings. Focus on possible action from policy makers and a speech by the Bank of England’s Huw Pill. Overnight volatility in cable traded earlier at 44.76%, its strongest level since March 2020. Gilts traded higher led by the front-end of the curve as traders trimmed BOE tightening bets amid UK currency gains
  • The euro pared some gains against the US dollar, after Nord Stream reported “unprecedented” damage to the Russian gas pipeline. The common currency still traded above $0.96. Italian bonds extended their underperformance against German peers to a third day, the longest streak since the beginning of the month, as investors continued to digest the right-wing coalition’s election win
  • Japan’s yield curve bear steepens as the BOJ’s unscheduled bond purchases are dwarfed by a deepening selloff in global debt. Japan’s 20-year bond yields rose to the highest level since 2015 as global debt markets come under increasing pressure due to expectations of further monetary-policy tightening. The yen rises for the first time in three days as the dollar weakens. Forget the risk of intervention by Japanese officials in the spot market. Yen traders are more concerned over a potential pivot by the Bank of Japan. The volatility term structures in the euro, the pound and the Swiss franc are fully inverted whereas the one in the yen peaks on the two-month tenor

In rates, treasuries rebounded in Asian trading after 10-year yields jumped the most since March 2020 on Monday.  Japan 10-year yields edge up to 0.25%, the top of BOJ’s tolerated range, prompting the BOJ to enact another unscheduled bond-buying operation. 10-Year Treasury yields were  down 11bps to 3.81%; the 10-year yield surged 24bps Monday, the most since March 2020, after poor demand for a two-year auction triggered renewed selling across the curve. One catalyst for the move was Doubleline’s Gundlach who tweeted that he has been a recent buyer. Still, the selloff is seeing few signs of ending, with UK notes losing a stunning 27% this year.  The “bond vigilantes” are back in the saddle, according to the veteran economist credited with coining the term in the 1980s. Gilt yields slid following the biggest-ever surge and the pound rose about 1% after falling to a record low. Traders remained wary of the risk that the currency could slump to parity with the dollar after the Bank of England indicated it may not act before November to stem the rout. Peripheral spreads widen to Germany with 10y BTP/bund widening 10.3bps to 254.1bps.

In commodities, WTI climbed 1.6% to below $78, within Monday’s range. Spot gold rises roughly $15 to trade near $1,638/oz.  There has been focus this morning on Nord Stream 1 & 2 damage with the cause currently unknown and fresh reporting around a potential EU gas price cap, to be discussed on Friday. The German network regulator later stated that it did not know the cause of the Nord Stream 1 pressure drop but didn't see any impact on the security of supply, according to Reuters. At least 12 countries have signed a letter which calls on the EU to propose a gas price cap at this week's Energy Ministers meeting via Politico citing a letter; proposals will be discussed on Friday, September 30th. A completely clueless President Biden said companies running gas stations need to bring down gasoline prices at the pump now,. BP (BP/ LN) halted production and evacuated staff at two offshore oil platforms in the US Gulf of Mexico ahead of Hurricane Ian.  Intercontinental Exchange is reportedly planning to accept allowances generated by the carbon market as collateral in its European futures market to ease the pressure on utilities and traders amid the energy crisis, according to FT.

Looking at the day ahead, data releases from the US include the Conference Board’s consumer confidence for September, the preliminary reading for durable goods orders and core capital goods orders for August, the FHFA house price index for July, and new home sales for August. Meanwhile in the Euro Area, we’ll get the M3 money supply for August. Central bank speakers include Fed Chair Powell, as well as the Fed’s Evans, Bullard and Kashkari, ECB Vice President de Guindos, the ECB’s Centeno, Villeroy and Panetta, as well as BoE chief economist Pill.

Market Snapshot

  • S&P 500 futures up 1.2% to 3,715.75
  • STOXX Europe 600 up 0.8% to 391.77
  • MXAP up 0.5% to 142.53
  • MXAPJ up 0.4% to 464.38
  • Nikkei up 0.5% to 26,571.87
  • Topix up 0.5% to 1,873.01
  • Hang Seng Index little changed at 17,860.31
  • Shanghai Composite up 1.4% to 3,093.86
  • Sensex up 0.4% to 57,399.07
  • Australia S&P/ASX 200 up 0.4% to 6,496.16
  • Kospi up 0.1% to 2,223.86
  • German 10Y yield little changed at 2.11%
  • Euro up 0.3% to $0.9637
  • Brent Futures up 1.8% to $85.61/bbl
  • Gold spot up 0.9% to $1,637.52
  • U.S. Dollar Index down 0.43% to 113.62

Top Overnight News from Bloomberg

  • Options traders haven’t been this busy since the pandemic mayhem in March 2020, according to data from the Depository Trust & Clearing Corporation
  • Speculators are betting the UK’s pound will slide to a level that was virtually unthinkable in recent decades: $1 or less. After the pound tumbled as low as $1.0350 Monday, the weakest on record, options markets show traders expect it to keep falling
  • The worst bond selloff in decades is seeing few signs of ending, with UK notes losing a stunning 27% this year, as central banks battle to stamp out the strongest inflationary pressures in decades
  • “Bond vigilantes” are back in the saddle and riding high again having mostly been on hiatus since the early 1990s, according to the veteran economist credited with coining the term in the 1980s
  • Traders are bracing for more pushback from China’s central bank as the yuan approaches the lowest level in 14 years. The onshore yuan has lost about 4% over the past month, trading within 1% of 7.2 per dollar, a level it hasn’t reached since 2008
  • China’s shaky recovery continued in September, with a pickup in car and homes sales in the biggest cities compensating for weaker global demand and falling business confidence
  • Japan looks to have spent more supporting the yen on Thursday alone than it did during the entire period of boosting its currency during the Asian financial crisis in 1998

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were mostly higher in which the majority of indices shrugged off the negative lead from Wall St as the overhang from the recent FX turmoil dissipated but with the recovery somewhat contained by the higher yield environment. ASX 200 eked slight gains led by the commodity-related sectors as they atoned for yesterday’s underperformance. Nikkei 225 gained after recent comments from BoJ Governor Kuroda who reaffirmed his commitment to maintaining easy monetary policy, while the central bank also announced unscheduled purchase operations. Hang Seng and Shanghai Comp were mixed with the mainland underpinned amid reports that China is to ramp up financial support for new types of infrastructure, while the PBoC conducted its largest cash injection in seven months ahead of next week’s National Day holiday. However, growth concerns lingered with the World Bank forecasting China’s economic growth to lag behind the rest of Asia for the first time since 1990. India will likely be included in the JP Morgan Emerging Market Index early 2023, according to Reuters sources.

Top Asian News

  • India Unwilling to Relent on Tax Stance for Debt Index Inclusion
  • Australia’s Pinnacle Looks for Deals in Stressed UK and Europe
  • Macau Casino, China Travel Stocks in US Extend Gains
  • India Mulls $2.5 Billion Aid to Manufacture Grid-Scale Batteries
  • Geely’s EV Truck Farizon Said to Seek $300 Million Funding Round
  • Jinke Smart Services Jumps 33% After Boyu’s Share Purchase Offer
  • TikTok Steers Its Charm Offensive Around Loudest Critics in D.C.

European bourses are mixed, Euro Stoxx 50 +0.2%, as the complex wanes from best levels ahead of a packed Central Bank agenda. Catalysts behind the pullback have been sparse with newsflow focused on geopols/energy; though, GS and BlackRock are turning more bearings on equities in the short-term. Stateside, futures remain in positive territory though have similarly drifted from initial peaks, ES +0.8%.

Top European News

  • Euro Pares Gain Versus Dollar After Nord Stream Comments
  • Odey Says Pound Still ‘Vulnerable’ as His Hedge Fund Soars 140%
  • Kwarteng Heads for a Difficult Meeting With London’s Top Bankers
  • Deutsche Bank’s Chief Economist Sees ‘Painful’ UK Recession
  • UK Labour Surges to Record 17-point Poll Lead Amid Pound Selloff
  • UniCredit Gains as JPMorgan Upgrades on Attractive Risk Reward
  • Akzo Nobel Reverses Drop as Analysts See Long-Term Opportunity

Central Banks

  • Fed's Mester (2022, 2024 voter) said further rate hikes will be needed and will need a restrictive stance for some time, while she added it can be better to act more aggressively in an uncertain environment and that pre-emptive action can prevent the worst-case outcome. Mester said this is the time to be decisive and the Fed policy rate may be right below the restrictive level, as well as noted that they are not at neutral yet and need to get above that. Furthermore, Mester said rates are not coming down next year and that at some point they would have done enough and it will be a case of balancing risk at some point, but this is not that moment, according to Reuters.
  • Fed's Evans (non-voter, departing) says US inflation is high, getting it under control is the number one job, via CNBC; Real rate could be around 1.5% by next spring, in Evans' judgement. By this period, can perhaps sit and wait on rates; end-2022 consensus view on rates is 4.25-4.50%. Tougher rate environment is here for a while.

Geopolitics

  • Nord Stream says it has detected damage at three lines of the Nord Stream gas pipeline system; damages are unprecedented and is impossible to estimate when gas transportation infrastructure will be restored. Subsequently, Russia's Kremlin said pipeline damage is a very concerning development; cannot rule out sabotage.
  • Russian Head of Security Council says Russia has the right to use nuclear weapons if necessary, says it is not a bluff, via Reuters.
  • US State Department Spokesman Price said the US does not see an Iran deal coming together soon.

FX

  • DXY has eased from newly formed peaks as yields ease from highs and broader sentiment stages a modest recovery.
  • A pullback that is benefitting GBP in particular, with Cable outperforming after recent pressure as the Pound manages to gain some composure ahead of BoE's Pill.
  • Similarly, NZD is among the best performers following RBNZ Governor Orr stating that further tightening is likely required.
  • More broadly, G10 peers are taking advantage of the USD's pullback though the magnitude of this does differ somewhat; on the flip side, Yuan remains under pressure following a weaker fix, soft data and World Bank updates.

Fixed Income

  • Core benchmarks are mixed and feature 'outperformance' in Gilts after yesterday's heft losses with the morning's I/L relatively robust.
  • More broadly, Bunds initially waned a touch from a 138.75 best, though have reverted back towards the top-end of parameters as broader sentiment slips.
  • Stateside, USTs are holding firm and similarly at the top-end of ranges ahead of numerous Fed officials and 5yr issuance.
  • UK DMO intends to hold 19 Gilt auctions in October through December, now plans three syndications for remainder of year.

Commodities

  • Crude benchmarks have been meandering higher throughout the session, after yesterday's lower settlement.
  • Focus on Nord Stream 1 & 2 damage with the cause currently unknown and fresh reporting around a potential EU gas price cap, to be discussed on Friday.
  • At least 12 countries have signed a letter which calls on the EU to propose a gas price cap at this week's Energy Ministers meeting via Politico citing a letter; proposals will be discussed on Friday, September 30th
  • US President Biden said companies running gas stations need to bring down gasoline prices at the pump now, according to Reuters.
  • German network regulator later stated that it did not know the cause of the Nord Stream 1 pressure drop but didn't see any impact on the security of supply, according to Reuters.
  • BP (BP/ LN) halted production and evacuated staff at two offshore oil platforms in the US Gulf of Mexico ahead of Hurricane Ian.
  • Intercontinental Exchange is reportedly planning to accept allowances generated by the carbon market as collateral in its European futures market to ease the pressure on utilities and traders amid the energy crisis, according to FT.
  • Hurricane Ian has strengthened to a Category 3 storm (major hurricane), via NHC; expected to strengthen further today, has made landfall.
  • UBS says that only a production cut by OPEC+ can break the negative momentum within oil in the short-term, adding that to provide a stronger floor in oil prices, Saudi would need to make extra voluntary cuts.
  • Metals are deriving support from the USDs relative pullback, though spot gold for instance remains within yesterday's parameters.

US Event Calendar

  • 08:30: Aug. Durable Goods Orders, est. -0.3%, prior -0.1%;
    • Aug. -Less Transportation, est. 0.2%, prior 0.2%
  • 08:30: Aug. Cap Goods Orders Nondef Ex Air, est. 0.2%, prior 0.3%
    • Aug. Cap Goods Ship Nondef Ex Air, est. 0.3%, prior 0.5%
  • 09:00: July S&P CS Composite-20 YoY, est. 17.10%, prior 18.65%
    • July S&P/CS 20 City MoM SA, est. 0.20%, prior 0.44%
    • July S&P/Case-Shiller US HPI YoY, prior 17.96%
  • 10:00: Sept. Conf. Board Consumer Confidence, est. 104.5, prior 103.2
    • Sept. Conf. Board Expectations, prior 75.1
    • Sept. Conf. Board Present Situation, prior 145.4
  • 10:00: Aug. New Home Sales, est. 500,000, prior 511,000
    • Aug. New Home Sales MoM, est. -2.1%, prior -12.6%
  • 10:00: Sept. Richmond Fed Index, est. -10, prior -8

DB's Jim Reid concludes the overnight wrap

Yesterday I published my annual long-term study. It contains over 200 years of nominal and real returns across global bonds, equities, commodities and other assets. We also look at structural themes and this year we put 2022’s terrible year for financial markets into some historical context and try to understand “How we got here and where we’re going”. This year we have also launched it as a presentation pack simultaneously for those who want to flick through the broad themes. You can see the link to this in the executive summary of the full report which you can find here.

One of the key themes I pick up in the report is that we’re in the first global bear market for government bonds in over 70 years, using the yardstick of a -20% decline from their recent peak. This has also been a disaster for split bond-equity portfolios given the equity selloff as well this year.

When it comes to the last 24 hours, UK assets have remained at the eye of the storm as the negative reaction to the government’s mini-budget on Friday continued. The country’s government bonds were completely routed for a second day, with yields on 5yr gilts up by +47.8bps to a post-2008 high of 4.52%. Bear in mind that follows on from the +51.0bps move on Friday, which itself was the largest daily rise since January 1985 when there was a 200bps rate hike, so these are not the sort of moves we’re used to seeing every day. Indeed as I showed in an extra CoTD last night (link here) this is now the largest 5 day rolling move for 5yr gilts since our daily data starts in 1979 and the largest 5 day rolling move in 10yr gilts since 1976 (around the IMF loan) and the 5th largest such move since our daily data starts in 1934 (other 4 all around this mid-1970s period). So the global fixed income VAR shocks of the last 12 months keep on coming.

Furthermore, the gap between UK 10yr gilt yields and German 10yr bunds widened to more than 212bps by the close yesterday, which is the biggest spread in available Bloomberg data going back to the early 1990s. We'll have a look at longer data later.

During yesterday’s session there was much speculation as to whether there might be an intervention or perhaps even an emergency intermeeting hike from the BoE. But it wasn’t until just before European markets closed that we finally heard from the UK Treasury, who put out a statement with a number of lines that looked designed to ease investors’ fears. In particular, there was confirmation that Chancellor Kwarteng would be setting out a “Medium-Term Fiscal Plan” on November 23, which would include details of the government’s fiscal rules and ensure that the debt-to-GDP ratio falls in the medium term. Furthermore, there would be a full forecast from the Office for Budget Responsibility (the government’s independent fiscal watchdog) alongside that fiscal plan in November 23. That contrasts with Friday’s mini-budget, where there wasn’t an independent forecast alongside the announcements.

Shortly after the Treasury statement, BoE Governor Bailey released his own statement, in which he said that the Monetary Policy Committee would “make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly.” It further said that they would “not hesitate to change interest rates as necessary to return inflation to the 2% target sustainable in the medium term”. But in spite of those two statements, sterling actually lost ground afterwards since investors slashed the odds of an emergency inter-meeting hike. After hitting an all time low in Asia at $1.0392 it rallied to just above $1.09 by early afternoon and slightly higher on a hugely volatile day. After Bailey’s statement, it fell from just over $1.08 to just beneath $1.07, where it ended the day (up at $1.078 in Asia). In the meantime, the selloff in gilts resumed and they hit their lows for the session around the close. Looking forward, markets are still expecting an incredibly fast pace rate hikes ahead, with around 150bps priced in by the time of the next policy meeting on November 3, albeit that was down from 200bps at one point in the day.

The UK may have been the epicentre for yesterday’s moves, but the global bond selloff showed no sign of abating elsewhere, with yields rising to fresh multi-year highs on both sides of the Atlantic. In the US, 10yr Treasury yields were up +24.0bps on the day to 3.92%, their highest since 2010, which came as investors continued to ratchet up their expectations for how hawkish the Fed would be over the coming year.This morning in Asia, yields have pulled back with 10yr USTs (-5.28 bps) at 3.87% and 2yrs (-4.12 bps) at 4.30%, as we go to press. Indeed, markets are getting the message that the Fed will have to be restrictive for longer, and instead of pricing insurance cuts through next year, the spread between December 2023 and December 2022 policy rates reached their steepest point yet at 22.3bps. The focus on tighter Fed policy also meant that yesterday’s rise in 10yr yields was driven by real rates, which saw an outsize +30.6bps move up to 1.55% (remarkably, only their largest move since June, a sign of how volatile markets have been this year), thus leaving them at levels not seen since 2010. Over in Europe, mounting expectations that the ECB would hike by 75bps in October helped to send yields on 10yr bunds (+9.1bps) and OATs (+11.5bps) higher on the day. In particular, Italian BTPs were a key underperformer following their election, and the spread of 10yr yields over bunds widened by +9.9bps on the day to 242bps, taking them to their widest level since May 2020. That widening in peripheral spreads was also echoed on the credit side, with iTraxx Crossover widening +18.0bps on the day to 655bps, marking its highest closing level since March 2020 during the initial phase of the Covid crisis.

This global risk-off move was evident across asset classes, as the S&P 500 (-1.03%) fell for a 5th consecutive session to close at its lowest level so far this year. That takes it beneath the June lows to levels not seen since late 2020, and leaves the index down by over -23% on a YTD basis, where energy remains the only sector in the green for the year. European equities followed a similar pattern, and the STOXX 600 (-0.42%) fell for the 9th time in the last 10 sessions to also hit levels unseen since late 2020. This widespread selloff was seen amongst commodities, with Brent crude oil prices (-2.43%) closing beneath $85/bbl for the first time since January, and even the classic safe haven of gold (-1.31%) slumped to a 2-year low.

Asian equity markets are mixed this morning with the Nikkei (+0.83%), Shanghai Composite (+0.26%) and the CSI (+0.18%) on the positive side. Meanwhile, the Hang Seng (-1.05%) is trading lower, pulling back from some brief opening gains while the Kospi (-0.74%) is also weak. Across DMs, equity futures are pointing to a positive start with contracts on the S&P 500 (+0.68%), NASDAQ 100 (+0.76%) and DAX (+0.55%) all edging higher.

Elsewhere, yields on 20-yr Japanese government bonds jumped to its highest level since 2015, moving above 1% level and trading at 1.029% (+3.8bps) as the upward surge in global yields is adding pressure on super-long JGBs.

Back to yesterday and the limited data did nothing to help sentiment, with the Ifo’s business climate indicator from Germany falling more than expected to 84.3 in September (vs. 87.0 expected). With the exception of April and May 2020 during the Covid lockdowns, that means the index is at its lowest level since 2009 as the economy was recovering from the GFC. Otherwise in the US, the Dallas Fed’s manufacturing index fell to -17.2 in September (vs. -9.0 expected).

To the day ahead now, and data releases from the US include the Conference Board’s consumer confidence for September, the preliminary reading for durable goods orders and core capital goods orders for August, the FHFA house price index for July, and new home sales for August. Meanwhile in the Euro Area, we’ll get the M3 money supply for August. Central bank speakers include Fed Chair Powell, as well as the Fed’s Evans, Bullard and Kashkari, ECB Vice President de Guindos, the ECB’s Centeno, Villeroy and Panetta, as well as BoE chief economist Pill.

Tyler Durden Tue, 09/27/2022 - 07:58

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Industrial Production Decreased 0.1% in January

From the Fed: Industrial Production and Capacity Utilization
Industrial production edged down 0.1 percent in January after recording no change in December. In January, manufacturing output declined 0.5 percent and mining output fell 2.3 percent; winter…

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From the Fed: Industrial Production and Capacity Utilization
Industrial production edged down 0.1 percent in January after recording no change in December. In January, manufacturing output declined 0.5 percent and mining output fell 2.3 percent; winter weather contributed to the declines in both sectors. The index for utilities jumped 6.0 percent, as demand for heating surged following a move from unusually mild temperatures in December to unusually cold temperatures in January. At 102.6 percent of its 2017 average, total industrial production in January was identical to its year-earlier level. Capacity utilization for the industrial sector moved down 0.2 percentage point in January to 78.5 percent, a rate that is 1.1 percentage points below its long-run (1972–2023) average.
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This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).

Capacity utilization at 78.5% is 1.1% below the average from 1972 to 2022.  This was below consensus expectations.

Note: y-axis doesn't start at zero to better show the change.


Industrial Production The second graph shows industrial production since 1967.

Industrial production decreased to 102.6. This is above the pre-pandemic level.

Industrial production was below consensus expectations.

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The Greenback is in Narrow Ranges to Start the Week

Overview: The foreign exchange market is quiet. The
Lunar New Year holiday shut most Asian markets. That, coupled with the light
news in Europe, have…

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Overview: The foreign exchange market is quiet. The Lunar New Year holiday shut most Asian markets. That, coupled with the light news in Europe, have served to keep the dollar in narrow ranges against the G10 currencies. The Swedish krona, Norwegian krone, and Japanese yen are posting minor gains against the greenback. The New Zealand dollar, which was strongest major currency last week (1.4%) is off by almost 0.5% today, making it the weakest today. RBNZ Governor Orr underscored the recent message that inflation is still too high (~4.7%). Emerging market currencies are narrowly mixed (+/-0.2%). Of note, India reports December industrial production and January CPI shortly.

The few equity markets in the Asia Pacific region that were not on holiday today, including Australia, India, and New Zealand slipped. Political uncertainty in Pakistan saw its stock market tagged for 3%. On the other hand, Europe's Stoxx 600 is trying to snap a three-day fall (less than 0.4%). Of note, real estate is the strongest sector today, rising by more than 1%. US index futures are trading firmly after new record-highs before the weekend. Benchmark 10-year bond yields are 3-6 bp lower in Europe. The 10-year US Treasury yield is off a basis point to around 4.16%. Gold is trading with a softer bias near $2020. Last week's low was around $2015. April WTI set this month's high before the weekend near $77.15. It is approaching the pre-weekend lows slightly below $76. Support is seen closer to $75. 

Asia Pacific

The top two BOJ officials played down speculation that the central bank’s from negative interest rates will signal the start of a tightening cycle, and for good reason. First, inflation is already well off its peak and could easily fall below the 2% target before the April BOJ meeting that is widely expected to adjust policy. Second, despite a shortage of workers, (Japan's working age population peaked nearly 30 years ago) and the gradual opening to foreign workers, wage growth continues to lag inflation. Third, and related, domestic demand is soft. Toward the end of the week, Japan will publish its initial estimate of Q4 GDP. Consumption is likely to have recovered weakly from the contraction in Q2 and Q3 23. In the five years (20 quarters) before the pandemic, Japan's private consumption component in its GDP contracted by an average of 0.2% a quarter. Also, note that although the BOJ set the overnight target rate at minus 0.10%, the effective rate at the end of last week was 0.005%. Governor Ueda is determined to exit the negative interest rate policy for technical and strategic reasons. Arguably, there was windows of opportunity previously, where the macroeconomic setting was conducive to exiting the negative policy rate. 

Most Asian markets were closed today, and China's mainland markets are closed all week for the Lunar New Year holiday. We expect that after the holiday, more efforts to support the economy and fight deflation will be forthcoming. Despite the stimulus in H2 23, the economy does not seem responsive. The assumption that the state-owned banks are just arms of the government is challenged by the same banks not fully passing on the PBOC's lower rates. The one- and five-year loan prime rates will be set on Feb 20. The same state-owned banks have also been reluctant to lend to the property market and enact the support measures Beijing unveiled in 2022. Lastly, consider the offshore yuan. It does not have to but with few exceptions respects the onshore band (2% for the dollar around the reference rate). Why? While the PBOC could intervene there, but when it does it is fairly clear. The last reference rate creates a band of ~CNH6.9640-CNH7.2485. Is it too much to suggest that the same mechanism that keeps the offshore yuan within the onshore band explains a great deal of how the PBOC manages the exchange rate? To paraphrase an old Chinese saying, "kill an occasional chicken to scare the monkeys."  

The dollar edged a little closer to the JPY150 level ahead of the weekend (~JPY149.60) before settling virtually unchanged near JPY149.30. There are around $1.4 bln in options at JPY150 that expire tomorrow. During the six-week decline in the yen, speculators in the futures market have grown their net short yen position by more than 50% to 84k contracts (~$7 bln). The greenback is a narrow range of about a third of a yen above JPY149. The price action looks like a bullish pennant or flag, The Australian dollar's range last week, roughly $0.6470-$0.6540, is the key to the near-term direction. We favor an upside break and watching the possible bullish divergence with some of the momentum indicators but recognize the $0.6555-75 area to be an important hurdle. The Aussie eked out a small gain last week (~0.20%), the first of the year. Speculators in the futures markets added to their net short Australian dollar position for the fourth week in a row. It now stands at about 71.8k contracts (~$7.2 bln), up from 32.3k before the streak began. The Aussie is trading in about a fifth of a cent range above $0.6510.

Europe

The European economic calendar is light this week, and what there is, may be a sad reminder of the Europe's sad state. Eurostat will publish the details of Q4 23 GDP. The initial estimate had the regional economy stagnating after a 0.1% contraction in Q3. The dramatic 1.6% drop in Germany December industrial output (-3.0% year-over-year) underscores the lack of growth impulses to start the new year, and the weakness of what had been the European engine. At the same time, leadership is weak. Among the large members, Italy's Meloni, right-government seems among the strongest, and incidentally, the economy is doing better (but still not well). In 2022, Germany grew by 1.8%. Italy grew twice as fast. Last year, the German economy contracted by 0.3%, while Italy expanded by 0.7%. On the other hand, Italy's budget deficit was about 5.4% of GDP last year, while Germany's was less than 2.5%. Italy's 10-year premium over German narrowed to about 140 bp at the end of January, almost a two-year low, after rising to a nine-month peak last October over 200 bp. It is snapping back this month is near 155 bp. Italy's two-year premium peaked near 95 bp in the middle of last October and fell to almost 45 bp late last month. Last year's low was below 30 bp. It has jumped to about 65 bp now, the most since last November.

The Swiss franc was the strongest G10 currency in Q4 23 as dollar fell across the board. It rose 8.8% and so far, this year, the franc has fallen by about 3.9%. The dollar approached the (50%) retracement objective (~CHF0.8790). Above there is the 200-day moving average (~CHF0.8845) and the (61.8%) retracement near CHF0.8900. The euro is recovering from multiyear lows set against the franc in Q4 23 (~CHF0.9255). It traded up to almost CHF0.9475 last month but pulled back to support near CHF0.9300 earlier this month. There may be potential toward CHF0.9500-CHF0.9550. Switzerland reports January CPI tomorrow. The EU harmonized measure is expected to slip to 2.0% from 2.1%. Its own measure is seen easing to 1.6% (from 1.7%) and the core rate to 1.4% (from 1.5%).

The euro reached a six-day high late in thin Asia Pacific turnover near $1.0805. It was quickly sold to almost $1.0765 before finding a bid in early European turnover. It is the fourth session of higher highs. The pre-weekend low was almost $1.0760, and a break of the $1.0755 area would weaken the fragile technical tone. There are options for about $755 mln euros at $1.08 that expire today. There are large (1.4-1.5 bln euros) at $1.07 that expire tomorrow and Wednesday. Stiff resistance is seen in the $1.0830-40 area. Sterling recovered after breaking down at the start of last week (~$1.2520) but settled back into the $1.26-$1.28 trading range in the past three sessions. The $1.2640 area had capped but, like the euro, set a new six-day high before Europe opened and took sterling down to almost $1.2615. Before the weekend, sterling briefly frayed the $1.26 level. It is an important week for UK data, including the labor market report tomorrow and the January CPI on Wednesday. Soft data may encourage bringing forward the first rate cut to June from August. 

America

Interest rates and expectations are a key force driving exchange rates. The market has gradually reduced the odds May rate cut to about 73% from 90% chance after the strong January jobs growth. It also scaled back the magnitude of Fed cuts by about 50 bp (to ~112 bp) in the past month. Tomorrow's CPI, more than last week's historic revisions, is a key input into the Fed's reaction function. Fed Chair Powell recently indicated the central bank was looking for more confirmation that inflation was on a sustained path back to its target. The January figures will give the Fed that. Ahead of it, the results of the NY Fed's inflation survey are of little consequence.

Canada reported a loss of full-time jobs in January for the second consecutive month. Wage growth slowed. The decline in the unemployment rate to 5.7% (from 5.8%) can be explained by the decline in the participation rate (65.3% vs. 65.4%). The takeaway is that the market boosted the chances of a June rate cut (to ~77% vs. ~67%). Despite the risk-on mood, which lifted the S&P 500 to a new record high, the Canadian dollar found no traction. It fell slightly for the first time in three sessions. The US dollar made session highs near midday in NY ahead of the weekend near CAD1.3480. The greenback is in a narrow 20-tick range above CAD1.3450 so fat today. Nearby resistance is seen in the CAD1.3500 area but the greenback has been turned back from the CAD1.3540 area three times. There are options for about $630 mln at CAD1.35 that expire tomorrow. The Mexican peso weakened after the central bank seemed to prepare the market for a rate cut as early as next month. However, it recovered and returned to pre-central bank levels near MXN17.08. It has edged low today to MXN17.0640. MXN17.00 was tested early last week. Around $580 mln of options expire there on Thursday. The US dollar reached BRL5.0175 at the start of last week. On the pullback, it found support near BRL4.95. It settled last week just above there. There is a band of technical support between BRL4.91 and BRL4.93.

 

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Week Ahead: Will Soft US CPI and Retail Sales Mark the End of the Interest Rate Adjustment and Help Cap the Greenback?

The
markets are still correcting from the overshoot on rates and the dollar that
took place in late 2023. The first Fed rate cut has been pushed out of…

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The markets are still correcting from the overshoot on rates and the dollar that took place in late 2023. The first Fed rate cut has been pushed out of March and odds of a May move have been pared to the lowest since last November. The extent of this year's cuts has been chopped to about 4.5 quarter-point move (~112 bp) from more than six a month ago. The market has reduced the extent of ECB cuts to about 114 bp (from 160 bp at the end of January and 190 in late 2023). The Bank of England is now expected to cut rates three times this year (75 bp), which is nearly 100 bp less than was discounted at the end of last year. The extent of Bank of Canada rate cuts this year has been halved to less than 80 bp from 160 bp in late December 2023. We suspect that the interest rate adjustment is nearly over. A soft US CPI and weak retail sales report next Tuesday and Wednesday could help cap US rates and signal the end of the dollar's New Year rally. 

The UK reports CPI on February 14, and given the base effect (-0.6% in January 2023), even a 0.3% decline in prices last month, the year-over-year rate is likely to rise (to 4.2%-4.3%). However, the bigger story for the UK, the eurozone, and Canada is that inflation rose sharply in the Feb-May period last year, and as these drop out of the 12-month comparisons, the year-over-year rates will fall dramatically. The UK and Japan will report Q4 23 GDP. The UK economy likely contracted slightly for the second consecutive quarter. Japan, the world's third-largest economy, likely returned to growth after contracting at an annual rate of almost 3% in Q3. Consumer spending and capex fell in Q2 and Q3 24. Both likely recovered. The UK and Australia report new labor market figures. In the UK wages are moderating and the economy likely lost full-time positions for the second consecutive month in January. It is difficult to image a worse employment data than Australia reported last month. It lost 106k full-time jobs, which, outside of the pandemic, looks like the worst on record. 

United States:  The data and official guidance have pushed out expectation of the first Fed cut and reduce the extent to this year's cut. The market's confidence (~73%, down from 90% after the employment data) of a May move still seems too high given the apparent momentum the economy enjoys in early 2024, even if we do put too much emphasis on the Atlanta Fed's GDP tracker (3.4%) this early in the quarter. The market has about 4.5 Fed cuts discounted this year, down from more than six cuts as recently as mid-January. The May decision is unlikely to be determined by January data. That counts even this week's highlights of CPI, retail sales, and industrial production.

At his post-FOMC press conference, Fed Chair Powell called attention to "six months of good inflation." This looks to have continued into this year. The headline CPI rate is seen rising by 0.2% (February 13), which, given the base effect (0.5% in January 2023), would see the year-over-year rate fall to 3.0%-3.1% from 3.4%  Yet, the median forecast from the nine economists that participated in Bloomberg's survey (by end of last week) see it falling to 2.9%. The core rate is expected to rise by 0.3% for the third consecutive month and the fifth time in six months. That may be more important that the softer year-over-year rate (~3.7% vs 3.9%). 

January retail sales (Feb 15) may have been dragged down by disappointing auto sales (15 mln SAAR, down from 15.83 mln in December). Consumption would appear be off to a slow start after retail sales rose by an average of 0.2% in Q4 23 after a blistering 0.7% average gain in Q3 23. The median forecast is for a 0.2% decline in headline retail sales (+0.6% in December). On the other hand, industrial production (Feb 15) appears to have accelerated and the 0.3% increase the median in Bloomberg's survey is looking for would be the strongest in six months. However, manufacturing itself may be flat. Other high frequency data points include producer prices (year-over-year rates are below 2%), housing starts and permits (small gains expected), and a number of early regional Fed surveys. Of note, the Empire State Manufacturing Survey crashed in January (-43.7 from -14.5) and a sharp snap back is expected in February. On balance, the data is likely to be consistent with the US economy expanding somewhat faster than what the Federal Reserve believes is the long-term non-inflation pace (1.8%). 

The big outside day for the Dollar Index after the US employment data on February 2 saw follow-through buying at the start of last week. It reached 104.60, the highest level since the middle of last November and spent the rest of the week consolidating above 103.95. A move above the 104.80 is needed to reignite the upward momentum. Despite the stretched momentum indicators and the proximity of the upper Bollinger Band (~104.50), there is little technical sign of a top. That said, given the nearly 4% rally off the late December lows, this is the area where we are beginning to look for a reversal pattern.

Eurozone:  Details for Q4 23 GDP (flat and 0.1% year-over-year) will be released with the revisions on February 14. It may be interesting for economists, but the general thrust is sufficiently known for businesses and market participants. The eurozone economy is stagnating or worse. In the last five quarters through Q4 23, in aggregate, there has been no growth. Still, the details of fourth quarter GDP saps much interest in high frequency data from the end of last year. More importantly is the momentum at the start of the new year and the data so far have been limited to some surveys and a preliminary estimate of January CPI (-0.4% month-over-month and minus 3.2% at an annualized rate in the last three months). There seems to be little reason to expect new growth impulses, leaving this quarter to be flat to +0.1%.

The euro's low for the year was set at the start of last week slightly below $1.0725. The subsequent recovery stalled in the $1.0790-95 area, meeting the (38.2%) retracement objective from the Feb 2 high set shortly before the US January jobs report. The momentum indicators remain stretched, as one would expect, given the five weeks of losses in the first six weeks of the year. And if there is a more of a recovery, the $1.0810-40 area may offer stiff resistance. The 20-day moving average, which the euro has not closed above since January 2 is found at the upper end of that band. Note that there are options for 2.5 bln euro at $1.0725 that expire Monday and options for 1.5 bln euros at $1.07 expire shortly after the US CPI report on February 13.  There is another 1.4 bln euro s at $1.07 that expire Wednesday. 

Japan:  In each of the past six years, the Japanese economy contracted in at least one quarter (in 2018 and 2022 there were two contracting quarters). Last year, it was the third quarter, when output fell by 0.7% (quarter-over-quarter). A stabilization in consumption and a recovery in private investment, both of which fell in Q2 23 and Q3 23, likely helped return the world's third largest economy to growth. Exports also increased. The GDP deflator appears to have peaked in Q3 23 at a 5.3% year-over-year pace. On the back of firmer US Treasury yields and comments by BOJ officials that downplayed the likelihood of a tightening cycle even after negative interest rate policy is jettisoned, the dollar rose to nearly three-month highs against the yen (~JPY149.60). Although Japanese officials have not expressed concern about the price action in the foreign exchange market, the yen's six-week drop is the kind of one-way market that is resisted. The November high was near JPY149.75, in front of the psychologically important JPY150 level. There are $1.4 bln in options at JPY150 that expire shortly after the US CPI report on February 13. A move above JPY150 brings last year's high near JPY152 into view.

United Kingdom: It is an important week for UK data and the jobs report and the CPI, in particular will likely impact expectations for interest rate policy. Average weekly earnings have slowed for four consecutive months through November and look poised to continue to slow as the labor market cools. The key message on UK CPI is that it will fall sharply starting the February report and running through May. In those four months in 2023, UK CPI rose by an average of 1.0% a month. In the last four months, through January, the UK's CPI rose by an average of 0.2% a month. Due to 0.6% decline in January 2023 UK CPI, the 0.3% decline expected for last month's CPI will translate into a small increase in the year-over-year rate. But that is not the signal. Even if UK's inflation averaged 0.4% in the Feb-May period this year, the headline year-over-year rate would still slip below 2% (from 4% in December). The core rate is firmer, but the direction is lower. It peaked at 7.1% last May and finished the year at 5.1%. The UK also reports Q4 23 GDP. Recall that the monthly print showed a 0.3% contraction in October followed by 0.3% growth in November. It is seen contracting by 0.2% in December. That would likely translate to a 0.1% contraction quarter-over-quarter for the second consecutive quarter. Surveys suggest manufacturing remains weak while the services are finding traction. The swaps market has about a 70% chance that the first cut is delivered by midyear. Three cuts and about a small chance of a fourth cut is discounted for this year. 

Sterling broke out of its $1.26-$1.28 trading range to the downside at the start of last week, largely on follow-through selling after the US jobs report on February 2. It bottomed near $1.2520 and recovered to settle above $1.26 for the past three sessions. Sterling's recovery stalled near $1.2645, the (50%) retracement of the losses from February 2 high (~$1.2770). The next retracement (61.8%) is around $1.2675, which is also where the 20-day moving average is found.

Australia: The January employment data will be reported early on February 15. It is difficult to imagine a worse report than December's, even though the unemployment rate held at 3.9% (up from 3.5% at midyear). Australia lost a stunning 106.6k full-time posts, which wiped out half of the increase reported in the Jan-November period (~211k). Part of the reason that the unemployment rate did not rise was that the participation rate fell by a sharp 0.5% to 66.8%. At the same time, other hard data have been poor. Remember December retail sales tumbled 2.7% in the face of expectations of a 0.5% gain. November gain itself was revised lower by nearly as much as economists had forecast a December gain (1.6% vs. 2.0%). Building approvals dropped 9.5%. Here, too, economists (median in Bloomberg's survey) forecast a 0.5% increase. November's 1.6% gain was revised to 0.3%. There may be scope for the market to bring forward the first rate cut by Reserve Bank of Australia to June from August. 

The Australian dollar recorded a new low for the year last Monday near $0.6470, its lowest level since mid-November as it extended the post-US jobs data drop. However, it stabilized and largely traded in a range mostly between $0.6480 and about $0.6540. The upper end of the range corresponds to the (50%) retracement of the decline from the pre-jobs data high a little above $0.6600. The next retracement (61.8%) is near $0.6555, and the 20-day moving average, which the Aussie has not closed above since January 3 is a little higher (~$0.6560).

Canada:  Canada has a light economic diary in the coming days. January existing home sales and housing starts, and Canada' portfolio investment account (December) rarely moves the market in the best of times. In terms of drivers, the 30- and 60-day correlations with the changes in the exchange rate seem to be the general direction of the dollar (DXY) and risk-appetites (S&P 500). The Canadian dollar seems less sensitive to oil and two-year rate differentials (less than 0.2 correlation for both period). The US dollar took out the January high marginally and rose to about CAD1.3545 early last week before consolidating at lower levels ahead of the Canadian employment data reported before the weekend. The Canadian dollar strengthened initially on the news, even though full-time jobs fell for the second consecutive month. The greenback found support ahead of CAD1.3400 and recovered back to set new session highs near CAD1.3480. The risk seems to be on the upside. 

Mexico:  After the January CPI figures and the central bank decision to hold policy steady, there may not be market-moving economic data February 22 with another look at Q4 23 GDP (0.1%), first half of February CPI, and minutes from the Banxico meeting. The central bank raised quarterly inflation forecasts through Q3 but left the Q4 24 projection at 3.5%. The target is 3%, +/- 1%. The dollar initially moved higher in response, but the upticks (to ~MXN17.17) were short-lived. The greenback settled last week below MXN17.10, to post its second consecutive weekly decline. The MXN17.00 area had been approached before Mexico's CPI and central bank meeting. It has not traded below there since January 16, but it could if the US CPI and retail sales data are soft and cap US rates. 

  

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