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Yesterday’s Dollar Recovery Questioned Today

Overview: The 11 bp jump in the 10-year US yield yesterday after dropping nearly 26 bp in the previous three sessions, helped the greenback recover and…



Overview: The 11 bp jump in the 10-year US yield yesterday after dropping nearly 26 bp in the previous three sessions, helped the greenback recover and took a toll on stocks. Still, the S&P 500 is above the low set on November 30 (~3939) before Fed Chair Powell's talk that day. Global equities were dragged lower today. Most large bourses in the Asia Pacific region fell, including Hong Kong’s Hang Seng and the index of mainland companies that trade in Hong Kong. China’s CSI 300 and Japanese indices resisted the drag. Europe’s Stoxx 600 is off almost 0.5% and US futures are a little softer. European bond yields are mostly 2-3 bp lower, while the 10-year US Treasury yield is stead at 3.57%. Most G10 currencies are a little stronger today, while the sterling and the Canadian dollar are laggards, with small losses. Among emerging markets, Asian currencies are weaker, led by a 2% drop in the South Korean won. It is the biggest loss in two years. Some of the pressure may be linked to equity sales by foreign investors. The South African rand is the strongest in the EM space as it continues to recover (third day) from the recent sell-off due to domestic political issues. Gold has steadied after yesterday downside reversal that saw the yellow metal tumble to about $1766 after setting a new five-month high of almost $1810. Yesterday’s lows have held, and it is trading near $1773 late morning in Europe. January WTI is extending yesterday’s losses and is threatening the $75 a barrel level. US natgas is off 1.6% after falling 11.2% yesterday. It is extending its downdraft for the fifth consecutive session. It has lost nearly 25% over the run. Europe’s benchmark is about 0.25% lower after falling 2.3% yesterday. Iron ore fell for the first time in four sessions, but the loss was minor (~0.15%). March copper snapped a four-day advance yesterday with a 1.4% decline. It has steadied today and is up slightly. March wheat fell to a new low for the year yesterday ($7.34 a bushel) amid rising supplies, including talk of a record Australian harvest.

Asia Pacific

The Reserve Bank of Australia hiked its cash target rate by 25 bp to 3.10%. It was the eighth consecutive hike. Governor Lowe indicated that more hikes would be needed but is not a pre-set course. The futures market does not have another 25 bp fully discounted until April 2023. It has a peak rate of around 3.65%. Tomorrow, Australia reports Q3 GDP. Growth is expected to slow slightly to 0.7% quarter-over-quarter from 0.9% in Q2 and 0.7% in Q1. Growth is quarter may be the slowest of the year.

After unexpectedly contracting in Q3, the Japanese economy is off to a soft start in Q4. The composite PMI slipped below 50 to its lowest level since February. Today, it reported that household spending slowed to 1.2% year-over-year in October from 2.3% in September. Labor cash earnings rose 1.8% from a year ago, down from 2.2% in September. Tomorrow, Japan reports revisions to Q3 GDP and October current account figures. Japan's trade deficit nearly always improves in December before deteriorating in January.

The jump in US rates yesterday, which many accounts link to the ISM services, while ignoring the weakness in the services PMI, helped fuel a strong dollar rebound against the Japanese yen. We suspect yesterday's bonce in rates was a recognition that nearly 25 bp decline in the last three sessions of last week was exaggerated. The dollar rose to about JPY136.85 yesterday and extended it to almost JPY137.45 today. Resistance is seen in the JPY137.50-JPY138.00 band. The Australian dollar posted a key reversal yesterday by making new highs for the move and then settling below the previous session's low. The Aussie tested the 20-day moving average (~$0.6685) yesterday for the first time in more than three weeks. It has held yesterday's low today and recovered to nearly $0.6740. The $0.6750-70 area is the next hurdle. The dollar gapped lower against the Chinese yuan yesterday and traded below CNY7.0 the entire session. Today's bounce, anticipated by the dollar's gains against the euro and yen yesterday, stalled at CNY7.0. The pre-weekend low, the top of the gap, is at CNY7.0170. The greenback also stalled near CNH7.0 against the offshore yuan, but no gap is evident. The PBOC set the dollar's reference rate at CNY6.9746 compared with expectations (Bloomberg's survey) for CNY6.9785.


Germany's October factory orders were stronger than expected and the September series was revised to show a small decline. Factory orders rose 0.8% in October, well above the 0.1% median forecast in Bloomberg's survey. However, domestic orders fell by 1.9%, while foreign orders jumped 2.5% and were concentrated in capital goods orders. The Bundesbank noted that the large-scale orders were key. The 4.0% decline initially reported in September was revised to -2.9%. Germany reports industrial production figures tomorrow and are seen falling by 0.6% after a rise by a similar magnitude in September.

UK Prime Minister Sunak softened the plan that would set mandatory house building targets for local councils in the face of dissent among his own party. He could have still pushed forward as the Labour Party was more supportive. Sunak has agreed to make the targets advisory rather than compulsory. The next divisive issue is the government's effective ban on new onshore windfarms. Sunak's last two predecessors, Truss and Johnson are among the MPs that want to end the ban.

There seemed to be little progress yesterday in the US-EU trade and technology talks. There is tension over the $370 bln in subsidies for green energy in the Inflation Reduction Act, and tax breaks for US-made electric vehicles and batteries. Some observers are that Europe is subsidizing energy bills for business and households, but it is not that the WTO prohibits all subsidies but certain types. Europe can take the case to the WTO. Separately, reports suggest the US and EU have begun discussing the possibility to impose a carbon tariff on China's steel and aluminum exports as partly a green measure but also to address the overcapacity. Much thinking and discussion is needed and is likely to be a 2023 issue.

The euro peaked yesterday slightly shy of the $1.06 level, but reversed lower and settled near $1.0490, its lowest close in three sessions. The euro slipped through yesterday's low near $1.0480 briefly in late Asia Pacific turnover. Support was found near $1.0475. The session high was recorded earlier in session around $1.0520. The expiring options for about 785 mln euros at $1.0550 look safe. Sterling also made new highs since June yesterday near $1.2345 before succumbing to profit-taking pressures. It fell to nearly $1.2160 and held 5/100 of a cent above it today. However, the underlying tone sees soft and a push back below the 200-day moving average (~$1.2140) looks likely. A break of the $1.2120 area could signal another half-cent decline.


There are two distinct ways companies can service foreign demand, exports and build locally. The traditional way is exports, of course, but this is not America's way. In fact, for more than half-of-a-century, the sales by the foreign affiliate of US multinationals exceed US exports by a huge factor. Consider that for 2020, the latest year data is fully available, the sales by majority owned affiliate of US multinationals were $4.58 trillion. US exports that year were a more modest $1.43 trillion. The reasons for the US companies to adopt a foreign direct investment strategy (build and sell locally) rather than an export thrust appear to be historical reasons (over-valued dollar after WWII and protectionism). Those are the forces that drove Japanese auto and parts makers to build and sell vehicles in the US. No matter how high the yen went it did not satisfy some US officials and corporate leaders. And the type of US protectionism, like "orderly market arrangements" and "voluntary export restrictions" where acceptable under GATT, which led to its reform (WTO). Kenichi Ohmae, a nuclear scientist by training, and later the of McKinsey's Tokyo office, suggested a "total market penetration" measure that added local sales to exports. Moreover, because of the fragmentation of production, made possible by improvement in command, control, and communication functions, as well as reduced shipping costs and tariff barriers to trade, the cross-border movement of semi-finished good within the same company (think autos, US, Canada, and Mexico), simply adhering to a state-centric model (does the good or service cross the a border?) fails to appreciate the evolution of trade and the organizational contribution of multinational companies.

The US reports its October trade balance deficit today. We already know that the goods shortfall widened to $99 bln in October, a little more than a 7.5% deterioration, which is a little less than half of the deterioration over the past year. Due to distortions and disruptions of the supply chains and challenges managing inventories in a phase characterized by uneven re-opening from the pandemic appears to be the main factor behind the trade deficit recovering from a monthly record in March of almost $107 bln. It fell to about $65.7 bln in August, which was the smallest since February 2021. The improvement is likely behind it, and a new deterioration has likely begun. The median forecast in Bloomberg's survey is for an $80 bln shortfall. If true, that would be the largest since June. There was a period in the mid-1980s that the US trade report was the key report of the month and a source of volatility. Those days are long over but may come back in the form of a narrative to explain why the dollar is weaker even while maintaining an interest rate differential over Europe and Japan.

Canada reports is October merchandise trade balance. So far, this year, Canada has not reported a monthly trade deficit. If this is sustained in Q4, it would be the first such year since 2007. The C$2.4 average monthly surplus through September contrasts with a C$0.23 surplus in the same period last year and a C$1.80 bln deficit in 2019. The Canadian dollar does not seem particularly sensitive to the merchandise trade flows. The Bank of Canada meets tomorrow. The swaps market had leaned toward a 50 bp hike at the start of last week (~78%) but has downgraded it to slightly less than a third.

The US dollar posted an outside up day against the Canadian dollar. It rallied from a five-day low near CAD1.3385 to a four-day around CAD1.3605 amid the sharp sell-off in US equities. The greenback is extending yesterday's gain and it near CAD1.3625 in the European morning. Last week's high by CAD1.3645 is the next immediate target. The CAD1.36 area represents the (50%) retracement of the US dollar's losses since peaking on October 13 slightly above CAD1.3975. The (61.8%) retracement is around CAD1.3690. The Mexican peso was shellacked yesterday. The US dollar soared to MXN19.8640 from a little below MXN19.35. As we have suggested, last week's push to MXN19.04 seemed to have sapped the peso bulls and adjustment on the crosses seemed to have had an exaggerated effect. The US dollar settled near MXN19.7550 and has spent little time above there today. The low so far is slightly below MXN19.68. The dramatic price action has been enough to lift the five-day moving average above the 20-day for the first time in two months. We look for near-term consolidation.



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What the extreme fire seasons of 1910 and 2020 – and 2,500 years of forest history – tell us about the future of wildfires in the West

As the climate warms, devastating fires are increasingly likely. The 2020 fires pushed the Southern Rockies beyond the historical average. Is there hope…




Rocky Mountain fires leave telltale ash layers in nearby lakes like this one. Philip Higuera

Strong winds blew across mountain slopes after a record-setting warm, dry summer. Small fires began to blow up into huge conflagrations. Towns in crisis scrambled to escape as fires bore down.

This could describe any number of recent events, in places as disparate as Colorado, California, Canada and Hawaii. But this fire disaster happened over 110 years ago in the Northern Rocky Mountains of Idaho and Montana.

The “Big Burn” of 1910 still holds the record for the largest fire season in the Northern Rockies. Hundreds of fires burned over 3 million acres – roughly the size of Connecticut – most in just two days. The fires destroyed towns, killed 86 people and galvanized public policies committed to putting out every fire.

A black and white photo from 1910 shows rail lines and the burned shells of buildings
Many residents of Wallace, Idaho, fled on trains ahead of the 1910 blaze. Volunteers who stayed saved part of the town, but about a third of it burned. R.H. McKay/U.S. Forest Service archive, CC BY

Today, as the climate warms, fire seasons like in 1910 are becoming more likely. The 2020 fire season was an example. But are extreme fire seasons like these really that unusual in the context of history? And, when fire activity begins to surpass anything experienced in thousands of years – as research suggests is happening in the Southern Rockies – what will happen to the forests?

As paleoecologists, we study how and why ecosystems changed in the past. In a multiyear project, highlighted in two new publications, we tracked how often forest fires occurred in high-elevation forests in the Rocky Mountains over the past 2,500 years, how those fires varied with the climate and how they affected ecosystems. This long view provides both hopeful and concerning lessons for making sense of today’s extreme fire events and impacts on forests.

Lakes record history going back millennia

When a high-elevation forest burns, fires consume tree needles and small branches, killing most trees and lofting charcoal in the air. Some of that charcoal lands on lakes and sinks to the bottom, where it is preserved in layers as sediment accumulates.

After the fire, trees regrow and also leave evidence of their existence in the form of pollen grains that fall on the lake and sink to the bottom.

By extracting a tube of those lake sediments, like a straw pushed into a layer cake from above, we were able to measure the amounts of charcoal and pollen in each layer and reconstruct the history of fire and forest recovery around a dozen lakes across the footprint of the 1910 fires.

A woman sitting an inflatable boat, wearing a life jacket, holds a long tube filed with lake bottom sediment.
Author Kyra Clark-Wolf holds a sediment core pulled from a lake containing evidence of fires over thousands of years. Philip Higuera
Long tubes of lake floor sediment are opened on a table.
Researchers at the University of Montana examine a sediment core from a high-elevation lake in the Rocky Mountains. Each core is sliced into half-centimeter sections, reflecting around 10 years each, and variations in charcoal within the core are used to reconstruct a timeline of past wildfires. University of Montana

Lessons from Rockies’ long history with fire

The lake sediments revealed that high-elevation, or subalpine, forests in the Northern Rockies in Montana and Idaho have consistently bounced back after fires, even during periods of drier climate and more frequent burning than we saw in the 20th century.

High-elevation forests only burn about once every 100 to 250 or more years on average. We found that the amount of burning in subalpine forests of the Northern Rockies over the 20th and 21st centuries remained within the bounds of what those forests experienced over the previous 2,500 years. Even today, the Northern Rockies show resilience to wildfires, including early signs of recovery after extensive fires in 2017.

Three illustrated charts show forest density increasing and time between fires falling over the past 4,800 years at one location.
Long-term changes in climate, forest density and fire frequency over the past 4,800 years in one high-elevation forest in the Northern Rockies, reconstructed from lake sediments. The red dots reflect timing of past fires. Kyra Clark-Wolf

But similar research in high-elevation forests of the Southern Rockies in Colorado and Wyoming tells a different story.

The record-setting 2020 fire season, with three of Colorado’s largest fires, helped push the rate of burning in high-elevation forests in Colorado and Wyoming into uncharted territory relative to the past 2,000 years.

Climate change is also having bigger impacts on whether and how forests recover after wildfires in warmer, drier regions of the West, including the Southern Rockies, the Southwest and California. When fires are followed by especially warm, dry summers, seedlings can’t establish and forests struggle to regenerate. In some places, shrubby or grassy vegetation replace trees altogether.

Graphs show fire activity rising with temperature over time.
Fire history reconstructions from 20 high-elevation lakes in the Southern Rockies show that historically, fires burned every 230 years on average. That has increased significantly in the 21st century. Philip Higuera, CC BY-ND

Changes happening now in the Southern Rockies could serve as an early warning for what to expect further down the road in the Northern Rockies.

Warmer climate, greater fire activity, higher risks

Looking back thousands of years, it’s hard to ignore the consistent links between the climate and the prevalence of wildfires.

Warmer, drier springs and summers load the dice to make extensive fire seasons more likely. This was the case in 1910 in the Northern Rockies and in 2020 in the Southern Rockies.

When, where and how climate change will push the rate of burning in the rest of the Rockies into uncharted territory is harder to anticipate. The difference between 1910 and 2020 was that 1910 was followed by decades with low fire activity, whereas 2020 was part of an overall trend of increasing fire activity linked with global warming. Just one fire like 1910’s Big Burn in the coming decades, in the context of 21st-century fire activity, would push the Northern Rockies beyond any known records.

A tiny pine seedling in a vast landscape of burned trees and soil.
A lodgepole pine tree seedling begins to grow one year after the October 2020 East Troublesome Fire in Rocky Mountain National Park. Recovery in high-elevation forests takes decades. Philip Higuera

Lessons from the long view

The clock is ticking.

Extreme wildfires will become more and more likely as the climate warms, and it will be harder for forests to recover. Human activity is also raising the risk of fires starting.

The Big Burn of 1910 left a lasting impression because of the devastating impacts on lives and homes and, as in the 2020 fire season and many other recent fire disasters, because of the role humans played in igniting them.

Photo shows burned trees across miles of hillsides along a railroad line
The aftermath of the 1910 fire near the North Fork of the St. Joe River in the Coeur d’Alene National Forest, Idaho. R.H. McCoy/U.S. Forest Service archive, CC BY

Accidental ignitions – from downed power lines, escaped campfires, dragging chains, railroads – expand when and where fires occur, and they lead to the majority of homes lost to fires. The fire that destroyed Lahaina, Hawaii, is the most recent example.

So what can we do?

Curbing greenhouse gas emissions from vehicles, power plants and other sources can help slow warming and the impacts of climate change on wildfires, ecosystems and communities. Forest thinning and prescribed burns can alter how forests burn, protecting humans and minimizing the most severe ecological impacts.

Reframing the challenge of living with wildfire – building with fire-resistant materials, reducing accidental ignitions and increasing preparedness for extreme events – can help minimize damage while maintaining the critical role that fires have played in forests across the Rocky Mountains for millennia.

Kyra Clark-Wolf has received funding from the National Science Foundation and the Joint Fire Science Program

Philip Higuera receives funding from the National Science Foundation, United States Geological Survey, and Joint Fire Science Program.

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Saudi Arabia’s Crude Oil Exports Slumped To 28-Month Low In August

Saudi Arabia’s Crude Oil Exports Slumped To 28-Month Low In August

By Charles Kennedy of

Saudi Arabia’s crude exports plunged…



Saudi Arabia's Crude Oil Exports Slumped To 28-Month Low In August

By Charles Kennedy of

Saudi Arabia’s crude exports plunged to a 28-month low in August as the world’s largest crude oil exporter continued to cut its production to “stabilize” the market, data from the Joint Organizations Data Initiative (JODI) showed on Monday.   

Saudi crude oil exports fell to 5.58 million barrels per day (bpd) in August, down by 428,000 bpd from July—the lowest level in 28 months, according to the latest available data in JODI, which compiles self-reported data from many countries.

The Kingdom’s crude oil exports have been steadily falling since March this year, from a high of over 7.5 million bpd in January, due to the OPEC+ cuts in which Saudi Arabia reduced production by around 500,000 bpd, and to the voluntary Saudi cut of 1 million bpd, which is now extended until the end of this year.

In August, Saudi Arabia’s crude oil production dropped by 95,000 bpd to 8.92 million bpd, the lowest in 27 months, according to the JODI data published today. The Kingdom started to implement the voluntary cut of 1 million bpd in July this year.

After extending the production reduction for a month for two consecutive months, Saudi Arabia said in September it would extend the extra cut until the end of 2023.

Earlier this month, Saudi Arabia and Russia, the key OPEC+ partners, said they are keeping their oil supply cuts in November despite the crude oil price rally in September.

Both Saudi Arabia and Russia reiterated that the ongoing oil supply cuts were aimed at keeping “stability and balance on the oil markets.”

The Saudi production cuts and the drop in its crude oil exports have been tightening the oil market in recent months. The lower supply sent prices soaring to the highest level so far this year at the end of September.

Tyler Durden Tue, 10/17/2023 - 03:30

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Stockholm To Ban Gas And Diesel Cars Starting In 2025

Stockholm To Ban Gas And Diesel Cars Starting In 2025

The ban on gas and diesel vehicles is officially making its way across the globe, with…



Stockholm To Ban Gas And Diesel Cars Starting In 2025

The ban on gas and diesel vehicles is officially making its way across the globe, with Stockholm the next city in the queue. 

The Swedish capital now has a plan in place to ban gas and diesel cars in part of the city beginning in 2025, according to Bloomberg. The ban is going to begin in a 20 block area around the capital's finance hub, the report says.

The same area also houses the city's main shopping attractions. It'll only allow "electric cars, some hybrid trucks and fuel cell vehicles", the report says, citing rules reported by SVT that will be presented mid-week.

Stockholm is poised to become a trailblazer among major capitals by considering the prohibition on a scale previously unseen. The proposal surpasses the efforts of cities like Paris, Athens, and Madrid, which have also set their sights on banning diesel cars.

In the same vein, some cities like London have implemented measures like low-emission zones, where drivers of older combustion engine vehicles are required to pay daily fees for access to the city center.

It's uncertain whether the plan will boost electric vehicle sales in Sweden, given the current cost-of-living crisis affecting EV sales. Mobility Sweden recently lowered its 2023 forecast for new EV registrations from 40% to 35% of total registrations.

In other places, Brussels banned non-essential and non-local car traffic on 10 central city streets in December. London expanded its ultra-low emission zone in August, marking one of the world's most ambitious vehicle emissions policies. However, UK Prime Minister Rishi Sunak delayed the UK government's plan to ban the sale of new petrol and diesel cars until 2035.

In Norway's capital, Oslo, known for its EV adoption, the municipal environment agency recommended introducing a zero-emission zone in the inner city. Initially, it would target heavy transport and trucks in 2025 before extending to cars in 2027.

Lars Stromgren, a local lawmaker who is responsible for traffic policy, told Bloomberg: “We want to create a better living environment for the people who live and work here.”

Tyler Durden Tue, 10/17/2023 - 02:45

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