In recent weeks, while Russia’s war on Ukraine continues and Beijing continues to harass its neighbors, the U.S. tariff threats and doubts that its defense commitments will be sustained, have emerged as the most significant challenge for businesses, investors, and policymakers. These tariffs are aimed at protecting domestic industries, forcing a re-shoring of production, and raising revenue. If, and when implemented, the tariffs can be expected to impact economic growth, inflation, and various industrial sectors. It signals a further break from the multilateralism of the past. If the past few weeks are anything to go by, the transition away from the US traditional approach to trade and defense are unsettling as transitions often are. In the first instance, it has

Sorry for the disruption of the regular commentary.  Still, the monthly will be posted tomorrow.  There is a key divide in the market.  One camp sees the US tariff threats as bluster and a negotiating tactic.  The other camp, which I find myself in, thinks something more serious is happening.  The US voted against Europe and with Russian and Iran at the UN for the first time in 45 years on European issues.  Martin Wolf, the erstwhile economic editor at the Financial Times had an editorial yesterday which claimed the that US was now the enemy of the West.  The market moved from “tariff fatigue” to complacency.  Yesterday, Trump reiterated that the 25% tariffs on Canada and Mexico are still on track for March 4.  He indicated another 10% tariff hike on China and

Sorry for the disruption of the regular commentary.  Still, the monthly will be posted tomorrow.  There is a key divide in the market.  One camp sees the US tariff threats as bluster and a negotiating tactic.  The other camp, which I find myself in, thinks something more serious is happening.  The US voted against Europe and with Russian and Iran at the UN for the first time in 45 years on European issues.  Martin Wolf, the erstwhile economic editor at the Financial Times had an editorial yesterday which claimed the that US was now the enemy of the West.  The market moved from “tariff fatigue” to complacency.  Yesterday, Trump reiterated that the 25% tariffs on Canada and Mexico are still on track for March 4.  He indicated another 10% tariff hike on China and

(Business travel disrupts the commentary for the next two days.  New monthly drops March 1.)  Overview: A growth scare, perhaps spurred by the Philadelphia Fed’s non-manufacturing activity survey and the sharp drop in Conference Board’s consumer confidence measure, sparked a sharp drop in US yields, a sell-off in US equities and a weaker US dollar. There is a fragile stability today. The greenback is firmer but mostly within yesterday’s ranges against the G10 currencies and is narrowly mixed against emerging market currencies. President Trump added copper to the list of industries/commodities that could be subject to a tariff. May copper rallied almost 5.2% from yesterday’s lows but is now trading back near yesterday’s highs. The US 10-year yield fell for the

(Business travel disrupts the commentary for the next two days.  New monthly drops March 1.)  Overview: A growth scare, perhaps spurred by the Philadelphia Fed’s non-manufacturing activity survey and the sharp drop in Conference Board’s consumer confidence measure, sparked a sharp drop in US yields, a sell-off in US equities and a weaker US dollar. There is a fragile stability today. The greenback is firmer but mostly within yesterday’s ranges against the G10 currencies and is narrowly mixed against emerging market currencies. President Trump added copper to the list of industries/commodities that could be subject to a tariff. May copper rallied almost 5.2% from yesterday’s lows but is now trading back near yesterday’s highs. The US 10-year yield fell for the

Overview: The US 10-year yield has fallen to a new two-month low near 4.33% today, ahead of the $70 bln sale of five-year notes, following strong demand at the two-year floating note sale yesterday. The 200-day moving average is near 4.25%. The 10-year yield peaked in mid-January near 4.80%. The dollar initially rallied on President Trump’s acknowledgement that tariffs on Mexico and Canada were still on track, though another official was quoted on the wires suggested the timeframe had not been set. In any event, follow-through dollar gains were limited, and the greenback is mixed, with the dollar-bloc and the Norwegian krone bearing the brunt of the dollar’s gains. Most emerging market currencies outside of a handful from central Europe are softer. As expected,

Overview:  The dollar is offered. Neither the 227k rise in nonfarm payrolls, nor the above 3% Q4 growth that the Atlanta Fed sees the economy tracking, or the uptick in November CPI expected to be reported on Wednesday has been sufficient to dampen speculation of a rate cut next week. The futures market has a nearly 88% chance discounted. The antipodean currencies and Scandis are leading the move, ostensibly encouraged by the pro-growth signals from China’s Politburo. The yen is the laggard. A speech now planned for mid-January by a deputy governor of the BOJ that could be used to flag a rate hike has seen speculation of a hike next week fade a bit. Emerging market currencies are mixed. The South Korean won is the weakest, following last week’s drama, it is off

The US dollar advanced against all the G10 currencies last week but the Swiss franc but turned in a most mixed performance against emerging market currencies. The US 10-year yield fell for the third consecutive week and near 4.16%, it is around a dozen basis points below where it settled the night before the US election. The two-year yield fell for the second consecutive week and settled near 4.10% is about half a dozen basis points below the pre-election day level. The Dollar Index, on the other hand, is up 2%. Among the G10 currencies, the yen is the only currency that has appreciated against the dollar since the election. On the other hand, the Chinese yuan’s co-movement with the yen has broken down and the yuan has lost about 2.35% since the election. Bitcoin

Overview:  The dollar is mixed on what will start critical second half of the week. France holds its confidence vote in a few hours. Fed Chair speaks at a moderated discussion at the New York Times around 1:40 ET. The US data focus shifts to the labor market with the ADP estimate today and the nonfarm payroll report on Friday. The head of the main opposition party in Japan stepped down ostensibly until March due to a personal scandal and this has dampened speculation of a BOJ hike later this month. The yen is off 0.75%. Disappointing Australian Q3 GDP prompted the market to bring forward the first cut and took the Aussie down more than 1%. If one excludes the yen and antipodean currencies, the others are +/- 0.1%. The dispersion of changes is more pronounced

Overview: The US dollar has extended the losses scored late yesterday when Federal Reserve Governor Waller indicated he was still leaning toward a December rate cut. The odds of a rate cut rose to around 76% from about 66% at the end of last week. The odds are slightly lower today, around 72%. A solid jobs report on Friday and another uptick in CPI may change some minds. The only G10 currency that is weaker today is the Japanese yen, and it is off about 0.25%. Emerging market currencies are mixed. Asia Pacific currencies are mostly lower, and the central European currencies are mostly higher. Of note, tit-for-tat exports controls between the US chips and fabrication equipment and Beijing’s export ban to the US of some critical minerals and metals. The yuan was

Overview: The US dollar is beginning the new week and month on a firm note. It is rising against all the G10 currencies and nearly all the emerging market currencies. US-President-elect Trump’s threat to BRICS if they abandon the dollar is symbolic than substantive, as we have argued, despite the occasional claim to the contrary, a BRICS currency is not realistic, and the China has little interest in fostering another competitor to the yuan. Still, like being told by Mexico’s President Sheinbaum that migration through the southern US border has fallen sharply and fentanyl deaths have been trending lower for many months, Trump is able to claim a victory. Meanwhile, the French government appears on the verge of collapsing, and an election cannot be called for

The trends were already entrenched before the US election and continued through most of last month. The trend toward higher rates and higher equities stalled, while the dollar remained strong. Investors and business continue to wrestle with the implications of the Republican sweep in the US elections.There are two broad issues that are the source of uncertainty. The first is the broad tariff Trump has advocated on the campaign trail: 60% on China and 10-20% on rest of the world. Several people who will have senior economic posts in the new administration downplayed a literal interpretation. Still a global tariff regime would hurt those that enjoy the closest trade ties with the US, outside of China; namely, Mexico, Canada, and parts of Europe, and Vietnam. It is

Overview: The US dollar has a softer profile today. All the G10 currencies are higher, led by 1%+ surge in the yen amid heightened speculation of a rate hike next month, while the US 10-year yield is near 4.25% today, the lowest since the election. Although the Reserve Bank of New Zealand allows for another half-point cut after delivering the second one this year earlier today, the New Zealand dollar has popped up amid sell the rumor buy the fact type of activity. The euro and sterling are firm but holding below yesterday’s highs. Emerging market currencies are mostly firmer today, but the Mexican peso continues to underperform. It is off about 0.25% and only the Russian ruble has lost more (~-3.2%). The large equity markets in Asia Pacific were mixed. China,

Overview: As some market pundits were debating about a possible grand deal between the US and China. In exchange for a lighter tariff regime, Beijing would accept yuan appreciation. As far-fetched as such scenario may be, it was predicated on ideas that people like the Bessent, the Treasury Secretary-nominee, was pragmatic. Trump’s comments hit in early Asia Pacific turnover specifically cited a 25% tariff on all product from Canada and Mexico and 10% more on China starting on January 20. Even currencies not explicitly cited, suffered but have mostly recovered. Among the G10 currencies, only the Australian dollar, Norwegian krone, and Canadian dollar are lower. The former two are off 0.20%-0.25%, while the Canadian dollar is about 0.75% lower. Emerging market

Overview: The selection of Scott Bessent, the hedge fund manager as next US Treasury Secretary was greeted euphorically in the capital markets:  one of their own and, arguably, like many of new economics team could have been picked in any Republican administration. Risk appetites have been animated. Still, we suspect market positioning may have led to an exaggerated response. The dollar has been sold. Stocks have bought. The euro is leading the G10 currencies higher, with a nearly 0.75% gain. The Canadian dollar is the laggard, up about 0.15%. Central European currencies are pacing the emerging market complex. Gold has been slammed. It is off 1.6% to end last week’s five-day advance with prejudice. A close below last Friday’s low (~$2668) warns of the risk of a

Overview:  Escalating tensions in Europe and comments from Bank of Japan Ueda that spurred speculation of a December hike are the main drivers of the foreign exchange market today. The yen is the strongest of the G10 currencies, up about 0.65%, while the euro is the weakest, off a little more than 0.25%, and sterling is down almost as much. Most of the other G10 currencies are little changed. Led by central European currencies, most emerging market currencies are weaker today, including the Mexican peso. It was the weakest of the emerging market currencies yesterday and is off another 0.4% today. Equities are weaker and bonds firmer. All the large bourses in Asia Pacific were lower but China, where a small gain was recorded. Europe’s Stoxx 600 is off for the

Overview: US dollar and rates are firmer today. All the G10 currencies are lower, led by the Japanese yen. The UK reported firmer than expected CPI and this may have deflected some of the selling pressure away from sterling, which is off less than 0.2% to put it atop the pack ahead of the US open. Nearly all the emerging market currencies are lower led by central European currencies, the Mexican peso, and South African rand. As anticipated, China’s prime lending rates were left unchanged at 3.10% (one-year) and 3.60% (five-year). China’s stocks were among the few from the large markets that advanced today. South Korea and Indian equities traded higher. Europe’s Stoxx 600 is trying to end a three-day slide. It is up about 0.5% through most of the European morning.

Overview: Within hours of the US giving permission to Ukraine to use US weapons to strike Russian territory, which it did, Moscow announced a change it is nuclear doctrine that allow for the use of nuclear weapons against a conventionally armed adversary that is backed by nuclear powers. This follows on the heels of the failure of two telecom cables yesterday (Germany-Finland and Sweden-Lithuania). This escalation is roiling the capital markets. Bonds are rallying. Equities are under pressure, and the dollar is mostly firmer. The 10-year US Treasury yield is off five basis points to 4.36%. The softer Treasury yield, after news that China and Japan unloaded a combined $112 bln US Treasuries in September (a modest $20 bln was added to Euroclear–Belgium custodian)

Overview: The US dollar has begun the new week consolidating in a mixed fashion against the G10 currencies. Bank of Japan Governor Ueda remains circumspect and did not provide guidance about next month’s central bank meeting. Without positive guidance, the market sold the yen, but the swaps market shows about 13 bp of tightening has been discounted, up a couple of basis points from a week ago. Leave aside the New Zealand dollar, which is also under pressure ahead of next week’s RBNZ meeting that is expected to result in another 50 bp rate cut, the other G10 currencies are mostly +/- 0.15%. Emerging market currencies are also narrowly mixed. The South African rand is on top with a 0.4% gain and the Mexican peso is on the bottom of the leaders’ board with a 0.35%

There are powerful forces in the capital markets, and they do not appear exhausted even if there is some near-term consolidation. The Dollar Index has risen for seven weeks, which is to say that it has not fallen on a weekly basis so far here in Q4. The US two-year yield has risen for the past four weeks and six of the past seven. It has surged from about 3.55% at the end of September to 4.38% last week. The US 10-year yield has fallen in only two weeks since mid-September. It reached 4.50% at the end of last week, up from 3.65% on September 13. Yet, the change in inflation expectations accounts for a small part of the rate adjustment. The 10-year breakeven accounts for only about 25 bp of that 95 increase. It looks like another 25 bp or so can be accounted for

Overview:  The dollar bounced, and US rates rose yesterday afternoon in response to comments by Fed Chair Powell. But he did little more that reiterate what he had said at the recent press conference. Powell expressed a lack of urgency to move after having led the central bank in delivering a 50 bp cut to start the easing in September while indicating that direction of travel will be to a less restrictive rate. The dollar has come back lower today against the G10 currencies and US rates are a little softer. It is also lower against most emerging market currencies, too. Japan’s Q3 GDP (0.2%) was in line with expectations, while the UK disappointed (0.1% vs 0.2% projected). The US data highlight include October retail sales and industrial output. Equities are

Overview: Surging US yields helped send the dollar higher but wobbled the stock market yesterday. A fragile consolidative tone has emerged today for the foreign currencies. The greenback remains mostly within yesterday’s ranges. All but a few emerging market currencies are trading with a firmer bias. Beijing’s weaker dollar fix may have been the first protest of the yuan’s weakness since the election. The highlight of the North American session is the US October CPI. The year-over-year headline rate is expected to rise (2.6% vs. 2.4%) for the first time since March. The core rate is anticipated to be steady at 3.3%. It last fell in July. Ahead of the release, the derivatives market has a little more than a 60% chance of a December Fed cut discounted. Outside of

Overview: The dollar continues to ride high. It is up 0.20%-0.50% today against the G10 currencies. Most pairs have extended last week’s moves. The Dollar Index, which was near 100 in late September is approaching 106.00. Emerging market currencies are all weaker, as well. The dollar is being helped by higher US yields. After yesterday’s holiday, the US 10-year yield is up five basis points to near 4.36%. The two-year yield also is five basis points higher to almost 4.31%. Stocks are under pressure. China, Hong Kong, Taiwan, South Korea, and India saw their main index fall by more than 1% today. Europe’s Stoxx 600 is giving back most of yesterday’s 1.15% gain, while US index futures are off around 0.20%-035%. Gold has lost its luster since the record at the end

Overview: The dollar is bid to start the new week. It has taken out last week’s high against the Swiss franc, and the euro has been sold through last week’s lows. The divided opposition allowed Ishiba to continue as Japan’s prime minister, heading up a minority government. The German government collapsed last week. Chancellor Scholz wanted to hold off holding (and losing) a vote of confidence until January, setting the stage for elections, but it seems increasingly likely sooner. Meanwhile, the widening two year-interest rate premium means one is paid more to be long dollars by the most in nearly two years. Among the G10 currencies, the Australian and New Zealand dollars posting minor upticks against the dollar. The rest are heavier. The Turkish lira is firm

Two of the most tumultuous weeks of the year are behind us. The sweeping GOP victory in the US cannot be considered anything but a mandate. The shock experienced in 2016 is not being repeated, but there is limited visibility  Perhaps, the stance articulated at the press conference by Fed Chair Powell that the central bank does not "guess, speculate, or assume" about the policies of the next administration and the impact on efforts to achieve the dual mandate of full employment and stable prices is a good starting point for investors and businesses. One need not accept modern monetary theory to recognize cases, for example, where large deficit coincided with falling inflation. There are other variables in addition to budget deficits and tariffs that influence

Overview: The capital markets have been choppy as pre-existing positioning meets new thoughts on the implications of a second Trump administration. The dollar has found better footing today after giving back a chunk of Wednesday’s gains yesterday. The yen is an exception, but it is not exception that the dollar trades heavier against the yen as the US 10-year yield drifts lower. On the week, the most G10 currencies are holding on to gains against the dollar. Here the euro is the notable exception, off about 0.6%, and is thought to be the most at risk. Equities are mostly lower today. The market did not seem impressed with the local debt swap initiative from Beijing, and the CSI 300 fell 1%. Europe’s Stoxx 600 is giving back yesterday’s 0.6% gain in full, and US

Overview:  The markets are calmer after yesterday’s post-US election drama. A consolidative tone has emerged in the foreign exchange market, and the dollar is softer against all the G10 currencies, led the 1% gain in the Norwegian krone, after the central bank left rates on hold. Sweden’s Riksbank delivered the expected half-point cut and the krona is up 0.5%. Japanese officials warned against excessive moves, and the PBOC set the dollar’s reference rate almost 1% lower to limit its rise. Emerging market currencies also are mostly firmer today. Equities are higher today. All the large bourses in Asia Pacific advance, with China’s CSI300 up 3%. India is the main exception, and main index is off 1%. Europe’s Stoxx 600 is recouping most of yesterday’s 0.55% decline,

Overview: Shortly after the North American markets closed, before any results were known, the market jumped back into the “Trump trade,” which it had pared on Tuesday. The dollar and US interest rates soared. The euro is the hardest hit among the G10 currencies today, off about 1.6% and the Canadian dollar, the best performer …

Overview: A nervous calm hangs over the markets as the US goes to the polls. The proximity of the presidential contest warns that the results may not been known as soon as people hope. Indeed, many fear the voting simply begins the next phase of the contest, with premature declarations of victory and disputes over votes. The dollar is in mostly narrow ranges today, but the Antipodeans and Scandis are the strongest, and the Reserve Bank of Australia kept rates on hold and signaled that inflation may not be sustainably back to target until 2026. Emerging market currencies are mostly firmer, but there are a couple from Asia Pacific and central Europe that are softer, as if the Mexican peso. Equities are firm. All the large markets in Asia Pacific, but South Korea

Overview:  The US 10-year yield is off around a dozen basis points off yesterday’s high and European growth in Q3 was better than expected. This appears to have encouraged some dollar liquidation today. The greenback is softer against the G10 currencies, but the Canadian dollar and sterling. The much-awaited UK Autumn budget will be announced shortly. Sterling is consolidating around $1.30. Most emerging market currencies also are enjoying a firmer tone today. Asia Pacific and European equities are trading heavier. The Asia Pacific, all the large markets but Japan fell. The Hang Seng and mainland companies that trade there fell by more than 1.5%, to lead the region lower. The Stoxx 600 in Europe reversed early gains yesterday and fell by about 0.55%. Today, it is