Monday , January 30 2023
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Marc Chandler

Marc Chandler

He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

Articles by Marc Chandler

Euro Pokes Above $1.09. Will it be Sustained?

7 days ago

Overview: The Lunar New Year holiday has shut many
centers in Asia until the middle of the week, though China’s mainland is on
holiday all week. The signaling of a downshift in the pace of Fed tightening by
some notable hawks helped lift risk appetites ahead of the weekend and saw the
S&P 500 snap a four-day decline. Ahead of the weekend the NASDAQ posted its
single biggest advance since last November. The downtrend line drawn of January
2022 highs in the S&P 500 is found near 4010 today. US equity futures are
little changed. Europe’s Stoxx 600 is posting a small gain. Benchmark 10-year
yields are trading with a firmer bias and are up mostly 2-3 bp. In contrast to the signals of a
quarter-point hike next week by the Fed, the ECB has pre-committed to 50 bp and

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Are We Still on the New Year Honeymoon? A Look at the Week Ahead

9 days ago

There are several macro
highlights in the week ahead, during which Chinese markets are closed for the
Lunar New Year celebration. The preliminary January purchasing managers surveys
pose headline risk. However, the survey data, for example, had the US composite below the 50 boom/bust level every month in H2 22, which likely overstates the case, as the first look at Q4 22 US GDP will probably show. While some improvement is expected, composite PMI readings are expected to have remained below 50. Still, the pendulum of
market sentiment has swung, and it has begun looking at the glass as half full
rather than half empty. By that, we mean market
participants have been flirting with the possibility of a soft(ish) landing.
The easing of supply chain disruptions, the

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Dismal UK Retail Sales Weigh on Sterling, While the Yen Softens

10 days ago

Overview: The US dollar is mostly softer today against the G10
currencies, with the notable exception, yen, Swiss franc, and sterling. The
risk-on mood is seen in the foreign exchange market with the Antipodean and
Scandi currencies leading the move against the greenback. The yen has fallen by
about 1.3% this week, leading losers, while sterling’s 1.1% gain puts it at the
top. Despite the poor showing of US equities yesterday, risk appetites returned
and most of the large bourses rose in the Asia Pacific region, led by a 1.8%
rally in Hong Kong and a 2.3% gain in the index of mainland companies. Both
indices are up more than 11% this year. Europe’s Stoxx 600, which snapped a
six-day advance yesterday with a 1.6% loss has stabilized and is up about 0.4%
today. It

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Poor US Data Cast Doubts on New Found Hopes of a Soft-Landing

11 days ago

Overview:  Yesterday’s string of dismal US economic
data delivered a material blow to those still thinking that a soft-landing was
possible. Retail sales by the most in the a year. Manufacturing output fell by nearly 2.5% in the last two months of 2022. Bad
economic news weighed on US stocks. The honeymoon of New Year may have ended
yesterday. The US 10-year yield fell below 3.40% for the first time since the
middle of last September. The Atlanta Fed’s GDPNow tracker reduced its
projection from 4.1% for Q4 22 to 3.5%, which is still higher than most
economists’ forecasts. Ironically, this comes as former Treasury Secretary
Summers, a vocal Fed critic, conceded yesterday that a recession could
ultimately be avoided, and the headline of the Financial Times

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The BOJ Surprises by Standing Pat

12 days ago

Overview: The BOJ defied speculation and stuck to its
current policy, which saw the yen sell-off sharply. The dollar rallied about
3.4 yen before falling back. The greenback is broadly lower against the other
G10 currencies. However, for the fifth consecutive session, the euro has
stalled around $1.0870. While UK headline inflation softened, mostly due to fuel,
core prices were unchanged, and this may have helped sterling extend its recent
gains to almost $1.2365. Softer US economic data (retail sales producer prices,
and industrial production) pose headline risk in early North America, but rates
seem to have made the adjustment last week, when the two-year note yield fell
to almost 4.10%. It is around 4.18% now. 

weaker yen helped lift Japanese equities

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With Trepidation, the Market Awaits the BOJ

13 days ago

Overview: With the market nearly ruling out a 50 bp hike by the Federal Reserve on February 1, the interest rate adjustment appears to have largely run its course. This may be helping to ease the selling pressure on the greenback. The general tone today is one of consolidation. There is a modest risk-off bias today. Although Japanese stocks advanced, China, Hong Kong, and South Korean equities slipped lower. Europe’s Stoxx 600 is snapping a four-day advance, and US futures are trading with a heavier bias. Benchmark 10-year yields are firmer, with the US Treasury near 3.55%, up nearly 14 bp from the pre-weekend low.
The market has greeted news of stronger than expected Chinese Q4 GDP and December data with a jaundiced eye. The yuan has seen its largest two-day

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Monday and Beyond

14 days ago

Monday Ranges: Euro: $1.0802-$1.0874JPY/$: JPY127.23-JPY128.87GBP: $1.2172-$1.2289CAD/$: CAD1.3353-CAD1.3418AUD: $0.6941-$0.7019MXN/$: MXN18.7313-MXN18.8566Rumors of an emergency BOJ meeting sent the dollar to its lows in Tokyo, slightly below the pre-weekend low (~JPY127.46). The on-the-run (most current) 10-year yield settled above the 0.50% cap and the generic 10-year bond has not traded below the 0.50% level since January 5. The market is pressing hard, and volumes in the futures market are elevated. News of higher producer prices (10.2% year-over-year in December from a revised 9.7% in November that was initially 9.3%) did not help matters. The median forecast was for 9.5%. The BOJ meeting concludes Wednesday. China reports a slew of December data

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On Our Radar Screen for the Week Ahead

16 days ago

The week ahead is chock full of data, including Japan, the UK, and
Australia’s CPI. The UK and Australia report on the labor market. The US, UK,
and Canada also report retail sales. The early Fed surveys from New York and
Philadelphia for January will be released. China’s December data are due, and it is
also expected to report its estimate of Q4 GDP, where some economists forecast
a contraction. While headline risk is associated with these economic reports, we suspect they will have little bearing on expectations of
central bank policy. It seems that the adjustment of interest rate expectations for the Federal Reserve has gone as far as it can ahead of the FOMC meeting on February 1, perhaps providing a more consolidative tone for the dollar after its recent

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Dollar Index Gives Back Half of 21-Month Gains in 3 1/2 Months

17 days ago

Overview: The continued easing of US price pressures
has strengthened the market’s conviction that the Federal Reserve will further
slow the pace of rate hikes and that the terminal rate will be near 5.0%. The
decline in US rates has removed a key support for the US dollar, which has
fallen against all the G10 currencies this week. The Dollar Index has now retraced half of what it gained since bottoming on January 6, 2021. Meanwhile, there are positive
developments elsewhere. The German economy appears to have stagnated in Q4 22
rather than contracted, and the UK economy grew in November when most
economists expected it to have shrunk. The Japanese yen has led the
move against the dollar, rising 2.8% this week amid heightened speculation that
the Bank of Japan

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Is it Too Easy to Think the Market Repeats its Reaction to a Soft US CPI?

18 days ago

Overview: The market expects a soft US CPI print today, which has recently been associated with risk-on moves. The US 10-year yield is holding slightly above 3.50%, the lowest end of the range since the middle of last month. The two-year yield is a little above 4.20%, also the lower end of its recent range. Most observers see the Federal Reserve slowing the pace of its hikes to a quarter point on February 1. The dollar has spent the last few days consolidating after selling off last Friday and Monday. The caveat is that this would be the sixth consecutive month of slowing US CPI and many are positioned for it. This would seem to boost the risk of a counter-intuitive move on profit-taking after the news. It seems that everyone is on the same side of the trade now,

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Greenback Consolidates Near Recent Lows Ahead of Tomorrow’s US CPI

19 days ago

Overview: Fed Chair Powell did not push against the easing of US financial conditions when he ostensibly had an opportunity yesterday. This coupled with expectations of another decline in the US CPI, which will be reported tomorrow, has kept the greenback mostly consolidating the losses seen last Friday and Monday. With a light calendar today, continued sideways movement is the most likely outlook for the North American session today. The rise in US yields seen yesterday are being pared today.

While Chinese equities softened, most other large bourses in the Asia Pacific area, gained, led by a 1% gain in the Nikkei, advanced. Europe’s Stoxx 600 is recouping most of yesterday’s losses, and US futures are a little firmer. Despite the surge in supply, the European

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Consolidative Tone in FX

20 days ago

Overview: After sharp losses yesterday, the US dollar has stabilized today arguably ahead of Fed Chair Powell’s speech at the Riksbank symposium. Yesterday’s Fed speakers stuck to the hawkish rhetoric, and this seemed to help reverse the equity market gains, though the greenback remained soft. If Powell does not push back against the easing of financial conditions, it could very well fan risk-taking appetites and lead to a further easing of financial conditions.
Asia Pacific equities were mixed, while Europe’s Stoxx is snapping a two-day advance. US equities are little changed. Benchmark yields are mostly higher, and the US 10-year yield may be basing around 3.50%. New Chinese quota for oil imports and the weaker dollar seemed to help crude oil prices. The market

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Greenback’s Sell-off may Stall Ahead of Powell Tomorrow

21 days ago

Overview: Don’t fight the Fed went the manta as the
market took the US two-year yield back up to 4.50% in the aftermath of the FOMC
minutes last week, the highest in over a month. The minutes warned of a
premature easing of financial conditions. And then bam, softer than expected
hourly earnings and a weak service PMI and bonds and stocks rallied, and the
dollar was sold. This is a key part of the backdrop for this week, for which
several Fed officials will speak, including Chair Powell at a Riksbank event
tomorrow, ahead of the US December CPI on Thursday. The US two-year yield is
stabilizing after slipping through 4.25% before the weekend. The pre-weekend
dollar losses have been extended, but the momentum appears to be stalling in
the European morning, perhaps

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Falling US Yields Stymie the Dollar’s Recovery

22 days ago

We have been torn between our conviction that the dollar’s cyclical rally ended last September-October, and the near-term momentum indicators that warned that the dollar’s pullback was overdone. Aside from the Japanese yen, a consolidative phase dominated December, but the momentum indicators still seemed to suggest upside potential dollar.
A proper correction appeared to have begun in the days leading up to the US jobs report. While we correctly anticipated a “buy the rumor, sell the fact” activity after the employment report, the extent and momentum of the dollar’s sell-off was surprising. It could mean that its upside correction is over. The macro consideration we anticipated to spur the greenback’s gains, the increased likelihood of a 50 bp Fed hike on

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US CPI Featured and Why the Fed may Still Hike by 50 bp

23 days ago

The most important economic report in the week ahead is the US December Consumer Price Index on January 12. To be sure, the Federal Reserve targets an alternative measure, the deflator of personal consumption expenditures. However, in this cycle, when households, businesses, investors, and policymakers are particularly sensitive to inflation, CPI, which is reported a couple of weeks before the PCE deflator, has stolen the thunder. In explaining the surprise acceleration to 75 bp rate hikes in the middle of last year, Fed Chair Powell cited the CPI (and the preliminary results of an inflation expectations survey conducted by the University of Michigan).
The issue is no longer being framed about the peak of US inflation but the pace at which it will converge to the

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USD Stretched Ahead of Employment Report, while Yuan Jumps on Hopes of New Property Initiatives

24 days ago

Overview: The US dollar extended yesterday’s gains
as the market adjusts positions ahead of the jobs data. Yesterday and today’s
price action looks to have strengthened the near-term technical outlook for the
greenback. However, the intraday momentum indicators are stretched. This warns
of the risk of a counter-intuitive move after the data, barring a significant
surprise. Meanwhile, one of the Fed’s leading hawkish voices, St. Louis Fed
President Bullard seemed to soften his tone yesterday suggesting that 5.1% median
dot for Fed funds would be sufficiently restrictive to curb price pressures. However,
the less hawkish tone was offset by his suggestion that the restrictive zone
should be reached as soon as possible, which seems consistent with our
assessment that

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The Market Appears to Shrug Off the Fed’s Warning

25 days ago

Overview: The US dollar is consolidating in a mixed
fashion today. The FOMC minutes drew much attention but failed, at least
initially, to spur a significant shift in expectations. The pricing in the Fed
funds futures strip is still consistent with a cut later this year, which the
minutes were clear, no officials anticipate. Today’s US ADP jobs estimate, and
November trade balance are being overshadowed by tomorrow’s nonfarm payroll
figures. The Fed’s Harker, Bostic, and Bullard speak today. They should be expected
to stay on message, which is leaning against any premature easing of financial
conditions. Meanwhile, strong buying of
Chinese stocks through the Hong Kong link, and the rally in mainland shares
that trade in Hong Kong suggest investors continue to

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Yesterday’s Gains Unwound may Make the Greenback a Better Buy Ahead of FOMC Minutes

26 days ago

Overview:  Yesterday’s greenback gains have been
mostly reversed today. New efforts by China in its property market and
anticipation of more stimulus helped rekindle the animal spirits today. Asia
and Europe shrugged off yesterday’s losses on Wall Street and the rally in
bonds continued. The 8-12 bp decline in European benchmark 10-year yields comes
even though the final composite PMI was better than expected fanning hopes of a
short and shallow economic downturn. The Australian dollar is leading the G10
currencies higher with the help of the risk-on mood and reports suggesting that
after two years, China may resume buying its coal. Still, dollar’s setback is
stretching the intraday momentum indicators, and this may discourage early
North American operators from

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The Dollar Jumps

27 days ago

Overview: Market participants have returned from the New Year celebrations apparently with robust risk appetites. Equities and bonds are rallying, and the dollar has surged higher. The markets seem to be looking past the surge in China’s Covid cases and anticipates a recovery, helping Chinese equities lead Asia Pacific bourses higher, where Japanese markets are still on holiday. Europe’s Stoxx 600 is 1.6% higher in late morning turnover. US equity futures are also 0.8%-0.9% higher. The 10-year US Treasury yield is off 13 bp, shedding most of last week’s gains. European benchmark yields are 6-11 bp lower.
The dollar has surged against most of the major currencies. Aside from the Scandis, yen and Canadian dollars, the other G10 currencies are off by more than 1%.

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January 2023

December 29, 2022

The US
dollar’s bull market appears to have come to a climactic end late in Q3 22 and
early Q4. In the last three months of 2022, the G10 currencies, except the Canadian dollar, rose by more than 5% against the greenback. In
addition, six of the G10 currencies appreciated more than 7.5%. Such
significant moves are often followed by consolidation and corrections. These
countertrend moves can offer new opportunities to adjust currency exposures.Three main considerations mark the turn of
the dollar from valuation levels that were stretched to historic proportions
according to the OECD’s measure of purchasing power parity. Without getting too
granular, the basic premise is that a basket of internationally traded goods
should sell for the same price when the currency

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Japan Surprises

December 20, 2022

The Bank of Japan surprised
everyone may lifting the 10-year yield curve cap to 0.50% from 0.25%.The BOJ also said it would increase its bond purchases to
JPY9 trillion (~$68 bln) a month compared to the current JPY7.3 trillion.  

BOJ Kuroda, whose term ends
next April, insisted that the easy monetary policy stance will continue.  

The surprise decision sent
ripples across the capital markets.  Japanese stocks slumped, with the
Nikkei falling about 2.5%.  Global bond yields jumped.  They were
already rising after the US-European surge yesterday.  The 10-eyar JGB
rose 15 bp to 0.40%.  In early European trading yields, are up 7-10
bp.  Gilts continue to lead the adjustment and are up about 10 bp to 3.6%.
10-year US yield is up about 7.5 bp to 3.66%.   


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Happy Holidays

December 16, 2022

There will be no daily commentary over the next couple of weeks.  The next post will be the January monthly outlook on December 29.  Here is to a happy and healthy New Year.  Good luck to us all.  

[embedded content]

Tags: Featured,newsletter

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European Rates Continue to Surge, Sending Stocks Spiraling Lower

December 16, 2022

Overview: Seven of the G10 central banks pumped the
brakes between last week and this week as they purposely seek to push demand
back into line with supply. And there are more signs that they are succeeding
in weakening growth impulses. The dramatic surge in European bond yields
continues today with 10-year rates mostly rising another 13-15 bp. Italian and
Greek benchmark yields are up 22-24 bp. The US 10-year Treasury yield is up nearly
five basis points to 3.50%. Equities are slumping, though Hong Kong and the mainland’s
CSI 300 rose, ostensibly helped by more measures for the China’s property
sector. Still, the MSCI Asia Pacific Index snapping a six-week advance with a
loss of a little more than 1% this week. Europe’s Stoxx 600 is off 1% today to
bring this

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The Greenback Recovers After the Initial Post-Fed Wobble

December 15, 2022

Overview: The US dollar has come back bid after losing ground against
most currencies as the markets reacted to the FOMC decision and press
conference. The Antipodeans and Scandis have been tagged the hardest, illustrating
the risk-off mood, and arguably the weakening growth prospects. Countries that
peg their currencies to the dollar have hiked rates, as has the Philippines and
Taiwan. The Swiss National Bank and Norway have also lifted policy rates by 50
bp and 25 bp as expected. The ECB and BOE’s decisions are due shortly. Yesterday’s
sell-off in US equites and the continued sell-off in electronic trading casts a
pall on global markets today. The Hang Seng, Kospi, and Indian markets fell
more than 1%. Europe’s Stoxx 600 is off 1.2%, and if sustained, would be

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What Can the Fed tell the Market it Does Not Already Know?

December 14, 2022

Overview: The softer than expected US CPI drove the
dollar and interest rates lower, while igniting strong advances in equities,
risk assets, commodities, and gold. Calmer market conditions are
prevailing today, and we suspect that in the run-up to the FOMC meeting, a broadly
consolidative tone will emerge. The dollar is mostly softer, but within yesterday’s
ranges. Only the New Zealand and Canadian dollars among the G10 currencies are softer.
Emerging market currencies are generally firmer, led by the recovery of the Hungarian
forint on the political deal struck yesterday. The Mexican peso and Turkish
lira are the exceptions. Asia Pacific equities generally rose, led by Taiwan
and South Korea. Europe’s Stoxx 600 is cutting yesterday’s 1.3% gain nearly in

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US CPI ahead of FOMC Outcome Tomorrow

December 13, 2022

Overview: The dollar
softer against the G10 currencies ahead of today’s CPI report and the FOMC meeting
the concludes tomorrow. Emerging market currencies are most mixed. The
Hungarian forint leads the complex with around a 1% gain on news of a
preliminary deal struck with the EU. The South African rand is the worst
performer, off around 0.8%, as impeachment proceedings against Ramaphosa
proceed. Global equities are mostly higher today after the strong advance seen
in the US yesterday. Chinese equities are a notable exception as profit-taking
sets in after the strong rise amid reports of a surge in Covid cases. Europe’s
Stoxx 600 is up about 0.3% in late morning turnover, while US futures are enjoying
a firmer tone. European benchmark yields are slightly firmer,

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Markets Await Central Banks and Data

December 12, 2022

Overview: There are two themes today. First, there has been a modest bout of profit-taking on Chinese stocks (and yuan) after last week’s surge. Second, the ahead of the five G10 central bank meeting this week a series of market-sensitive economic reports, a consolidative tone is seen in most of the capital markets. Most of the large bourses in the Asia Pacific region fell, led by a 2.2% loss in Hong Kong and 3% loss in its index of mainland shares. Europe’s Stoxx 600 is giving back half of the pre-weekend 0.85% gain, while US futures are posting minor upticks after their slide at the end of last week. Benchmark 10-year bond yield are mostly 2-4 bp lower in Europe though the Gilt yields is off seven bp. Near 3.52%, the 10-year Treasury yield is off five basis

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The Yuan Puts Together its Strongest Two Week Rally in Decades and it has Nothing to do with its Trade Surplus (which Shrank more than expected)

December 11, 2022

The G10 currencies traded with
a heavier bias against the dollar last week. The Swiss franc was the sole exception, and it edged up
about 0.25%. The thwarted putsch in Germany and the relaxation of vaccine and
quarantine protocols in China were notable developments. The weakness in European
and American equities and oil helped account for the underperformance
of the Norwegian krone and Canadian dollar. At the same time, the recovery in US 10-year
yields after a more than 30 bp decline in the previous two weeks weighed on the
Japanese yen. The central dilemma remains in
place. In the broader
picture, the dollar’s rally is over; the decline in recent weeks has
left the momentum indicators oversold. Nevertheless, a resolution is likely in the
days ahead that could

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Five G10 Central Banks Meet and US CPI on Tap

December 10, 2022

Half of the G10 central banks
meet in the week ahead. The Fed is first on December 14, and the ECB, BOE, Swiss National
Bank, and Norway’s Norges Bank meet the following day. Before turning a
thumbnail sketch of the central banks, let us look at the November US
CPI, which will be reported as the Fed’s two-day meeting gets underway on December 13. The terms of the debate have
shifted. It is no longer
about when US inflation will peak but how fast it will come down. Consider
that US CPI rose at an annualized rate of more than 10% in Q1 and Q2. It has
slowed to about 3.6% in the past three months. The year-over-year rate peaked
in June at 9.1%. It has slowed to 7.7% from a year ago in October. In November,
it is expected (median of Bloomberg’s survey) to have slowed

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Chinese Stocks Extend Rally Even Though Covid Infections Appear to be Spreading

December 9, 2022

The easing of vaccination, quarantine, and some travel protocols
related to Covid in China (and Hong Kong) continues to draw funds back into Chinese
stocks, wherever they trade. The Hang Seng rose 2.3% today to close the week
with a nearly 6.6% advance. The index of mainland companies that trade there
rose 2.5% on the day for a7.3% weekly gain. The CSI 300 of mainland shares rose
1% today and almost 3.3% for the week. Japan’s 1% gain today ensured a gain on
the week, while the other large regional markets rose today to narrow the weekly
loss. Europe’s Stoxx 600 is snapping a five-day drop with a modest gain of
about 0.35%. US futures are trading with a slightly firmer bias. European bond
yields are mostly 4-7 bp firmer, while the 10-year US Treasury is

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