Posts by MarcChandler:

    Bonds and Equities Rally, Dollar Heavy

    March 14th, 2017

    By Marc Chandler.


    Hit by profit-taking ahead of the weekend, despite US jobs data that remove the last hurdle to another Fed hike this week, the greenback remains on the defensive.  It has softened against all the major currencies and many of the emerging market currencies.  The chief exception is those in eastern and central Europe.
    Turkey and Dutch tensions rose over the weekend as the Dutch refused to the leftTurkey’s foreign minister to enter the country to campaign, took another minister to the border, earning the wrath of Turkey’s Erdogan.  The Dutch go to polls Wednesday.  The Rutte government is credited with handling the affair well, and although supporters for the Freedom Party, may have become more enthusiastic, the PVV does not appear to be growing its base.  Overall, the market impact looks minor.
    What will be the busiest week of the quarter, if not year, has begun off slowly.  The main economy news was the Italian industrial output figures.  They disappointed, and follow the poor French figures are the end of last week (-0.3% instead of the expected 0.5% gain).  Italian output fell 2.3% in January after a 1.4% gain in December.  The median estimate in the Bloomberg survey was for a 0.8% decline.
    Last week’s ECB meeting gave investors the clear impression that the central bank recognizes that the downside risks have lessened in the region.  No more rate cuts are anticipated, and greater attention is being given to the eventual exit from the unorthodox monetary policy.   The sequencing of the exit between asset purchases and negative interest rates may take a different form than the exit by the Fed or the earlier exit by the BOE.
    Still, we can’t help but wonder who leaked news that there was a discussion along these lines (reduced negative deposit rate before asset purchases are complete) and to what end.  It seems those who are critical of the ECB’s course may have had the incentive to provide that information to the media.  Of course, it is reasonable to expect a push back.  It came from Belgium’s central banker Smets, who recognize the macro improvement, was clear that no decisions were taken.
    Also, over the weekend, the head of the US administration’s strategic and policy committee, Schwarzman, told a CNN interviewer the confrontation with China that candidate Trump had seemed to emphasize, might not materialize after all.  Treasury Secretary Mnuchin had already indicated that the normal Treasury review would take place before any judgment was made about China and its yuan policy.   Chinese stocks, especially those that trade in Hong Kong, did well.  The Hang Seng Enterprise Index rallied 1.8%, the most since November, and is now up 9.2% year-to-date.  The MSCI Asia Pacific Index advanced 0.8%.  The index has been down only two week’s this year for a 7.7% gain.
    European shares began firmer but surrendered the early gains.  The Dow Jones Stoxx 600 was fractionally lower in later morning turnover.  Telecoms and energy led most sectors lower.  Materials seemed to like the rebound in some industrial goods (iron ore, zinc, copper) and the second was up nearly 1%.
    The UK is edging closer to triggering Article 50 to start the formal negotiations of its exit from the EU.  The House of Commons is expected to reject the amendments submitted by the House of Lords.  If the House of Lords passes the stripped version, Prime Minister May could announce her intention to trigger Article 50 as early as tomorrow.   Another twist to the plot is the push for another Scottish referendum.  While the May government could withhold legal approval, it appears that the main interest is pushing it until after the UK leaves the EU.   The latest Mori poll showed a dead heat.
    Sterling is 0.4% against the US dollar near $1.2215.  It ran out of steam in early Europe near $1.2240.  Last week’s high was a little above $1.2250.   A base seems to be in place near $1.2130-$1.2150.  A gain above $1.2300 would lift the technical tone; otherwise, it is bouncing along its trough.
    The euro’s pre-weekend gains extended to nearly $.10715, its highest level in a month.  It briefly took out the 61.8% retracement of the down move since February 2 (~$1.07). European participants sold into the gains recorded in Asia.   The 50% retracement and the 100-day moving average of found near $1.0660.  Additional support is seen in the $1.0600-$1.0620 area.
    The dollar is trading with a downside bias against the yen.   US yields are softer,  which is consistent with the heavier dollar tone against the yen.  The day’s lows have been recorded in the European morning near JPY114.50, but the intraday technicals suggest the potential for a recovery in the North American session.
    The Canadian dollar is trading within the pre-weekend range, but the Australian dollar continued to recover, reading almost $0.7600.  Its 0.5% gain puts it atop the best performers.   It has met the 38.2% retracement objective of its slide since late February’s $0.7740.  The next target is near $0.7615.  Support is now seen in the $0.7550 area.
    The US and Canadian economic calendars are light today.  The market is positioning for this week’s events.  There is some chunky option expires today.  In the euro, strikes rolling off today include,  $1.0646-$1.0650 (1.33 bln euros) and $1.0670 (560 mln euros) and $1.0680-$1.0690 (2 bln euros) and $1.07 (680 mln euros)..  In dollar-yen, JPY114.00 ($400 mln), JPY114.50 ($295 mln) and JPY115. ($690 mln).  In dollar-CAD, there is CAD1.35 ($555 mln) and CAD!.3530 ($522 mln), and in the Aussie, $0.7600-$0.7610 (A$728 mln).

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    Corrective Forces Emerge, Tempering the Dollar’s Rally

    February 16th, 2017

    By Marc Chandler.


    Several trend moves of the past couple of weeks are correcting. Signs of the correction began yesterday in North America.  The dollar was unable to sustain gains despite a string of stronger than expected data, including January CPI, retail sales, industrial output, and the Empire State manufacturing survey for February.
    There does not appear to be a fundamental trigger.  Market expectations for more Fed hikes this year than the last two combined solidified.  This is evident in the Fed funds futures strip, and the US 2-year premium over Germany edged closer to 2.05% multi-year high set at the end of last year.  Comments from NY Fed President Dudley, on the back of Yellen’s testimony to Congress, also suggested the strengthening of the Fed’s conviction by acknowledging that the balance of risks is shifting to more growth than expected rather than less.
    The Dollar Index had moved higher for ten consecutive sessions before reversing yesterday’s gains to close lower.  Yesterday and today’s losses have seen the Dollar Index retrace 38.2% of the advance since February 2.  That retracement objective was near 100.80.  The 50% retracement is found near 100.50 and the 61.8% retracement by 100.20.
    The euro recorded a reversal pattern yesterday–a hammer candlestick–, and there has been following through euro gains today.  It had been sold to almost $1.0520 yesterday before the short-covering bounce lifted it to new session highs in late turnover, and managed to finish the North American session at $1.06.   Short covering today lifted the single currency to $1.0640, which is the 38.2% retracement objective, but it does not appear over.  The 50% retracement is seen near $1.0675 and the 61.8% retracement is $1.0710.
    Softer US yields, weaker Japanese stocks, and the corrective pressures have seen the dollar back away from yesterday’s test on JPY115 to return to JPY113.50.  At JPY113.80, the greenback surrenders 38.2% of its recent gains.  The 50% mark is at JPY113.30, and the 61.8% retracement objective is found near JPY112.90.
    Sterling is firmer, but cable appears to be being held back by the unwinding of long sterling cross positions.  It had dipped below $1.24 yesterday for the second time this month, and demand once again emerged.  Sterling is testing resistance in the $1.2530-$1.2540 area, and a move through there would set up a more important technical test in the $1.2570-$1.2585 band.
    The Australian dollar had pushed above the $0.7700 cap yesterday but is struggling to sustain the potential breakout after disappointing jobs data, despite the corrective forces weighing on the greenback.  Australia created 13.5k new jobs, but they were all part-time positions, and the participation rate eased to 64.6% from 64.7%, which accounts for the decline in the unemployment rate to 5.7% from 5.8%.
    Australia created an average of 31k full-time jobs a month in Q4 2016.  This was too good to be true. In Q3 it lost an average of 38k jobs a month.  In January, it shed 44.8k full-time jobs and grew 58.3k part-time positions.
    The Australian dollar rallied from $0.7165 on January 2 to a little through $0.7730 today.  The nearly 8% advance is led the major currencies.  The Aussie fared well even during the US dollar’s recent streak.  As corrective forces unfold, the Australian dollar looks vulnerable.  A move back toward $0.7600 seems likely, but only a convincing break of that area would be of technical significance.
    The Canadian dollar, in contrast, seems largely sidelined.  It is up about 0.25% today with the US dollar near CAD1.3050.  The technical indicators suggest the potential for the US dollar to move higher, perhaps back toward CAD1.3100.  Yesterday’s high (~CAD1.3120) and the 20-day moving average (~CAD1.3110) offer nearby resistance.
    The main US equity indices closed at new record highs yesterday.  Although the MSCI Asia Pacific Index closed higher (~0.45%), it struggled.  Japanese, Korean, and Taiwanese markets fell.  China, Australia, and India rose.  In Europe, the Dow Jones Stoxx 600 is set to end its longest advancing streak in 18 months (seven sessions) that had carried the benchmark to its best level since late 2015.  Today’s modest loss (~0.3%) is being led by energy, consumer staples, industrial, materials, and financials/real estate sectors.  Information technology, telecom, and healthcare sectors are gaining today.
    The US economic calendar does not have the heft to arrest the corrective pressures.  The US reports January housing starts and permits, the February Philly Fed survey and the weekly jobless claims.  Recall that housing starts surged 11.3% in December and some payback is likely in January. Permits, which are included in the Leading Economic Indicators are expected to edge higher after falling 0.2% in December. The Philly Fed survey rose from 8.7 in November to 23.6 in January.  It has been higher only a handful of times since the end of the financial crisis.  Some moderation is expected, and the Bloomberg median forecast calls for an 18.0 reading.
    After Yellen and Dudley recent comments, there is unlikely to be new news from Fischer today.  He appears on Bloomberg TV shortly, and San Fran’s Williams speaks at a fintech conference toward the end of the North American session.   While many still see March as too early to move, given the tone of Yellen and Dudley’s comments, many see June as too far away.  There is beginning to be a greater focus on May.  Although there is no press conference or updated forecasts at the May meeting, the thinking is that by raising rates then, it would create new degrees of freedom for the Fed moving forward.

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    Five Events that Will Drive the Capital Markets in the Week Ahead

    January 16th, 2017

    Marc Chandler.


    Like many, we recognize that political factors may overshadow macroeconomic drivers in shaping the investment climate in the period ahead.  We suspect this will be very much the case in the coming days  It is not that the economic data doesn’t matter, but for many investors, the imprecision and quirky nature of the high frequency economic data pale in comparison to the risks emanating from politics and policy.
    Before providing a thumbnail sketch of the five events, we think may shape the investment climate in the week ahead, allow us to briefly preview the economic highlights.  The US and Japan round out the large countries industrial output reports. Europe accelerated.  Japan is will likely confirm the strongest monthly increase since March 2014.  US industrial output is expected to have snapped back from a weak November.  The soft patch the dragged it lower for three of the past four months through November may have ended.
    The US, UK, and Canada report inflation measures.  UK inflation is expected to have stabilized at higher levels, though PPI may continue to trend higher.  US headline CPI is expected to continue to converge with the core rate, as is repeatedly done for the past fifty years.  It is expected to push through 2.0% for the first time since July 2014.  The core rate is expected to tick up to 2.2% from 2.1%.   Canada’s CPI has averaged 1.4% this year and 1.1% in 2015.  It is expected to rebound from 1.2% in November to 1.7% last month.
    Investors will get an update the UK labor market, which has lost some momentum in recent months, and average weekly earnings that appear to have steadied.  Australia reports December employment figures.  It created almost 25k jobs a month in 2015 and less than a third of that in 2016. It reported an outsized 39.1k  job growth in November. These were all full-time jobs.  Economists expect a 10k increase in December, which seems optimistic.  Canada reports November retail sales. The 1.1% jump in October (1.4% excluding autos) is obviously unsustainable. The risk seems to be on the downside of the Bloomberg median forecast of 0.5%.
    Now, let’s turn to the five key events: 
    5.  Bank of Canada meeting and updated economic assessment:  The overnight rate will remain unchanged at 0.5%, and the anticipation of closing the output gap in mid-2018 also won’t be altered. However, we flag this because we expect a more upbeat tone to the central bank’s neutrality.  Also, we suspect that in the US dollar appreciation that we expect to resume shortly, investors will also look for alternatives to the greenback and the Canadian dollar is a potential candidate.  The Canadian dollar was the strongest of the major currencies against the US dollar in 2016, gaining almost 3%. The US dollar has been sold from CAD1.36 on December 30 to nearly CAD1.30 on January 12.   The US two-year premium has fallen from nearly 48 bp to 39 bp at the end of last week. It is approaching the lower end of a range  (~35 bp) that has been sustained since the middle of November.    The US premium had risen steadily from below six bp last-July.    The US 10-year premium more than doubled from last April’s 32 bp to 81 bp peak in late-November.  It has subsequently pulled back and has not been above 70 bp since January 4.
    4:  China’s President Xi goes to Davos: This will be the first time a Chinese President attends Davos.  It is part of an important and ironic juxtaposition that appears to be unfolding.  It will be Chinese “core” leader that will defend globalization from the populism and protectionism that appears to be on the rise in the United States and Europe.  The shoe has been on the other foot for years.  Chinese nationalism was worrisome for many.  It was China’s reluctance to free-trade rules embodied in the WTO agreements that was the cause of much trade friction.  Meanwhile, the price of stabilizing the economy has been a continued increase in credit extension.  At the same time, capital controls have been tightened stem the outflows.  The painful squeeze inflicted in the offshore yuan market continues to deter speculation as CNH is trading at its largest premium (rather than the more usual discount) for the longest period under this dual currency regime.
    We had argued that just like Bush and Obama backed off their campaign pledges to cite China as a currency manipulator when they assumed office.  Our forecast that Trump would also back off his pledge to cite China on day one was also bluster is coming to pass.  In an interview in the Wall Street Journal, the President-elect says it won’t be day one.  He will talk to them first.  Revealing either his reluctance to take language seriously or a subtle slight to China, Trump referred to President Xi as chairman.  It would be like calling a US president Commander.  It is a title they have but not this purpose. Alternatively, it could be a jab that Xi is not elected.   More antagonistic to the Chinese, Trump said he is not committed to the US traditional one-China policy.  He claimed it was up for negotiations.
    3.  May’s Brexit strategy: When May became Prime Minister there was a small window of opportunity to change the trajectory.  She could have said she was not bound by Cameron’s pledge to adhere to the results of the referendum.  May’s government has not been bound by other policies of the previous Tory government. She could have said that the referendum was non-binding and why pretend otherwise.  It won with the slightest of majorities, which was not to make such an important decision as changing a treaty.  With Labour having inflicted on itself serious injury, she could have won an election if she lost a vote of confidence.  Instead, she went with the “Brexit is Brexit”  slogan that may still prove tantamount to cutting one’s nose to spite one’s face.
    A week ago, May confirmed that she was willing to sacrifice access to the single market in exchange for greater control over immigration and not being subject to the European Court of Justice. Sterling fell in response through the $1.22 area that had served as a base since October and fell to two-month lows against the euro.  She is expected to outline more of her approach in a speech on January 17.  A new wrinkle has emerged, and it may blunt or neutralize the negativity of the hard exit that May appears to be leading the UK.  The Northern Ireland government collapsed at the start of last week. If the UK Supreme Court grants, it is expected to do shortly, a role for the parliament that sits in Westminster, the Parliament in Northern Ireland has joined the suit.  Without a sitting parliament in Northern Ireland, May’s intention on triggering Article 50 at the end of Q1 would likely be frustrated.
    2.  ECB meeting: After having adjustment policy last month, there seems to be practically no chance that the ECB introduces new initiatives.  Draghi’s presentation may be ho-hum. The eurozone economy has evolved in line with the ECB’s expectations.  Investors will be most interested learning Draghi and the ECB’s take on the stronger than expected rise in CPI.  Recall headline CPI jumped to 1.1% in the preliminary estimate in December from 0.6% in November. It is expected to be confirmed the day before the ECB meets. Draghi can be expected to resist ideas such as those suggested by German Finance Minister Schaeuble that it is time to reconsider the thrust of monetary policy.   If it were up to officials like Schaeuble, the policy would not have been implemented in the first place.
    The first inkling that policy is indeed working is not the time to pullback, Draghi may say.  In addition to cautioning against jumping to conclusions based on one month’s data, he may note that the rise in headline measures is primarily the result of energy prices.  The core rate increased to 0.9% in the preliminary estimate for December.  The cyclical low was 0.6%.  Pressure is likely to mount until the updated staff forecasts in March.  Note that the base effect warns of additional gains in CPI. Last January’s 1.4% decline (month-over-month)  will drop out of the year-over-year comparison.  Despite the increase in price pressures, inflation expectations remain deflated.  The German 10-year breakeven is a little below 1.3%.
    1:  Trump’s inauguration:   Donald J Trump will become the 45th President of the United States on January 20.  There is great uncertainty surrounding the policies his administration will pursue, and its priorities.  The only thing we can be confident of is there will be changes in both style and substance. It has already become clear in the confirmation process that many of new cabinet officials disagree with important elements Trump’s campaign rhetoric, and disagree with each other.  Presidents have their own decision-making style, and it is not clear where power will truly lie.  Only infrequently is an org chart particularly helpful.
    Amid the uncertainty, there are a few important constants.  First, the economic team is very pro-growth.  The usual reasons for not pursuing policies that lead to stronger growth, as the effect on the trade deficit, the dollar, or inflation are not acceptable to many in the new economic team.  Second, Trump does not feel bound by American tradition, including resisting sphere of influence claims (including formally recognizing Russia’s annexation of Crimea), opposing nuclear proliferation, defender of free-trade, and the acceptance that Taiwan is part of China (even while opposing a military solution).  Third, the communication style, including the extensive use of Twitter and citing names of specific companies and people, create new uncertainties for investors.  In situations like that, people often find ways to look like they are complying in hopes of deflecting negative attention while pursuing their own agenda.  Fourth, the style and policy substance is likely to lend itself to a heavy volume of misunderstanding, clarifications, and in one word, controversies, that make it all the more important that investors distinguish between noise and signal and focus on the latter.
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    The Better Way: Backing into Smoot-Hawley and Repeating the Flaws of PPP

    January 10th, 2017

    By Marc Chandler.


    While hearings on US President-elect Trump’s nominees will begin this week, the Republicans are preparing dramatic changes in taxes.  In this note, we will look closely at one element of the proposed tax changes that involve trade.
    It is the border tax adjustment.  In essence, the proposal calls for export revenue (not just profits) to be exempt from corporate taxes, while none of the import costs can be deducted from taxable income.
    A tax on imports and a tax exemption on exports sounds like the epitome of protectionism.  Not all forms of protectionism are prohibited by the World Trade Organization.  WTO rules allow for some types of borders adjustments, but only for indirect taxes, like a VAT.  However, the Republican plan “Better Way”  uses the border adjustment on corporate taxes, which are a form of direct taxes.  In the present form, the border adjustment would likely be challenged before the WTO, and likely judged to be a discriminatory subsidy.
    There is another issue.  Many economists, including among the most respected, like Martin Feldstein, argue that border adjustment will fuel a 25% rise in the dollar’s value.  This is important.  The reason the border adjustment is not going to result in higher priced imports and a rise in US inflation is that the foreign exchange market will offset it by driving the dollar higher.
    Feldstein explained in the op-ed in the Wall Street Journal at the end of last week: “These calculations make it look as if the border tax adjustment causes the U.S. consumer to pay 25% more for imported products and the foreign consumer to pay 20% less than they otherwise would. But the price changes that I have described would never happen in practice because the dollar’s international value would automatically rise by enough to eliminate the increased cost of imports and the reduced price of exports.”
    Whenever economists, even the dean of economists and a Harvard professor, talk about “automatic” adjustments, get suspicious, very suspicious.   Feldstein continued:  “Here’s why. If the exchange rate remained unchanged, the higher price of U.S. imports would reduce the U.S. demand for imports, and the lower dollar price of U.S. exports would raise the foreign demand for American exports. That combination would reduce the existing U.S. trade deficit.”
    Feldstein argued that due to 1) the economic identity that holds imports minus exports equals savings minus investment, and 2) that the border adjustment does not change the US savings or investment, it follows that the foreign exchange market will bear the adjustment and the dollar will rise significantly.   The Professor says that the dollar rise will be beneficial.
    This is a weak version of purchasing power parity.  It states that currencies ought to move to equalize the price of a basket of internationally traded goods.   Two points need to be made here.
    First, foreign exchange prices deviate from purchasing power parity by significant magnitudes for extended periods of time.   Presently, according to the OECD, the euro is the most undervalued currency in its universe.  It is a little more than 26.6% undervalued.  Sterling is 18.3% undervalued, and the Japanese yen is about 14% undervalued according to the OECD.
    The Swiss franc is the most overvalued currency at nearly 18.4% above where the OECD estimates are fair value.   The Swiss franc has not been below the OECD’s calculation of its purchasing power parity level for more than 30 years.  It was overvalued by more than 20% from late 2002 until late 2015.
    Second, the growth of the capital markets over the past 35 years and the increased internationalization of savings and investment means that the cross-border movement of money overwhelms the cross-border movement of good and services.  Consider that world trade may be around $20 trillion annually.  Turnover in the foreign exchange market is around $5 trillion a day.  Capital flows arguably have a greater influence on currency movement than trade in goods and services.   Moreover, as numerous countries have found, including Japan, and backed up by extensive research,  perhaps partly due to extensive global supply chains, the link between currencies and export volumes appear to have loosened from what many were taught at the university.
    There a body of literature that debates the flaws of purchasing power parity models.  Over the last couple of decades, economists have devised alternative measures that take capital flows into account and address other shortcomings of PPP.
    Here is the difficult line we are trying to walk.  We are bullish on the US dollar.  In 2008-2009 we argued that the dollar was about to enter a secular uptrend (see my 2009 book Making Sense of the Dollar). For the last couple of years we have been arguing that before the Obama (and now Trump) dollar rally, the third such rally since the end of Bretton Woods, is over, the euro will retest its historic lows near $0.8250.  We project the Dollar Index to rise toward 120 (currently around 102).
    Our view was based on the divergence of monetary policy broadly understood.  It was based on economic divergence.  Since the middle of 2015, we added the anticipation of a supportive policy mix of tighter monetary policy and looser fiscal policy.    Also, for this year and next, we have expressed concern about the risk of a resurgence of nationalism-populism in Europe, which erodes the integration that is at the heart of the European Project.  We have also suggested that long-term investors ought to be thinking about a post-Merkel Germany and a post-Draghi ECB.  Both are not imminent, but likely take place within the next few years.
    In conclusion, we are bullish the dollar but are concerned that the border adjustment may spur other countries to do the same thing, inadvertently spurring protectionism and further weakening international trade, which has not yet recouped the decline associated with the Great Financial Crisis.  In a similar vein ,that the some of the lessons of the Great Depression, like those embodied in  Glass-Steagall, were either repealed, diluted, or unenforced, so too are the lessons of protectionism seemingly lost and now hidden in mental gymnastics based on an automatic adjustment of currency values and an outdated understanding of PPP.
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    Flattish Consolidation Hides Dollar Strength

    November 21st, 2016

    By Marc Chandler.


    The euro is trying to snap a ten-day losing streak.   Its bounce today has stopped a little shy of the five-day moving average that is found near $1.0650.  It has not traded above this short-term moving average since the November 9.
    The news over the weekend is primarily political in nature.  Sarkozy is going to retire (again) after taking a drubbing in the Republican Party primary in France. Fillon, the self-styled French Thatcher unexpected beat Juppe, but without 50% and therefore the results set up the run-off this coming weekend.  It is as if, knowing their candidate will likely face Le Pen in the final round next spring, the Republican Party might as well chose the most extreme laissez-faire candidate.
    In Germany, Merkel officially announced her candidacy for a fourth term as German Chancellor. This was widely expected.  Merkel has moved to protect her flanks after her immigration policy caused a fissure in her alliance with Bavaria’s CSU.  The national election is planned for next fall.  The anti-immigration and anti-EU AfD party have come on strong to win representation in all but a few German states.  The most likely outcome is for a continuation of a grand coalition between the CDU and SPD.  It is possible that another party is needed to form a coalition government.  If so, the FDP are more likely than the Greens.
    In the UK, Chancellor of the Exchequer Hammond played down need to provide strong fiscal stimulus in this week’s Autumn Statement.  Separately, Prime Minister May’s op-ed piece in the Financial Times marks out a pro-business stance, including a corporate tax cut that will lower the UK rate to the lowest in the G20.
    Sterling is only of the major currencies to be losing ground against the dollar today, but it is really range-bound between $1.2300 and $1.2370.  The technical tone is soft. Sterling fell every day last week against the dollar and is extended that streak into a sixth session today.    Part of the heavy tone may be coming from the crosses.  Today is the second session in which sterling is trading heavily against the euro.  The euro reversed higher before the weekend after nearing GBP0.8525.  It needs to push through GBP0.8640 to signal further upside potential.
    In a session light on economic news, Japan stands out.  It reported its second consecutive trade surplus in October.  The JPY496.2 bln surplus was slightly smaller than the September surplus of JPY498.3 bln.  However, the surplus came despite the continued fall in imports and exports.
    Japanese exports have not risen on a year-over-year basis since September 2015.  Its exports fell 10.3% in October after a 6..9% drop in September.  Exports of autos, steel, and telecom equipment haven been weak.  Exports to the US are off 11.2%, 9.5% lower to Europe and a 9.2% falling in exports to China.  Imports fall 16.5% from a year ago, after a 16.3% plunge in September.  Recall that net exports contributed about 0.5% to Japan’s Q3 GDP.
    The dollar extended its recent gains against the yen, marching to JPY111.20 before sellers emerging in Asia.  Early Europe saw the greenback slip to almost JPY110.50 where new bids were found.  In late May, the dollar was turned back from JPY111.45.
    Japan’s Topix rose 1.0% to extend its winning streak into the eighth consecutive session.  It was led by the telecoms, energy, and financials.  Utilities and materials were laggards.  It is at its best level since February.  More broadly, the MSCI Asia-Pacific Index rose 0.35%.   European bourses recouped early losses, and the Dow Jones Stoxx 600 turned positive in late morning turnover.  Energy and information technology are the strongest performers today
    Oil is building on its pre-weekend gains amid speculation that next week’s OPEC meeting will announce a reduction of supply.  Base metals are rebounding after last week’s bout of profit-taking.  Nickel, copper, and zinc were up around 2%.
    The US 10-year Treasury yield is a couple of basis point lower, while yields are most higher in Europe. The 2-year yield is also fractionally lower.  To the extent that the dollar’s gains have been bolstered by the rise in yields, today has the makings for a consolidative session.
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