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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 among emerging market currencies. Of note, the South Korean won has recovered almost half of yesterday's loss amid calmer conditions today. 

Equities were mixed in the Asia Pacific region but mostly the large bourses were lower. The won stabilized but the Kospi fell almost 1.5%. Europe's Stoxx 600 is up around 0.25% to extend its rally for the fifth consecutive session. US index futures are firm (0.2%-0.5%). Benchmark 10-year yields are 2-6 bp higher in Europe. The French premium over German has narrowed slightly. The 10-year US Treasury yield is nearly three basis points higher at 4.25%. It is higher for the third consecutive session, which if sustained, matches the longest advance since September. Gold is virtually flat near $2642. January WTI is firm, extending yesterday's recover. It is above $70. Last week's high was near $71.50. 
 

Asia Pacific

Japan and Australia reported the final November services and composite PMI. The markets seem more sensitive to the European PMI than Japanese, Australian or American PMI. The takeaway is that Japan and Australia's composite PMI were revised higher and now both above the 50 boom/bust level, albeit barely at 50.1 and 50.2, respectively. Separately, Australia reported growth edged higher to 0.3% in Q3 (quarter-over-quarter) from 0.2% in Q2 and in Q1. The Reserve Bank of Australia meets on December 10. It is more concerned about the resilience of underlying inflation. Still, the market has boosted the chance of an RBA cut in April. It was about 75% discounted yesterday and is now fully priced in. China's Caixin services and composite rose. The composite stands at 52.3, the highest since June. Recall that the official non-manufacturing PMI slipped (50.0 vs 50.2) and the composite was flat at 50.8. Lastly, the short-lived drama in South Korea weighed on the Kospi but the won recovered about half of yesterday of yesterday's loss. 

The dollar fell to JPY148.65 in North America yesterday, its lowest level in nearly two months. The greenback was mostly weaker yesterday following Fed Governor Waller's comments on Monday about still leaning toward a rate cut later this month. US job-openings rose by 5% in October, the most since the middle of last year. While the US 10-year yield was firm near 4.22%, the two-year yield slipped below 4.15% for the first time in over a month, though settled a little above 4.17%. It has unwound in full the post-election increase. However, the dollar has jumped back today. While the dollar is broadly firmer, the yen's weakness was exacerbated by domestic political developments--namely the head of the Democratic Party for the People, the key support for the minority government, stepped down "temporarily" (three months) due to alleged personal scandal. The net effect of this is to reduce the chances of a BOJ hike later this month. The odds in the swap market were nearly halved. The greenback reached JPY150.80 so far today. Resistance is seen closer to JPY151.50. The Australian dollar recorded an inside day yesterday but has sold off today to its lowest level (slightly below $0.6410) since the year's low near $0.6350 was seen in early August. The Aussie recovered to around $0.6450 before sellers re-emerged. It is back near the trough ahead of the North American session. The dollar jumped to nearly CNH7.3150 yesterday, a new high for the year yesterday. It consolidated in Europe and North America yesterday in a roughly CNH7.29 to CNH7.3050. Even though the PBOC is accepting some yuan weakness, it is still managing to slow its descent. In fact, the dollar was sold through yesterday's low (CNH7.2835). The dollar fix was set at CNY7.1934, (CNY7.1996 yesterday). The lower the dollar fix, the less upside it has given the 2% band it is permitted to move around the reference rate.
 

Europe

The focus is on the French parliament and whether the current government can survive. It is a crisis but not an existential one. If the government falls, Macron will likely name a new prime minister or allow Barnier to continue in a caretaker role. On the eve of the vote, the French 10-year premium to Germany narrowed and has narrowed a little more today. The final November PMIs have been released. The aggregate services PMI is at 49.5, slightly better than the flash reading but still down from 51.6 in October. The composite PMI stands at 48.3 (48.1 initially), down from 50 in October, and is the weakest since January. Germany's final readings slipped slightly while France's final readings were a little better than the initial estimate. The new news today is the deterioration in the periphery, especially Italy. Earlier this week, Italy reported its manufacturing PMI (44.5) was the lowest of the year. Its services PMI slowed to 49.2 from 52.4, while the composite slumped to 47.7 from 51.0, which is a new low for the year. Spain's November PMI slowed but it is the best performer of the Big Four. Its manufacturing PMI slowed to 53.1 from 54.5. Today we learned the services PMI slowed to 53.1 from 54.9, while the composite fell to 53.2 from 55.2 (a three-month low). The UK's final services and composite PMI also ticked up from the preliminary reading. The services PMI strands at 50.8 (50 flash and 52.0 in October). At 50.5, the composite is at its lowest level since October 2023. The initial estimate put it at 49.9. 

The euro traded quietly yesterday even if choppily. It briefly dipped below $1.05 but held above Monday's low ($1.0460). The euro settled near the middle of yesterday's range. It is trading just inside yesterday's range and is straddling the $1.05 level in late European morning turnover. We note that the two-year interest rate differential is also consolidating around 220 bp. It peaked with the poor flash eurozone PMI on November 22 near 240 bp. It was below 200 bp on the eve of the US election. Sterling also posted an inside day yesterday and is recording an outside day today. Sterling looks to be in a somewhat better technical position than the euro. The five-day moving average (~$1.2685) is poised to move above the 20-day moving average (~$1.2695) shortly for the first time since early October. The euro's moving averages were whipsawed around the US election. Last week's sterling's high was about $1.2750, slightly shy of the (50%) retracement of the losses since the US election. 
 

America

The US economic diary is chock full today, but all the data is not equally important. Two data points stand out. First is the ADP private sector job estimate. Over the last three months, the ADP average estimate has been well above the BLS (165k vs. 67k), but over the past ten months, it has been tighter (160k vs 132k). The median forecast in Bloomberg's survey is for ADP estimate to slow to 158k from 233k in October. For Friday's US nonfarm payroll report, the median forecast for private sector employment is 200k as it bounces back from the loss of 28k jobs in October (the first loss of jobs since the end of 2020). The second highlight is the Fed's Beige Book. Fed Chair Powell seems to put an emphasis on it when it suits his purposes. Weakness in the anecdotal report will keep the market, like Governor Waller, leaning toward a December rate cut. Several Fed officials speak today (Powell, Barkin, Musalem, and Daly). but we suspect comments after Friday's jobs data and next week's CPI will be more important. There are other economic reports due today, including the final services and composite PMI and the ISM services (which looks softer) and the "final" look at October durable goods orders, with factory orders. For its part, Canada sees the November services and composite PMI. It also reports Q3 productivity. It is expected to have drifted lower. This sore spot for Canada. Its productivity has fallen every quarter since mid-2020 except three (Q1 and Q2 22 and Q4 23).

The Canadian dollar slipped marginally against the dollar yesterday. The US dollar traded inside Monday's range and was confined to a CAD1.4010-CAD1.4075 range. It made a marginal new high today but below Monday's high (~CAD1.4090). The greenback has not settled below CAD1.40 for more than a week. Until it does so, the risk is that the upside has not been exhausted. The swaps market is pricing in about a 50% chance of another half-point cut next week from the Bank of Canada. Mexico's data yesterday offered conflicting signals. Private consumption rose 1% in September, disappointing expectations, but October's unemployment fell sharper than expected to 2.50% from 2.92%. It is the lowest since March. The greenback traded quietly yesterday, mostly between MXN20.29 and MXN20.43. It is trading quietly in Europe inside yesterday’s range. It remains will within the consolidative range that dominated over the past three weeks. The Brazilian real stabilized but the US dollar remained above BRL6.0.

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