China And The UK Surprise In Opposite Directions

The US Treasury announced that it will soon begin issuing 20-year bonds. The Trump Administration has been pushing to issue longer-dated securities to take advantage of the low-interest rates. However, there was a pushback against the 50-year and 100-year bonds that the administration appeared to favor. The 20-year issue is a fair compromise. It is longer than the average maturity of the outstanding marketable Treasuries, which is a little less than six years. The new supply consideration saw the much-watched 2-10 year yield curve steepen a little. It had flattened by around 12 basis points since the start of the year when it was about 34 bp.

President Trump formally nominated Shelton and Waller to the Board of Governors of the Federal Reserve. It has long been signaled that this was likely to be the case, though why it took so long is a bit of a mystery. In any event, Shelton is the more controversial nomination, but she has been through the confirmation process to secure her current post as Executive Director of the European Bank for Reconstruction and Development. Waller is from the hallowed institution itself, as Director of Research at the St. Louis Fed. Both advocate easier monetary policy. 

The US reports December housing starts and permits, and industrial production figures today. Housing starts are expected to have edged higher, but permits may come in lower. Industrial output and manufacturing are more important data points, and after a surge (1.1% gain for both) in November, as autoworkers returned, a small decline is expected. Preliminary January consumer confidence by the University of Michigan and its long-term inflation expectation component (was 2.2% in December) will draw some attention. Economists, more than market participants, watch the JOLTS job opening report. Canada's portfolio flows report (November) attracts some interest.  

The Canadian dollar is flat on the day and has gone nowhere this week. A week ago, the greenback finished near CAD1.3050 and now is stuck in a narrow range near CAD1.3040. There is an $820 mln option at CAD1.3030 that will be cut today. The US dollar remains in the range set on January 9 (CAD1.3025-CAD1.3105). Meanwhile, the greenback continues to bleed lower against the Mexican peso. It has fallen every week since the end of November but one. The dollar closed last week near MXN18.7950. It is testing the MXN18.75 area today. The high real and nominal yields continue to attract savings and levered accounts like it as a carry-trade against the yen. The Dollar Index enjoys a slightly firmer bias today and is near 97.40. It finished last week near 97.35.

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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