Diverging PMIs Fail To Give The Dollar Lasting Support

Overview: The contrast between the eurozone and US preliminary PMI readings caught the short-term market leaning the wrong way, and the dollar snapped back after extending its recent losses. However, today the US dollar is back on its heels and returning to yesterday's lows against most major currencies. The dollar bloc and Scandis lead the charge, while the Swiss franc and yen, gaining about 0.3%, are the laggards. Emerging market currencies are also mostly stronger, and the JP Morgan Emerging Market Currency Index is stabilizing after yesterday's 0.5% decline, the largest of the month. Despite Turkey abolishing rule that required banks to extend credit and buy government debt, the Turkish lira is a notable exception. It has been sold, seemingly led by local names, and the dollar probed TRY8.0. After yesterday's holiday, Japanese markets reopened and played a little catch-up, gaining 2% to lead the Asia Pacific region. Chinese and Taiwanese shares fell. European bourses are higher, and the Dow Jones Stoxx 600 is up around 0.6% in late morning turnover. The S&P 500 and Dow Jones Industrials are poised to gap higher at the US opening. Core bond yields are slightly firmer, leaving the US 10-year benchmark near 0.86%. Peripheral European yields are a little softer. Gold's slump continues. It is lower for the sixth session of the past seven and tested $1810, a four-month low. Oil is moving in the opposite direction and the January WTI contract pushed into the$43.50-$43.75 area to reach a new 2.5-month high.  

Asia Pacific

Reports suggest China has dramatically stepped up its purchases of agricultural products. Its corn imports from the US last month look to be the second-highest on record and twice last year's pace, more than a million tons for the third consecutive month. Imports of wheat, barley, sugar, and pork are also running near twice the year-ago pace. Soy is also in strong demand, and the risk of that dry weather lowers the Brazilian crop and helps lift prices that reached six-year highs yesterday. At $12 a bushel, soy has gained 45% since mid-March. The CRB Index is at new eight-month highs. The Chinese yuan has appreciated by about 3% since the end of September, cushioning the CRB's 6% gain. 

The Trump Administration is reportedly still considering executive action that would sanction more Chinese companies, and some link the decline of Chinese shares to such speculation. Separately, but not completely unrelated, the UK appears to be moving closer to formalizing its ban on the installation of new Huawei equipment and to order replacing existing equipment by 2027. Australia's Prime Minister Morrison tried to strike a more conciliatory note to Beijing, which is taking out its displeasure over Canberra's policy in limiting trade in a number of areas. However, Morrison's claim of reluctance to take sides in the US-China competition rings hollow. Australia is a member of the Quad, which seeks to check China's rise in the region, for example. Australia has made its choice. On the other hand, Yellen, who has been tipped as the next Treasury Secretary, does not accept what has become a seemingly popular charge in the US that China is responsible for the US worldwide deficit. Although it is a common thread in American political commentary to blame others for its challenges, the global imbalance pre-dates China's rise. Some used to make the same charge against Japan, and these days, Japan runs a trade deficit, and the US trade shortfall is larger than ever. 

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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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