Limited Follow-Through Dollar Selling To Start The Week

Overview: The US dollar has drifted higher against the major currencies and most of the freely accessible emerging market currencies, paring the losses seen before the weekend in response to the disappointing employment report. Easing pressure from the pandemic as the surge in cases after the holidays may also be encouraging risk-taking to extend the global equity rally. Several markets in the Asia Pacific region, including Japan, China, India, and Thailand, rose by more than 1%. That was sufficient to lift the Nikkei and the Topix to their best levels since the early 1990s. Led by materials and financials, Europe's Dow Jones Stoxx 600 is extending last week's nearly 3.5% advance.US shares are enjoying a firmer tone, as well. Benchmark 10-year bond yields are 2-3 bp higher in the US and most of Europe. Italian bonds are a bit more resilient, and the premium over Germany is near 95 bp, a new 11-year lows. The US 10-year reached almost 1.20%, its highest since the chaos last March. Gold marginally extended its recovery off last week's two-month low, near $1785.A move above $1820 could spur another $10 rally. Meanwhile, oil continues to march higher. March WTI is up for the sixth consecutive session to build on last week's nearly 9% advance. It has reached about $57.70, and there is little resistance ahead of $60. 

Asia Pacific

China reported that its reserves unexpectedly slipped last month. A small increase from the year-end valuation of $3.216 was anticipated. Instead, reserves fell to $3.210, the first decline since October, but are $95 bln higher than a year ago. The decline may be a function of valuation adjustments. Major reserve currencies, outside the dollar, fell, and main investments, bonds, fell. The PBOC estimates the value of its gold holdings fell by about $1.5 bln. Nevertheless, the yuan remains a heavily-managed currency. The large trade surplus and portfolio capital inflows are associated with an appreciating currency. Many suspect the yuan would be rising faster if it were not being checked. Pressing for greater transparency is the first step.  

Japan's December current account surplus eased to JPY1.17 trillion ($11 bln) from JPY1.19 trillion last November. The decline contrasts with the JPY350 bln increase in the trade surplus (JPY965 bln from JPY616 bln). Japanese investors stepped up their purchases of French and Italian bonds in December. Its French bond purchases of almost JPY450 bln was the most in more than a year. They also bought JPY424 bln of Italian bonds, the most in four months. For the year as a whole, Japanese investors bought JPY3.75 trillion of Australian bonds and JPY1.48 trillion Canadian bonds. Both appear to be the highest on record. On the other hand, Japanese investors for net sellers of foreign equities for the first time since 2013. In 2020, foreign investors sold JPY2.79 trillion of Japanese bonds, the first annual net sales since at least 2014, but bought a record JPY21.4 trillion T-bills.  

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Read more by Marc on his site Marc to Market.

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