No Follow-Through After Month-End Adjustments

Overview: The near-record rallies seen in the major equity markets in November may have contributed to the month-end drama yesterday. There has been no follow-through activity. Stocks bounced back, and the US dollar is heavy, with few exceptions. In the Asia Pacific region, all the markets are higher, and most rose by more than 1%. The European Dow Jones Stoxx 600 is recouping most of yesterday's 1% loss, and the S&P 500 is nearly 1% higher too. Benchmark yields are most 1-2 basis points firmer in Europe and the US, leaving the 10-year Treasury yield around 0.86%. The dollar is lows against all the major currencies, led by the Scandis. The euro remains within striking distance of the $1.20-level and sterling flirted with $1.34.Emerging market currencies broadly are recovering, and the South African rand and Hungarian forint are leading today's advance. The Turkish lira is a notable exception, falling for the first time in five sessions. Gold is nearly 1.8% higher and has resurfaced above $1800 an ounce. Oil is little changed with the January WTI contract hovering around $45 a barrel, as OPEC+ has delayed their meetings day amid discord.  

Asia Pacific

The Caixin manufacturing survey was considerably stronger than expected at 54.9 from 53.6 in October. This is the highest in a decade and is consistent with the recovery seen in other data. South Korea exports, which are also seen to be driven by Chinese demand, were also strong, rising 4% year-over-year in November after a revised 3.8% decline in October (initially -3.6%). When adjusted for the number of working days, the value of average daily exports rose 6.3%, the most in two years.

The final look at Japan's November manufacturing PMI revised away the initial decline to 48.3 from 48.7 and instead rose to 49.0, the highest since August 2019. However, the employment situation deteriorated slightly, and the October unemployment rate ticked up to 3.1% from 3.0%. This is a new cyclical high and matches the highest level since2017. The job-to-applicant ratio rose to 1.04 from 1.03. It stood at 1.58 a year ago.  

As widely expected after easing policy last month, the Reserve Bank of Australia stood pat. The RBA says it is ready to do more if needed. Separately, the Markit manufacturing PMI slipped to 55.8 from 56.1 preliminary reading, but still better than October's 54.2. It was just below 50 a year ago. First thing tomorrow, Australia reports Q3 GDP. It is expected to have expanded by 2.5% in the quarter after a 7.0% contraction in Q2.  

The dollar posted an outside up day against the yen yesterday, trading on both sides of the pre-weekend range and closing above the high. Follow-through buying saw the dollar trade around JPY104.45 after peaking yesterday a touch lower (~JPY104.40). Today, it is confined to about a quarter of a yen above JPY104.20. A move above the JPY104.85-JPY105.00 area, which holds about $960 mln in expiring options, would lift the tone. In contrast, the Australian dollar posted an outside down day yesterday. It briefly poked above $0.7400 for the first time since September 1 before selling off to about $0.7340. Today, it has held the low but was capped near $0.7375. The intraday technicals suggest a retest of the session highs could be seen in North American activity. The PBOC set the dollar's reference rate at CNY6.5921, in line with expectations. The dollar has been consolidating its losses against the yuan since the middle of November. Yesterday it reached a two-week high near CNY6.5945.The low today (~CNY6.5605) was the lowest since November 18.  

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Read more by Marc on his site Marc to Market.

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