The Dollar Slips To New Lows Against Sterling And The Mexican Peso

Overview: Global equities are moving higher today. Led by continued strong buying of Hong Kong shares, the MSCI Asia Pacific Index rose to new highs. The Hang Seng is up 6% this year and is approaching the 2019 record high. Australia's shares set a new record today. Japan and Taiwan bucked the trend. Europe's Dow Jones Stoxx 600 has recouped yesterday's 0.2% loss plus some, led by information technology and consumer discretionary sectors. The S&P 500 and NASDAQ futures point to a higher open in the US as the benchmarks probe near record highs. Benchmark yields are little changed today, with the US 10-year near 1.10%. European bond yields are a touch firmer, including Italy after the government survived the confidence vote yesterday. The dollar is mostly softer, but the euro is not participating so much, perhaps a note of caution ahead of tomorrow's ECB meeting. The Swedish krona is also slightly weaker as one of its central bankers indicated that a return to negative rates cannot be ruled out. We see a greater risk of a small rate cut by the Bank of Canada today than the market. Emerging market currencies are mostly moving higher, and the JP Morgan Emerging Market Currency Index is higher for the third session. The Mexican peso rose to a new 10-month high. Gold has continued to recover after it approached $1800 at the start of the week. It reached almost $1857.50 today to move back above the 200-day moving average ($1845.40). Yet, the intraday technical indicators warn the yellow metal may be topping. March WTI rallied 1% yesterday and is up nearly another 1% today to test the $53.50-$53.70 area. Last week's high, just shy of $54 a barrel, was the highest since last February. 

Asia Pacific

A new outbreak of the virus in China will likely impact plans to celebrate the Lunar New Year. Hundreds of millions of people usually travel during this period. Fewer travelers are expected now. The restrictions directly impact some industries, including oil refineries, and some indirectly via shifting demand expectations.  

The nominees for US Treasury Secretary (Yellen) and Secretary of State (Blinken) took tough lines on China during their confirmation hearings yesterday. Particularly noteworthy was that Blinken endorsed the assessment by Pompeo, who labeled Beijing's treatment of the Uighurs a genocide. The testimony strengthened our conviction that the US confrontation of China is bipartisan and will persist under the Biden administration. Separately, but related, we note that the UK government narrowly (319-308) defeated an amendment that would have pressed UK judges to rule that the Uighurs' treatment is indeed a genocide, which would allow different types of legal action.  

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Read more by Marc on his site Marc to Market.

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