Treasury And Dollar Selling Go Hand-In-Hand

Yesterday, we noted the apparent US silence in the face of China's trade war with Australia primarily stemming from Canberra's foreign policy that is often in lockstep with the US. Unrelated and several hours later, President-elect Biden's national security adviser offered support for Australia, noting its sacrifices for "freedom and democracy" and pledging that the US "stood shoulder-to-shoulder" with Australia. China was not explicitly mentioned, but the message was clear.  

The dollar met resistance near JPY104.55 and has slipped to almost JPY104.20.Around $1.6 bln in options in the JPY104.45-JPY104.50 area expires today, and there is an option for $3.5 bln at JPY104. that also expires today. We suspect the exchange rate is not going anywhere quickly today. The Australian dollar extended its gains to a new 2020 high of a little more than $0.7435 today, where an option for nearly A$675 mln expires. The upside momentum has stalled in Europe. The $0.7400-area should offer initial support. The PBOC set the dollar's reference rate at CNY6.5592, slightly firmer than expected. Its open market operation drained liquidity (CNY70 bln), bringing the amount withdrawn over the past three sessions to about CNY230 bln, and short-term rates jumped.  


The eurozone's service and composite PMIs were revised a little higher but do nothing to assuage fears that it is contracting here in Q4. The service PMI rose to 41.7 from the flash reading of 41.3 and 46.9 in October. The composite stands at 45.3, slightly better than the 45.1 initially estimated, but below the 50 boom/bust level seen in October. By country, Germany was revised lower and France higher. Italy was worse than expected and Spain slightly better, but both declined deeper below the 50-level.  

Before leaving the PMI story, note that the UK's reading was also revised higher from the preliminary estimates, but its reading also reflects an economy whose recovery has been stalled. The service PMI stands at 47.6. The flash reading was 45.8 after October's 51.4. The composite is at 49.0. It is better than 47.4 initially estimated but compares unfavorably to October's 52.1 reading.  

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Read more by Marc on his site Marc to Market.

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