US Brandishes Tariff Weapon And Weakens Animal Spirits

Yesterday's jump to a higher range failed to inject much excitement in the euro, which is stuck again in a less than a 20-pip range against the dollar as it consolidates. The euro has not been below $1.1070 or above $1.1090. The euro has not traded above $1.11 since November 5. A move below the $1.1050 area would suggest the short-squeeze has run its course. Sterling is firm and pushing closer to $1.30, where there is a GBP225 mln option that expires today. It had not traded above $1.30 since October 21 when it approached $1.3015. Note that Turkey's November CPI was softer than expected, rising 0.38% on the month, about half as much as the median forecast in the Bloomberg survey. However, the base effect translated into a big jump on a year-over-year basis to 10.56% from 8.55%, and this likely keeps the central bank on the sideline when it meets next week. The lira continues to consolidate. Lastly, a surprisingly weak Q3 GDP from South Africa (-0.6% annualized compared with expectations for a flat report) sent the rand sharply lower. The dollar jumped from near ZAR14.52 to almost ZAR14.70. The next important chart points are near ZAR14.72-ZAR14.77.


The news stream from the US was poor. The President threatened again to increase tariffs on China if there was no deal and reinstated tariffs on aluminum and steel from Argentina and Brazil, bemoaning their weak currencies. It threatened France. The economic data were not much better. Not only did the manufacturing ISM unexpectedly deteriorated, but construction spending missed broadly, falling 0.8% in October instead of increase by 0.4% of the median forecast in the Bloomberg survey. Adding insult to injury, the September series was revised to show a decline of 0.3% instead of a 0.5% gain. The one bright spot was the rise in the November manufacturing PMI to 52.6 from 52.2 flash reading and October's 51.3. The dollar fell, but the disappointing data does not have the heft to alter expectations of Fed policy. Foremost, that requires a deterioration in the labor market.

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Read more by Marc on his site Marc to Market.

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