Overnight Bullets Wall Street leads the pack
-Japan services PPI; Malaysia CPI; Thailand manufacturing production due
-Wall Street surges, Dow climbs over 30,100 on positive vaccine hopes
-Treasury’s $56 bln 7-year auction solid, 0.653% stop, 2.37 cover ratio
-U.S. consumer confidence fell -5.3 points to 96.1 in Nov from 101.4 in Oct
-U.S. Richmond Fed index dropped -14 points to 15 in Nov from 29 in Oct
-U.S. FHFA house price index surged 1.7% in Sep; largest gain on record
-Wall Street stronger on vaccine optimism, Biden transition; Dow 30k
-Dollar bloc currencies firmer amid risk-positive positioning
-German Ifo index plunged to 90.7 – weakest reading since July
Asia Market Outlook (November 25)
Wall Street surged overnight, with the Dow surpassing the 30k mark. More good news on vaccine developments has underpinned gains amid hopes for a quicker than expected return to normalcy. Also the news that the Trump administration is working on a transition gave some relief, as did reports that Janet Yellen, a very well known quantity for Wall Street, would be nominated for Treasury Secretary. It’s also expected that a Biden administration and Yellen Treasury would argue strongly for additional fiscal stimulus. The Dow’s gains were across all sectors, but led by energy, materials, industrials, and financials. A hefty amount of sidelined cash is also expected to come into the stock market, though there is also expected to be some major rebalancing into year end. Core European bourses were all higher, with the FTSE adding 1.55%, the DAX up 1.26%, and the CAC 40 advancing 1.21%. Treasuries sold off on the strength in risk appetite and supply. The 30-year yield was over 5 bps higher at 1.60%, while the 10-year was up 3 bps to 0.882%. The 2-year was little changed at 0.162%. The curve widened to 72 bps from 68 bps Monday and 66 bps late last week. The 10-year Bund yield was up 1.1 bp at -0.56%, while the Gilt yield had lifted 1.1 bps to 0.327%. Eurozone peripherals outperformed thanks to dovish ECB comments and as risk appetite improved.
Today’s regional calendar is light, but will reveal Japan October services PPI, which is expected to have fallen 0.5% y/y from 1.3% previously. Malaysia October CPI is estimated at -1.4% y/y, unchanged from September. In Thailand, October manufacturing production is anticipated at -2.0% y/y from -2.8%.
In Europe, the docket is empty.
The U.S. calendar is very busy as data was condensed ahead of Thursday’s Thanksgiving holiday. The second Q3 GDP report is expected to improve to 34.1% from 33.1%. October durable orders are seen rising 1.0% from 1.9% previously. October advance goods trade report is expected to see the deficit widen to $81.0 bln from $79.4 bln. Advance October wholesale and retail inventories are due as well. Initial jobless claims are expected to fall to 720k from 742k, and continuing claims are seen at 6.000 mln from 6.372 mln. October personal income and consumption should see the former rise 0.1% from 0.9%, and the latter rise 0.6% from the 1.4% increase in September. October new home sales are penciled in at a 0.965 mln pace, versus 0.959 mln previously. The final November University of Michigan consumer sentiment index should improve to 79.0 from 77.0. Weekly MBA mortgage and oil inventory figures are also on tap. The Fed will release the minutes from the November 4-5 FOMC meeting. The earnings calendar is light and features reports from Deere & Co., and Trip.com.
N.Y. FX Summary (November 24)
The Dollar ran higher into the N.Y. open and beyond on Tuesday, taking the DXY from 92.19 to 92.55. The USD advanced versus all the major currencies, seemingly on the back of the formal start to the transition to a Biden presidency. Gains were later partly reversed, perhaps as risk-taking levels surged. The DJIA headed over the 30k mark for the first time, as Wall Street rallied sharply. While the good news on vaccine developments has underpinned gains amid as quicker than expected return to normalcy. Additionally, the pick of Janet Yellen, a very well known quantity for Treasury Secretary, calmed fears of a more radical pick. It’s also expected that the Biden administration and Yellen will argue for additional fiscal stimulus, which would be supportive of further stock and USD gains.
EUR-USD put in a choppy session, rising from near 1.1845 to 1.1895 in London morning trade, before falling to 1.1841 in early N.Y.. From there, the pairing bounced to 1.1885, then settled under 1.1870. The formal start of the transition to a Biden presidency improved USD sentiment, as did the appointment of Yellen to Biden’s Treasury Secretary post, which calmed fears of a more radical pick, and upped the expectations that the Biden administration and Yellen will argue for additional fiscal stimulus, positive for Wall Street and the USD. EUR-USD has largely consolidated November’s modest gains, with the 1.1900 level remaining as solid resistance.
After rallying to 1.3380 in London morning trade, Cable fell to 1.3293 in early N.Y., as a broad round of Dollar buying hit the market. The pairing later recovered to 1.3360 highs. EU and UK negotiating teams have been continuing discussions by video conference, with the deadline for reaching agreement, is reportedly now next Tuesday. Heads of state are now fully engaged. We fully expect that win-win will prevail, with both sides evidently striving to a avoid no-deal, even if it means some kind of fudged extension. JPMorgan analysts are less confident, but still give 80/20 odds for a deal, up from 66% odds for a deal they previously envisioned. France is the main ‘bad cop’ protagonist on the EU side, along with Spain to a lesser extent, which has a special interest about Gibraltar, threatening on numerous occasions to veto any deal if it doesn’t get what it wants on fishing rights. The most likely outcome is a narrow trade deal.
USD-JPY rallied to seven-session highs of 104.76, up from 104.55 at the open, and overnight lows of 104.15. Dollar demand was a feature since London morning trade, seeing the greenback lifted against most major currencies. The start of the formal transition period to a Biden presidency appears to have given USD sentiment a boost, while hopes for a robust U.S. economic recovery in 2021, once Covid vaccines are rolled out appears to have helped the USD for now at least. USD-JPY support is at the 20-day moving average of 104.47, with resistance at the 50-day moving average at 104.95.
USD-CAD bounced from two week lows of 1.3010, trading to 1.3091 highs in early North American trade. The overnight move to the lows came as oil prices hit three-month highs, though broad USD buying stepped in ahead of the open, prompted by the formal start of the transition to a Biden presidency, and a market looking ahead to 2021, when vaccines should put an end to the pandemic. USD-CAD later did an about-face from early gains, retracing to 1.3018 lows in early afternoon. Oil prices advanced further, taking WTI crude over the key $45 level, while surging equities and general risk-on conditions supported the CAD as well. The overnight low of 1.3010 now marks support
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