(Reuters) – A look at the day ahead in European and global markets from Wayne Cole
The dollar takes off early on Monday, recovering some of last week’s losses, supported in part by rare words of support from US President-elect Donald Trump.
While 100% tariffs seem somewhat unlikely, the latest comments represent a change from the Trump of old who was openly touting a weak dollar as a way to fix the US trade deficit. The market took them as indicating that it would not be a source of pressure on the currency.
The Chinese yuan has certainly been badly affected, hitting a three-month low against the dollar.
The dollar also rose about 0.5% against the yen and above 150.50 yen to the dollar, overshadowing recent more hawkish musings from Bank of Japan Governor Kazuo Ueda who said the next interest rate hikes are “approaching in the sense that economic data is on the right track.” .
Ueda’s comments, along with data showing Japanese business investment rose 8.1% in the third quarter, encouraged markets to price in a 65% chance the Bank of Japan will raise rates by a quarter point to 0.5% at its Dec. 18 policy meeting. -19.
That’s about the same as the market’s likelihood that the Fed will cut interest rates by a quarter of a percentage point at its December 18 meeting, although much will depend on what ISM polls and payroll data show this week.
US jobs are expected to rebound by 195,000 jobs in November, although the forecast range of 160,000 to 270,000 indicates a risk of an upside surprise. For example, JPMorgan is tipping 270,000 jobs, with the end of hurricanes and strikes adding nearly 90,000 jobs to its payroll. However, they also expect the unemployment rate to rise to 4.2% and approach the Fed’s forecast of 4.4%, potentially leaving the door open for easing in December.
For the ECB, a 25 basis point cut on December 12 is considered an absolute minimum and the market indicates a 21% probability of a 50 basis point rate cut. Investors have priced in 1.6% as the ECB’s minimum rate, compared to 3.75% for the Federal Reserve.
French bonds will need all the interest rates they can get after France’s far-right National Rally party raised the risk of a no-confidence vote this week that could unseat Prime Minister Michel Barnier. Whatever happens, budget reform seems unlikely, and the deficit could reach 6% of GDP, possibly making borrowing more expensive for France than for Greece.
Oh, and it’s worth keeping an eye on the Russian ruble after its near-collapse last week as the authorities appeared to turn a blind eye to its decline, and it might be worth knowing that the devaluation was worth it to increase export revenues from dollar-priced goods.
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