Markets Catch Collective Breath

<div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgWzmGuNWeKYug6-OTnB-RxIaPR5aPkCzwgaHsqTL9rcLpk1rQoDPmzwKn4RtdcyQvm0cj8V14Lkk26Dw5bvvOofqy0a-X-ZaYPHfCCbVOQCnh5d3CF_mx3Fc8W7r4MtJrbWbAubJ9yWvdBU1O99uEWvSrCMCVJKBuDwWVRRo4tz6mNMjtYNeo7dKp3TkGk/s817/Wed%201.jpg"><img alt="" border="0" data-original-height="809" data-original-width="817" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgWzmGuNWeKYug6-OTnB-RxIaPR5aPkCzwgaHsqTL9rcLpk1rQoDPmzwKn4RtdcyQvm0cj8V14Lkk26Dw5bvvOofqy0a-X-ZaYPHfCCbVOQCnh5d3CF_mx3Fc8W7r4MtJrbWbAubJ9yWvdBU1O99uEWvSrCMCVJKBuDwWVRRo4tz6mNMjtYNeo7dKp3TkGk/s400/Wed%201.jpg" width="400" /></a></div><p><span><b>Overview: </b><span>The US dollar is mixed today. The dollar-bloc currencies are firmer, while the euro and yen are softer. We had anticipated a recovery of the dollar on ideas that the market has too aggressively pushed down US rates, and pricing in more Fed easing with higher confidence than seems to be warranted by the recent data.&nbsp; However, US rates have not recovered, but the dollar has.&nbsp; Partly, this reflects that rates have fallen as faster if not faster elsewhere, and especially in the eurozone after last week's preliminary CPI.&nbsp; Among emerging market currencies today, the Mexican peso's 0.20% gain is leading a few currencies higher, but most have a softer tone.&nbsp;</span></span></p><p><span><span>Equities are firmer across the board.&nbsp; Nearly all the markets in the Asia Pacific region were higher, led by a 2% rally in the Nikkei. Europe's Stoxx 600 is extending yesterday's 0.4% gain with another 0.25% increase. US index futures are trading higher.&nbsp; Benchmark 10-year bond yields, on the other hand, are 2-3 bp firmer in Europe. The 10-year US Treasury yield is a about three basis points higher near 4.20% and the two-year yield is up four basis points to about 4.61%. Gold is consolidating inside yesterday range after the extreme price action on Monday. January WTI has slipped lower.&nbsp; It reach almost $71.40, its lowest level since July.&nbsp;&nbsp;</span>&nbsp;</span></p>

<p><span><b><span>Asia Pacific</span></b><span><o:p></o:p></span></span></p>

<p><span><b><span>Australia reported that Q3
GDP expanded by 0.2%.&nbsp;</span></b><span>Consumer
spending and net exports drags. Economists look for more of the same this
quarter. Tomorrow, Australia reports October goods trade figures. </span>This year, the trade surplus is running about 10% less than
last year. Exports have fallen by an average of about 0.8% a month this year
through September. In the first nine months of 2022, exports rose by an average
of 3.1%. Imports have risen by an average of 0.9% a month through September. In
the same period last year, imports for by an average of 1.8% a month. Remember,
these are nominal measures and there reflect price changes as well as volume
changes.</span></p><p><span><b>The US dollar is inside yesterday's range against the Japanese yen and Australian dollar in quiet consolidative activity.&nbsp;</b>The greenback looks comfortable in a JPY146-JPY148.20 range. The soft Australian GDP did lead to a weaker Aussie as it seemed within expectations. It held the 20-day moving average near $0.6540. A close above $0.6580 would be constructive. The US dollar reached a two-week high against the Chinese yuan near CNY7.1590. The PBOC set the dollar's reference rate at CNY7.1140 (vs. CNY7.1127 yesterday).&nbsp;&nbsp;</span></p>

<p><span><b><span>Europe</span></b><span><o:p></o:p></span></span></p>

<p><span><b><span>The eurozone reported that
retail sales in October increased for the first time since May. </span></b><span>The 0.1% increase was slightly below
expectations. Recall that last week, Germany reported a dramatic 1.1% increase
in its October retail sales. The median in Bloomberg's survey was for a 0.4%
gain, and September's 0.8% drop was revised to -0.1%. French consumer spending,
a broader measure fell by 0.9% (median forecast in Bloomberg's survey was for a
0.2% decline). Adding insult to injury, September's 0.2% gain was revised to
flat. Spain's retail sales softened by 0.2% in October after posting a 0.2%
gain in September. Italy reports its retail sales tomorrow. They are expected
to have slipped by 0.1% after a 0.3% decline in September.&nbsp;<o:p></o:p></span></span></p><p><span><b>Germany reported an unexpectedly large decline in October factory orders. </b>The 3.7% decline compares with expectations for a small gain, and the disappointment was not diminished by the upward revision in September's series to 0.7% from 0.2%. There was a 20.2% surge in transport equipment, but was offset by a 13.5% plunge in orders for machinery and equipment. The rise in German retail sales is helpful, but the drop in factory orders suggests the industrial sector is still weak. The economy contracted by 0.1% in Q3 and may be doing the same this quarter.&nbsp;</span></p>

<p><span><b><span>At the end of last week,
Switzerland reported a 0.5% decline in the EU-harmonized measure of CPI, bringing
the year-over-year rate down to 1.6% from 2.0%. </span></b><span>This is the lowest since January 2022. On
December 14, the Swiss National Bank meets (the same day as the ECB and BOE). The
swaps market has about 62 bp of easing priced in over the next 12 months, which
is roughly 2 1/2 quarter-point cuts. While the SNB may temper its September
warning about inflation, it may be in no hurry to claim victory. Energy prices
will increase sharply (18%) in January and the value-added tax will be raised. The
euro has approached the CHF0.9700 area around the third week in November but
turned lower before peaking against the dollar. The euro has returned to the
CHF0.9440 area this week. The year's low was recorded on October 20 near
CHF0.9420. In September 2022, it saw a seven-year low around CHF0.9410. <o:p></o:p></span></span></p><p><span><span><b>The euro is lower for the sixth consecutive session.&nbsp;</b>Last week's unexpectedly soft preliminary November inflation report and policy consequences is the key development. Still, today it is confined to about a narrow quarter-cent range mostly below $1.08. Nearby support is seen near $1.0750.&nbsp;<b>Sterling is faring a bit better.</b>&nbsp; The BOE has seemed less dovish and market position adjustment seems less extreme. Sterling is also in about a quarter-cent range (~$1.2590-$1.2615).&nbsp;</span>&nbsp;</span></p>

<p><span><b><span>America</span></b><span><o:p></o:p></span></span></p>

<p><span><b><span>The ADP private sector jobs
estimate is due today. </span></b><span>The
median forecast in Bloomberg's survey is for a 130k increase after 113k in
October. The question is whether it helps in anticipating the BLS figures. In
the last three-months ADP's estimate has averaged 127.3k and year-to-date
222.9k. The BLS report shows the private sector has averaged 153k jobs a month
and 183k over so far this year. The US also reports the October trade balance. The
advanced goods balance deteriorated to $89.8 bln from $86.8 bln and was the
largest shortfall since July. Economists look for around a $3 bln widening in
the overall deficit to $64.2 bln. Through September, the US trade deficit was a
little more than $590 bln, down from almost $738 bln in the same period last
year. Lastly, Q3 productivity and unit labor costs are subject to revisions. These
are derived from GDP and the small upward revision may translate into stronger
productivity and low unit labor costs. <o:p></o:p></span></span></p>

<p><span><b><span>Before the Bank of Canada's
decision at 10:00 ET, Canada's October merchandise trade balance and Q3 labor
productivity is due. </span></b><span>Both
have deteriorated this year. Through September, Canada reported a goods trade
deficit of about C$4.2 bln. In the first nine months of last year, Canada
reported a nearly C$20 bln surplus. Labor productivity is expected to have
fallen by 0.6% in Q3, the same as in Q2. It will be the six consecutive
quarterly contraction. In fact, outside of a small gain in Q1 22 (0.1%),
Canada's labor productivity has fallen since H2 20. Turning to the Bank of
Canada, it is widely expected to standpat. The question is how much does
Governor Macklem push back against the market, which is pricing in about a 67%
chance that the first cut is delivered by the end of Q1 24 and the 4 and 1/3 cut
discounted by the end of October 2024.&nbsp;<o:p></o:p></span></span></p><p><span><b>The US dollar stalled near CAD1.36 yesterday and is holding slightly below today.</b> Initial support, though, is also holding near CAD1.3550. Yesterday's low was near CAD1.3535.&nbsp; A break of it could spur a retest on CAD1.35. <b>The greenback successfully tested its 200-day moving average against the Mexican peso yesterday near MXN17.5650.</b> It was rejected and the dollar is near MXN17.34 in the European morning.&nbsp; Nearby support is seen around MXN17.25-30.&nbsp;</span><span>&nbsp;</span></p><p><br /></p><p><br /></p><p><a href="http://www.marctomarket.com/p/disclaimer_28.html" target="_blank"><span face="&quot;Open Sans&quot;, sans-serif">Disclaimer</span></a></p><div><br /></div><p></p>