US Treasury Yields Come Back Softer After Moody's Cut Outlook, and the Dollar Rises to New Highs Against the Yen
<div><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEij6E1j4H7-aSAQ_8GeYeF5sZDYCds2RvZDVhwGWnoz0_AotryVzLeIW3VesQrtWRVCL0UNDUD5btZpyI1OwZE51bUGU0wJk4DFcM_R-8H1NI1ejTUJlhpD1Nf5Idt81N7tgcTxRqEC5QnmnH6OeFv8phGS-_DqE7cnzpnXRDI1OBuYIzqTlgAwiBT7mVr1/s833/usd%20Monday.jpg"><img alt="" border="0" data-original-height="833" data-original-width="831" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEij6E1j4H7-aSAQ_8GeYeF5sZDYCds2RvZDVhwGWnoz0_AotryVzLeIW3VesQrtWRVCL0UNDUD5btZpyI1OwZE51bUGU0wJk4DFcM_R-8H1NI1ejTUJlhpD1Nf5Idt81N7tgcTxRqEC5QnmnH6OeFv8phGS-_DqE7cnzpnXRDI1OBuYIzqTlgAwiBT7mVr1/s400/usd%20Monday.jpg" /></a></div><p><b><span>Overview: </span></b><span>The dollar is beginning the new week
narrowly mixed against the G10 currencies. Sterling seems largely unaffected by
the cabinet reshuffle that has seen former Prime Minister Camron return as the
foreign minister, replacing Cleverly who replaces Home Secretary Braverman. The
dollar rose to new highs for the year against the Japanese yen (~JPY151.85). The
market has shown little reaction to the pre-weekend news that Moody's cut the
outlook for US credit to negative from stable. The 10-year US yield is off
almost three basis points to 4.62%. European benchmark yields are off mostly 2-3 basis points, but Italy's yield is down five basis points. <o:p></o:p></span></p><p><span>Most equity markets in the Asia
Pacific region traded heavier despite the outsized gains on Wall Street ahead
of the weekend. The Hang Seng and mainland companies that trade there rallied
1.3%-1.5% were notable exceptions. Europe's Stoxx 600 has returned bid after
falling by 1% before the weekend. On the other hand, US index futures are
sporting a softer profile. Meanwhile, gold is stuck near the pre-weekend lows
around the 200-day moving average (~$1935). The yellow metal fell by 2.6% last
week. December WTI is steady, in a narrow range slightly below three-day high
set at the end of last week near $77.75. <o:p></o:p></span></p><p><b><span>Asia Pacific</span></b><span><o:p></o:p></span></p><p><b><span>Iron ore prices reached
seven-month highs before the weekend, rising for the third consecutive week. </span></b><span>Inventories are low and traditionally
restocked before the Lunar New Year (mid-February 2024). China's Securities
Journal reported last week that 16 major cities have abolished the price cap on
land auctions. This may encourage developers to acquire new lands. The gains
were extended today. Since October 20, iron ore prices have risen by 16%. The
iron ore is needed to produce steel, and the property market accounts for
around 40% of China's steel demand. <o:p></o:p></span></p><p><b><span>The 10-year JGB yield
slipped three basis points last week to 0.84%. </span></b><span>It peaked about 10 bp higher. The 30-year
yield peaked on November 1, slightly above 1.90%. It fell to almost 1.70% late
last week before settling near 1.72%. Over the past 30 sessions, changes in the
exchange rate are more correlated with changes US two-year yield (~0.45) than
changes in the 10-year yield. As the dollar rose every session last week, nary
a word threatening "appropriate action." Deputy Finance
Minister Kanda, who is in charge of fx policy, may have his hands full with a
tax issue (he failed to pay property taxes), but the lack of verbal
intervention encouraged the dollar bulls to press further ahead of the weekend,
lifting the dollar to almost JPY151.60 and sending the euro to a marginal
new15-year high. The decline in producer prices last month (-0.4% vs. median
forecast of a flat report) coupled with the sharp decline in October machine
tool orders (-20.6% year-over-year vs. -11.2% in September) may have helped maintain
the pressure on the Japanese yen, which fell to new lows for the year against
the dollar and euro. <o:p></o:p></span></p><p><b><span>The market seems to be emboldened
a bit, taking the dollar higher for the sixth consecutive session today. </span></b><span>It reached about JPY151.85. There are
options for nearly $2.2 bln at JPY152 that expire Wednesday. Initial support is
seen int he JPY15140-60 area. The euro poked above JPY162.35 and is gaining on
the yen for the ninth session in the past 11. <b>Ahead of the weekend,
the Australian dollar recovered from the $0.6340 area, a new low for last
week, stopping just ahead of the A$1 bln in options that expire in the middle
of the week at $0.6335.</b> The Aussie's recovery stalled near $0.6365
ahead of the weekend and the 20-day moving average slightly higher, but today
surpassed both hurdles to reach $0.6385. Intraday momentum indicators are
stretched, warning that the $0.6400 resistance area may be too far today. <b>The
Chinese yuan steadied after falling to a new six-day low. </b>The dollar
reached almost CNY7.30 before stalling and pushing back to session lows near
CNY7.29. China reported aggregate lending slow more than expected in October
(CNY1.85 trillion vs CNY4.12 trillion in September). This will likely have been
blunted by the surge in new bond issuance. The PBOC set the dollar's reference
rate at CNY7.1769 (CNY7.1771 on Friday). The average forecast in Bloomberg's
survey was for CNY7.2891(CNY7.2947 on Friday). Note that the greenback has traded
on both sides of Friday's range against the offshore yuan. A close below
Friday's low (~CNH7.2970) would ostensibly be a bearish development. <o:p></o:p></span></p><p><b><span>Europe</span></b><span><o:p></o:p></span></p><p><b><span>Eurozone's quiet week begins
off slowly. </span></b><span>The November
ZEW survey is due tomorrow alongside the revisions and details of Q3 GDP
(initial estimate was -0.1% quarterly contraction). The EU updates its economic
forecast in the middle of the week. The market will likely be more sensitive to
UK's data. Tomorrow is about jobs and wages and Wednesday is the October CPI.
Average weekly earnings are expected to have slowed and the year-over-year pace
of CPI is likely to fall dramatically due to the base effect.<o:p></o:p></span></p><p><b><span>The rumored UK cabinet
reshuffle took place. </span></b><span>Home
Secretary Braverman, who had been brought back by Sunak after being dismissed
by Truss, has been dismissed and replaced by Foreign Minister Cleverly. In a
surprise development, former Prime Minister Cameron, is the new Foreign
Minister. Note that the UK Supreme Court is expected to rule on Wednesday the
government's plan to deport asylum seekers to Rwanda, a policy championed by
Braverman. <o:p></o:p></span></p><p><b><span>The pre-weekend session was
the first in six sessions that the euro did not trade above $1.07. </span></b><span>It recorded a marginal new low for the
week ahead of the weekend near $1.0655. The lows for the last four sessions
with within about 5/100 of a cent of $1.0660. The euro is in a narrow range
today above $1.0680 and did briefly trade ever so slightly above $1.07. <b>Sterling
may have formed a bullish hammer candlestick ahead of the weekend. </b>It broke
down to within a couple of hundredths of a cent of the November 3 low
(~$1.2185) and recovered back toward session highs (~$1.2240) and closed higher
on the day. Follow-through buying today lifted sterling to almost $1.2255.
However, this has over-extended the intraday momentum indicators and a return
to the $1.2200-20 area look likely in North America. <o:p></o:p></span></p><p><b><span>America</span></b><span><o:p></o:p></span></p><p><b><span>The preliminary University
of Michigan's survey showed a jump in consumer inflation expectations. </span></b><span>The one-year expectation rose to 4.4% from
4.2%. That is the highest since April. The 5–10-year inflation expectations
rose to 3.2% from 3.0%. That is the highest in the dozen years. The market was
unimpressed. The 10-year yield was a smidgeon softer on the day. The five- and
10-year breakevens closed slightly lower ahead of the weekend. Still, the
implied yield of the December 2024 Fed funds futures contract rose four basis
points to 4.68%. The current effective rate is 5.33%. That implies 65 bp of
easing next year. That is two cuts and 60% of a third. On November 8, the
December 2024 contract implied a yield of about 4.49%, or 84 bp of cuts (three
cuts and about 35% of a fourth cut). Moody's cut in the US credit outlook to
negative is the subject of much talk but little action. It remains the only one
of the big three rating agencies that recognize the US as a AAA credit. That
said, the federal government faces a partial shutdown unless Congress either
passes new appropriation bills or a continuing resolution by the end of the
week. <o:p></o:p></span></p><p>
</p><p><b><span>The US dollar reached
CAD1.3855 ahead of the weekend, a six-day high. </span></b><span>It reversed lower, perhaps encouraged by
the risk-off mood that fueled strong gains in US equities, and a further
recovery in oil prices. A potential bearish shooting star candlestick may have
been forged. However, there has been no follow-through selling of the greenback
today and it continues to straddle CAD1.38 (approximate range so far today:
CAD1.3790-CAD1.3820). A push below CAD1.3770 would encourage ideas that a
near-term top is in place, but a break of CAD1.3740, and ideally CAD1.3700 is
needed. <b>The Mexican peso also recovered smartly ahead of the weekend. </b>First,
the dollar extend is Powell/Banxico rally to almost MXN17.94 before turning
tail and falling slightly through MXN17.62. This effectively retraces half of
the greenback's gains from the November 3 post-US jobs data low near
MXN17.2835. The greenback has come back from the weekend with a firmer bias and
reached MXN17.71 in the European morning. This could be the session high. Initial
support is seen around MXN17.62, and a break could signal a move toward
MXN17.5350. <o:p></o:p></span></p><p><br /></p><p><a href="http://www.marctomarket.com/p/disclaimer_28.html" target="_blank"><span face=""Open Sans", sans-serif">Disclaimer</span></a></p>
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