A look at the day ahead in the US and global markets by Mike Dolan
Helped by a backup in US Treasury yields, the dollar has rediscovered its mojo ahead of a wave of rate cuts abroad this week, with Chinese markets only hesitantly welcoming Beijing’s new policy orientation.
With government bond selling set to resume in earnest later on Tuesday and anticipation for Wednesday’s consumer price inflation report, the 10-year yield has moved back above 4.2%.
That follows a three-week run of more than 30 basis points off post-election highs and bond volatility gauges breaking to their lowest levels in more than two years.
Support for rates also helped lift the dollar, especially against currencies that saw a new round of central bank easing this week.
The dollar hit its highest level against the Canadian dollar since April 2020, as traders wonder whether the Bank of Canada will cut its key interest rate by another 50 basis points on Wednesday – not least as rate threats from the newly elected US president Donald Trump hits the sentiment there.
But now that the European Central Bank and the Swiss National Bank also expected to cut interest rates again this week, the euro and the Swiss franc were also under pressure again.
Even though the Reserve Bank of Australia held the line overnight, there was enough easing noise there to pull the Australian dollar down as well.
In China, the full market reaction to Monday’s historic Politburo change of course was somewhat disappointing – partly because the latest round of economic reports highlight the urgent need for more stimulus.
Chinese exports slowed sharply and imports unexpectedly shrank in November, another worrying sign for the world’s second-largest economy as Trump’s impending return to the White House poses new trade risks.
While markets were recently encouraged by surveys showing sentiment in the manufacturing sector at its best in seven months, they also warned they were receiving fewer export orders.
And it all follows new price data this week showing that the broader country is still struggling with deflation.
Monday’s late announcement of the new policy stance had sent Hong Kong shares up more than 2%, but today they have given back about 0.5% of that. Mainland indexes were closed when Monday’s figures were released but rose less than 1% today.
Ten-year Chinese government bond yields fell to a new record low below 1.9%, but the foreign yuan remained stable.
More broadly, worrying Chinese trade data caused oil prices to fall again and commodity stocks also dragged down European indices.
Lingering political tensions in South Korea caused the won to fall again, even as the KOSPI stock benchmark bounced back about 2%.
South Korea’s opposition-controlled parliament on Tuesday passed a 2025 budget bill that was dropped from the government proposal and prompted President Yoon Suk Yeol’s short-lived martial law decree last week.
The Indian rupee fell to a record low and government bond yields fell on Tuesday after the appointment of career bureaucrat Sanjay Malhotra as the next governor of the Reserve Bank of India prompted traders to increase their bets on interest rate cuts.
In Brazil, there may be some concern about the health of President Luiz Inacio Lula da Silva, who underwent surgery in Sao Paulo last night for a brain haemorrhage related to a fall at home in October. The operation was successful and 79-year-old Lula is “healthy” and being monitored in intensive care, doctors said.
Back on Wall Street, the CPI wake and a three-year Treasury sell-off are accompanied by the latest NFIB small business survey that should provide a glimpse into post-election sentiment.
Fed futures still estimate about a 90% chance of another rate cut next week, while stock futures held steady despite Monday’s modest decline from new records.
The S&P500 slide was led by Nvidia after China said on Monday it had launched an investigation into the US chip giant for suspected violations of the country’s anti-monopoly law – an investigation widely seen as a retaliation against Washington’s latest measures against the Chinese chip sector. .
Key developments that should give more direction to US markets later on Tuesday:
* US NFIB November small business survey, third quarter unit labor costs and productivity revisions
* US corporate profits: Autozone
* European Union finance ministers meet in Brussels on draft budgetary plans, with European Central Bank Vice President Luis de Guindos
* The US Treasury Department is selling $58 billion worth of three-year bonds
(Editing by Christina Fincher; mike.dolan@thomsonreuters.com)
