(Reuters) – A look at the day ahead in European and global markets by Wayne Cole
The dollar is off to an early start on Monday, regaining some of last week’s losses, helped in part by rare expressions of support from newly elected US President Donald Trump.
While 100% tariffs seem rather unlikely, the latest comments mark a change from the old Trump, who openly touted a weaker dollar as a way to solve the US trade deficit. The market took this to suggest he would not be a source of pressure on the currency.
The Chinese yuan certainly performed poorly, reaching a three-month low against the dollar.
The dollar is also up about 0.5% against the yen and over 150.50 yen per dollar, overshadowing recent more hawkish musings from Bank of Japan Governor Kazuo Ueda, who said the next rate hikes are “near in the sense that the economic data is on track” .
Ueda’s comments, combined with data showing Japanese business investment rose a healthy 8.1% in the third quarter, encouraged markets to estimate a 65% chance that the BOJ will will increase by a quarter of a percentage point to 0.5%. -19.
That’s virtually the same market probability that the Federal Reserve will cut rates by a quarter of a percentage point at its December 18 meeting, although much will depend on what this week’s ISM surveys and payrolls data show.
US jobs are expected to rebound by 195,000 in November, although the forecast range of 160,000 to 270,000 points to the risk of an upside surprise. For example, JPMorgan tips 270,000, while the end of hurricanes and strikes adds almost 90,000 to payrolls. Yet they also expect the unemployment rate to rise to 4.2% and closer to the Fed dot plot of 4.4%, likely leaving the door open for an easing in December.
For the ECB, a 25 basis point cut on December 12 is seen as the absolute minimum and the market implies a 21% chance of 50 basis points. Investors have set the ECB rate floor at 1.6%, compared with 3.75% for the Fed.
French bonds will need all the interest rate love they can get after the far-right National Rally this week raised the risk of a vote of no confidence that could topple Prime Minister Michel Barnier. Whatever happens, fiscal recovery seems unlikely and the deficit could reach 6% of GDP, potentially making it more expensive for France to borrow than for Greece.
Oh, and it’s worth keeping an eye on the Russian ruble after it nearly collapsed last week, as authorities appeared to tolerate its decline, perhaps thinking a devaluation was worth draining their export earnings from in to fatten dollar-priced commodities.
Key developments that could impact the markets on Monday:
– UK house prices for November; EU unemployment; PMIs for the Eurozone, Germany, Great Britain and France
– Appearances by ECB President Christine Lagarde, BoE Director Lee Foulger, Riksbank First Deputy Governor Anna Breman, Fed Governor Christopher Waller and Fed NY President John Williams
(by Wayne Cole; editing by Edmund Klamann)
