Daily Kickstart (Go Home Lira, You’re Drunk Edition)

“There is still much uncertainty about how his exact economic agenda will look,” Commerzbank’s Thu Lan Nguyen said on Tuesday, regarding incoming President Donald Trump’s plans to restore the American economy to some bygone era of prosperity he imagines we can’t (re)attain without his help.

Trump will give his first press conference since the election on Wednesday and although one certainly imagines they’ll be lots of talk about Russia and hacking, markets are taking a bit of breather just in case he drops some kind of bombshell that’s relevant for rates and/or FX.

The dollar is trading cautiously on Tuesday and the attendant yen strength weighed on Japanese shares. Elsewhere in the region, Hong Kong shares rose, while Australia and South Korea slipped.

  • MSCI Asia Pacific up 0.1% to 139
  • Nikkei 225 down 0.8% to 19301
  • Hang Seng up 0.8% to 22745
  • Shanghai Composite down 0.3% to 3162
  • S&P/ASX 200 down 0.8% to 5761

Meanwhile, in China, the reflation trade is on as factory gate prices rose:

CHINA DEC. PRODUCER PRICES RISE 5.5% Y/Y.

That beat expectations soundly.

The offshore yuan fell again. The three-day decline is now the largest since June of last year at 1.5%. CNH forward points fell again as did CNH O/N HIBOR (which you should be watching closely). For the second day, traders said policy banks were sellers of USDCNY. The PBoC injected a net 50 billion yuan, but the onshore O/N repo rate jumped nonetheless, rising the most since mid-December to 2.09%. Mainland equities were marginally lower.

In other notable currency moves, the Turkish lira continued to slide (“go home lira, you’re drunk”), hitting a record low against the dollar as the market remains extremely concerned about whether the central bank is so beholden to NATO’s favorite autocrat that they are essentially forbidden from raising rates by presidential decree.

lira

“The latest fall in the Turkish lira appears to be sufficiently large to trigger an interest rate hike at this month’s MPC meeting,” Capital Economics said this morning. “If the Council doesn’t act, that will only reinforce concerns about central bank independence and might force the MPC into larger rate hikes further down the line.” Here’s some context:

lira

(Bloomberg)

And here’s a bit more interesting visual color (literally):

Ultimately, the central bank did the best it could to arrest the slide without incurring the wrath of Erdogan and getting arrested themselves – they published a statement on their website and lowered FX required reserve amounts to boost liquidity.

But it likely won’t matter as it looks like the market is testing their resolve. “While the central bank sent a warning signal that may trigger some profit taking on already stretched long USD/TRY positions, sustainable reversal is unlikely unless concrete measures are implemented to restore confidence in the severely battered Turkish lira,” Rabobank told Bloomberg.

Not to be forgotten, the British pound slid again on Tuesday. There’s apparently no respite from fears of a “hard Brexit.” Here’s some exceedingly amusing commentary from HSBC (via Bloomberg):

  • The pound is acting as a gauge of Brexit “hardness” and cable trading in a 1.20-1.25 range suggests that the market is pricing in a relatively hard Brexit, HSBC head of currency research David Bloom writes in a report.
  • HSBC used swings in the pound since the Brexit vote to create a “Brexometer”, with readings between 0 and 100 telling us how hard a Brexit the market is expecting
  • The Brexometer is currently at around 74, just beyond the border line of a hard Brexit
  • A no-Brexit scenario would be in line with cable trading around 1.55 and be represented by the Brexometer at 0
  • The hardest Brexit would be 100 on the Brexometer; “We believe this is in line with GBP/USD trading at 1.10 in the near term,” Bloom writes

On Wall Street futures are flat. Oil is higher, helped by the subdued dollar.

  • S&P 500 futures little changed at 2264.3
  • Stoxx Europe 600 down 0.1% to 363.28
  • MSCI Asia Pacific up 0.1% to 138.7
  • US 10Yr yield up 1 bps to 2.37%
  • Dollar index little changed at 101.88
  • WTI oil futures up 0.6% to $52.26/bbl
  • Gold spot up 0.2% to $1183.47/oz
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