If it was a weaker dollar Trump wanted he certainly got it in the days following his bombastic inauguration speech which was seen by the rest of the world (with the possible exception of Marine Le Pen) as a de facto declaration of war.
As tipped on Sunday evening when Asian trading was underway, the greenback broke lower against the yen as traders fretted over the speech.
Dollar getting hit early.. "Dollar selling dominates in early Asian hours following Friday’s decline on lack of specifics in Trump speech" pic.twitter.com/dv3Nk3p2E2
— Heisenberg Report (@heisenbergrpt) January 22, 2017
“Dollar selling is dominating,” one Tokyo-based strategist said, around 6:30 p.m. EST on Sunday, adding that given the crowded nature of the long dollar, short Treasurys trade, there’s probably quite a bit of room to correct. “Strong protectionism tint in Trump’s inauguration speech is inevitably weighing on dollar,” Minori Uchida, Tokyo head of global market research at Bank of Tokyo-Mitsubishi UFJ told Bloomberg.
And then the new shorts came in. “Leveraged accounts have followed earlier macro selling to send USD/JPY to new intraday low,” another Asia-based FX trader said.
The broad dollar dropped below the January 17 low of 126 to hit its lowest level since early December while USD/CHF fell as much as 0.4% to 0.9974 – that’s below the pair’s 100-DMA for first time since the election. The pound hit its highest level agains the dollar in over a month.
Meanwhile, Treasurys continued to rally, with 10s falling to 2.43% overnight. “Trump’s speech increases conviction that 10-year U.S. yield will fall to 2.10% by end of March,” Kenta Inoue, Tokyo-based senior market economist at Mitsubishi UFJ Morgan Stanley Securities, wrote in a note seen by Bloomberg.
Remember, there’s a lot of money taking the other side of this trade, and as I noted on Sunday, that’s usually a contrarian indicator. Here’s the scatter plot I used (via Deutsche)…
…and here’s another way to visualize it (via Bloomberg)…
Asia equities traded mixed following Trump’s speech. Needless to say, the Nikkei was sharply lower, weighed down by the surging yen.
- MSCI Asia Pacific up 0.2% to 140
- Nikkei 225 down 1.3% to 18891
- Hang Seng up less than 0.1% to 22899
- Shanghai Composite up 0.4% to 3137
- S&P/ASX 200 down 0.8% to 5611
European shares are red basically across the board as the euro and the pound rally. At the risk of fitting facts to a narrative, you have to believe that the weakness we’re seeing across the pond on Monday is also largely attributable to jitters about the Trump administration.
- Stoxx 600 down 0.3% to 362
- FTSE 100 down 0.6% to 7152
- DAX down 0.4% to 11581
- German 10Yr yield down 2bps to 0.4%
- Italian 10Yr yield up less than 1bp to 2.03%
- Spanish 10Yr yield down less than 1bp to 1.5%
- S&P GSCI Index down 0.2% to 398.8
Gold is higher on the same safe haven flows driving the yen while crude is lower following Sunday’s meeting in Vienna at which OPEC and non-OPEC producers pretended to discuss how to monitor each other’s cheating on production cuts. Here’s the rest of the wrap, up to date as of 5:30 EST:
- S&P 500 futures down 0.2% to 2262.2
- Stoxx Europe 600 down 0.3% to 361.57
- MSCI Asia Pacific up 0.2% to 139.94
- US 10Yr yield down 1 bps to 2.46%
- Dollar index down 0.4% to 100.32
- WTI oil futures down 1.1% to $52.62/bbl
- Gold spot up 0.3% to $1213.65/oz
Happy trading.
