Daily Kickstart (Dollar In Focus As UK Court Rules; Lira Plunges)

On Monday evening I said I’d likely find myself talking about the dollar again first thing Tuesday morning and sure enough…

As noted last night, the greenback came under renewed pressure around 4:30 p.m. EST when Bloomberg ran comments from Trump’s Treasury pick Steven Mnuchin who said “from time to time, an excessively strong dollar may have negative short term implications on the economy.” He said some other stuff too, but the algos stopped reading at “excessively strong dollar.” The reaction was swift.

To be honest, my first thoughts was: “maybe we’ve seen the near term bottom.” And indeed others were inclined to feel the same way. “US Treasury Secretary Steven Mnuchin’s response to a Senator’s question about the impact of a hypothetical 25% dollar appreciation – that it could have negative short-term implications for the economy – is hardly ‘news’ but it feeds the sentiment behind the dollar’s correction, as does President Trump’s commitment to leave TPP and re-negotiate NAFTA,” SocGen wrote this morning, adding that “It’s tempting to think that the reaction to Mr Mnuchin’s comments represents a final flurry, but we’ll be looking for is an upturn in US real yields first.” Well, here’s what we got overnight: 

dollar

So a bit of respite for the reflation trade. We’ll see if that ultimately spills over into the US session.

In Brexit news, the UK Supreme Court ruled against the government in the closely watched Article 50 case. In an 8-3 vote, the high court said PM Theresa May must seek the permission of Parliament to trigger the two-year countdown to Brexit, giving MPs an opportunity to soften the government’s plan. Ultimately it doesn’t matter. Especially considering Theresa May – in what looks like it may have been an attempt to pre-empt the vote – said earlier this month that she would put a final Brexit plan to a vote in Parliament. “The British people voted to leave the EU, and the government will deliver on their verdict, triggering Article 50, as planned, by the end of March,’” May’s office said after the ruling, adding that May “respects the Supreme Court’s decision,” and will “set out next steps to Parliament shortly.”

There was a knee-jerk reaction in sterling, a reversal, and then a move lower again:

gbpThe ruling, traders said, was largely priced in.

Meanwhile, we got the long awaited rates decision from Turkey’s central bank which, you’re reminded, is struggling to figure out how to tighten monetary conditions to support the beleaguered lira without incurring the ire of President Recep Tayyip Erdoğan who has (literally) threatened to charge anyone not on board with easy money policies with treason. Here’s everything you need to know:

TURKEY’S CENTRAL BANK LEAVES BENCHMARK REPO RATE AT 8.00%
TURKEY’S CENTRAL BANK RAISES OVERNIGHT LENDING RATE TO 9.25%
TURKEY’S CENTRAL BANK LEAVES OVERNIGHT BORROWING RATE AT 7.25%
TURKEY LATE LIQUIDITY WINDOW LENDING RATE RAISED TO 11.00%
TURKISH LIRA DECLINES VS DOLLAR AFTER RATES DECISON
TURKEY CBANK: FX MOVEMENT INCREASED RISKS ON INFLATION
TURKEY CBANK: SHORT TERM INFLATION SEEN INCREASING
TURKEY CBANK SAYS MAY DO ADDITIONAL TIGHTENING IF NEEDED

Yeah, doesn’t look like anyone is buying that last bullet point:

usdtry

Meanwhile, Asian equities traded largely mixed, although the Nikkei was red (again) on relative yen strength.

  • MSCI Asia Pacific down less than 0.1% to 140
  • Nikkei 225 down 0.5% to 18788
  • Hang Seng up 0.2% to 22950
  • Shanghai Composite up 0.2% to 3143
  • S&P/ASX 200 up 0.7% to 5650

Europe is mostly higher following the UK Supreme Court’s decision. We got some flash PMI prints that are (maybe) worth mentioning:

France Jan. Flash Composite PMI 53.8 Vs 53.1; Est 53.2
France Jan. Flash Manufacturing PMI 53.4; Est 53.4
France Jan. Flash Services PMI 53.9; Est 53.2
Germany Jan. Flash Manufacturing PMI 56.5; Est 55.4
Germany Jan. Flash Services PMI 53.2; Est 54.5
Germany Jan. Flash Composite PMI 54.7; Est 55.3
Eurozone Jan. Flash Manufacturing PMI 55.1; Est. 54.8
Eurozone Jan. Flash Services PMI 53.6; Est. 53.8
Eurozone Jan. Flash Composite PMI 54.3; Est. 54.5

  • Stoxx 600 up 0.2% to 362
  • FTSE 100 up 0.2% to 7167
  • DAX up 0.2% to 11567
  • German 10Yr yield up 2bps to 0.38%
  • Italian 10Yr yield up 1bp to 2%
  • Spanish 10Yr yield up 3bps to 1.46%
  • S&P GSCI Index up 0.7% to 401.5

Gold has come off a bit, but did hit its highest levels since November 22 earlier in the session.

gold

  • S&P 500 futures up less than 0.1% to 2262
  • Stoxx 600 up 0.2% to 362
  • MSCI Asia Pacific down less than 0.1% to 140
  • US 10-yr yield up 2bps to 2.42%
  • Dollar Index up 0.12% to 100.28
  • WTI Crude futures up 0.9% to $53.22
  • Brent Futures up 0.9% to $55.75
  • Gold spot down 0.4% to $1,213
  • Silver spot down 0.6% to $17.13

Happy trading.

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