Daily Kickstart (China Grateful For Meandering Dollar, “Frexit” Fears Subside)

The overnight session was largely a snoozer on Thursday (no pun intended).

The dollar looks to be stuck moving sideways as yields remain subdued despite Wednesday’s less than stellar 10Y auction. “Bond markets are in buoyant mood, dollar bulls therefore, not so much,” SocGen wrote earlier this morning, adding that “that’s a bit unfair because the dollar is actually a little higher across the board, but it will be heavy going in the absence of either a shift back towards rising bond yields or a major emerging market upset that isn’t easy to see at the moment.”

Generally speaking, we’re still moving with real yield differentials, although Goldman would likely tell you there’s a bias towards the dollar having undershot in that regard.



“Amid no news and a light data calendar, option-related interest, fixing orders and technical levels are dictating price action for now,” Bloomberg said. “Real money names and macro accounts have been sidelined this week,” traders added.

The meandering USD has been a blessing for China. Bloomberg had a pretty good piece out yesterday, noting that the weaker the broad dollar, the easier it is for China to keep the RMB stable or even guide the currency lower against the PBoC’s trade weighted basket. Remember, if the dollar’s stronger, Beijing has to actively raise the USDCNY fix (i.e. actively weaken the yuan) in order to maintain stability against the basket. Colloquially speaking, that’s a real pain in the ass, because as we’ve seen, the weaker the yuan, the more outflow pressure, the more FX reserve burn etc. In short, when the broad dollar is weak, China gets to exploit the situation to achieve what amounts to a kind of goldilocks equilibrium. To wit:



“China’s typical stance during periods of a weakening dollar — letting the yuan strengthen against the greenback, though less than its peers — has extra significance now because of Trump’s threats to label the country a currency manipulator,” Bloomberg wrote on Wednesday.

In Asia, stocks were mixed as the safe haven bid (gold, the yen) ebbs and flows. Japan core machinery orders came in better than expected, rising the most in six months. In Europe, SocGen turned in a good quarter, helping buoy sentiment. OAT-bund spreads are compressing a bit, suggesting that “Frexit” fears are subsiding – for now.


Here’s your full overseas wrap:

  • Nikkei down 0.5% to 18,907.67
  • Topix down 0.7% to 1,513.55
  • Hang Seng Index up 0.2% to 23,525.14
  • Shanghai Composite up 0.5% to 3,183.18
  • Sensex up 0.1% to 28,330.91
  • Australia S&P/ASX 200 up 0.2% to 5,664.62
  • Kospi up 0.04% to 2,065.88
  • STOXX Europe 600 up 0.3% to 364.95
  • German 10Y yield rose 1.2 bps to 0.308%
  • Euro up 0.07% to 1.0705 per US$
  • Brent Futures up 0.9% to $55.62/bbl
  • Italian 10Y yield fell 12.1 bps to 2.246%
  • Spanish 10Y yield fell 6.7 bps to 1.629%

In the US, we’ll get jobless claims as usual on Thursday along with the following other econ prints:

  • 8:30am: Initial Jobless Claims, est. 249,000, prior 246,000
  • 8:30am: Continuing Claims, est. 2.06m, prior 2.06m
  • 9:45am: Bloomberg Consumer Comfort, prior 46.6
  • 10am: Wholesale Trade Sales MoM, prior 0.4%
  • 10am: Wholesale Inventories MoM, est. 1.0%, prior 1.0%
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural-gas storage change
  • 12pm: Monthly World Agriculture Supply and Demand Estimates

Gold’s up slightly and oil is still (incredibly) supported by Wednesday’s EIA report that showed an unexpected gasoline inventory draw.

Happy trading.


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