Oh what a difference three days and one Dudley makes.
See, you (and a whole bunch of other folks) misconstrued what old Bill said and he told you as much following the NFP print.
“Some people misconstrued what I said last week. I said a little pause. A pause is pretty short already, and I think a little pause is even shorter than that,” Dudley patiently explained on Friday, in a truly hilarious attempt to “correct” the market’s overinterpretation of previous comments which suggested the Fed may take a pause on short-term rate normalization when it starts shrinking the balance sheet. Here’s what’s happened since:
And that’s basically where we find ourselves on Monday morning.
“The dollar rises for third day as Treasury yields are steady in the wake of Fed’s Dudley on Friday downplaying length of any pause in rate normalization,” Bloomberg wrote earlier this morning, recounting the overnight action. “The greenback was up against all but one of 16 major peers as traders clear short positions initiated by investors attempting to place a near-term top.”
Of course that means the yen is under pressure as you can see in the chart above. “USD/JPY short positions aiming to break below 110 were squeezed as U.S. yields rebounded, but that flow is capped at last week’s high of 111.59,” Kyosuke Suzuki, head of FX and money-market sales at SocGen in Tokyo said, adding that “a lack of fresh incentives makes it harder to chase pair higher [as] geopolitical risks such as North Korea and Syria are hard to anticipate, hindering bets on a clear direction.”
Meanwhile, the euro seemingly isn’t experiencing “a lack of fresh” risks because after all, there’s only one “incentive” the single currency needs when it comes to getting jumpy. EUR two-week vols surged Monday on French elections jitters as two-week tenors now capture the first round due April 23. As Bloomberg notes, “EUR/USD was up by as much as 4.32 vols to 10.78.” That’s the highest in three months, while EUR/JPY on the same tenor was up by more than 6 vols, the widest move in 17 years on a closing basis.
Here’s SocGen’s overnight take:
It was surprising though to see 10-year yields end the week at 2.38%, after another failed break below the bottom of the range. After seeing a big speculative short flushed out of the market, there seems to be little appetite for longs to build yet. And the major US data of the week comes on Friday, with CPI and retail sales, though Janet Yellen is having ‘a conversation’ at the University of Michigan this afternoon. The upshot is that the jobs data haven’t done the dollar any harm and this week, it will be geopolitics and events outside the US which drive markets.
French opinion polls still show left-winger Jean-Luc Melenchon making the biggest strides, now at 18%, just ahead of Francois Fillon, though still well behind Emmanuel Macron and Marine Le Pen who are both tied at 24%. The increased congestion in the polling, added to the level of indecision among voters, may yet give the Euro a fright and patient Euro bulls a really attractive entry point. We get Banque de France sentiment today, Euro area industrial production and the ZEW survey tomorrow, and final March CPI data on Wednesday.
As noted, Yellen will speak at the University of Michigan at 4 EST. The event includes a session where she will take questions from the audience and via Twitter. So there’s a spectacle waiting to happen and an tomato-throwing invite for the Austrian econ peanut gallery.
Asian markets were mixed, as equities managed to hold up in the face of regional tension emanating from Pyongyang. European markets are broadly lower.
- Nikkei up 0.7% to 18,797.88
- Topix up 0.7% to 1,499.65
- Hang Seng Index down 0.02% to 24,262.18
- Shanghai Composite down 0.5% to 3,269.39
- Sensex down 0.3% to 29,631.01
- Australia S&P/ASX 200 up 0.9% to 5,912.88
- Kospi down 0.9% to 2,133.32
- FTSE 7343.57 -5.80 -0.08%
- DAX 12188.52 -36.54 -0.30%
- CAC 5103.03 -32.25 -0.63%
- IBEX 35 10461.00 -68.00 -0.65%
Gold is what Bloomberg calls “relatively steady” as investors weigh rate hikes and balance sheet normalization against clear geopolitical risks. Oil may be able to catch a bid from headlines suggesting that Russia is weighing an extension to OPEC-led production cuts past June. Meanwhile, Libya’s biggest oil field is said to have suffered another outage.
This is pretty much all you’re going to need to watch in the US today:
- 4pm: Fed’s Yellen Speaks at University of Michigan
Apparently this is the hashtag #fordschoolyellen — although it should probably be more like #thisisareallybadfuckingidea.