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Tuesday, March 7, 2017


 The dollar started a modest recovery yesterday as the pullback fizzled. It’s fairly rare for such a big reversal move as we saw on Friday to peter out. But the odds of the March rate hike are a powerful tailwind. The CME FedWatch tool has the odds at 84.1% and Bloomberg has an even higher 90%+. The FT writes that “The June Fed policy meeting is seen offering a 40 per cent chance of another 25bp hike — a lack of conviction among investors that has stalled the recent rises in the greenback and US sovereign debt yields.” Well, maybe.

In other markets, oil is up and gold is down. Two OPEC countries (Iraq and Angola) will extend the output cut to the second half of the year, something critics say they all must do if the project is to succeed. But weirdly, Saudi Arabia cut prices to Asia. Something to do with tightening customer loyalty, maybe. ExxonMobil will spend $20 billion on refineries and the like in the US, which seemingly had no effect on crude prices. We get the API inventory report late this afternoon.

Contributing to the dollar’s overall gain is a setback in the UK on Brexit. The House of Lords may be assembling a motley crew from various parties to made amendments to the Brexit authorization bill that would require another pass in the House of Commons. Sterling fell, but see the chart below. Quick, what’s the trend? It takes only a little fiddling to get the standard error channel almost dead flat.

  •  In Australia, the RBA held rates at the same 1.5% and said conditions have been improving, but a rising AUD could complicate the economic transition from an industrial commodities economy to a more balanced one. 

  • China reported a rise in official reserves by $6.9 billion, halting a 7-month decline and probably pointing to the effectiveness of new capital controls.

  •   In the eurozone, Q4 GDP rose 0.4%, or 1.7% y/y, the same as the flash and as expected. Household consumption contributed about half but net imports were a drag. 

  •  In Germany, Jan industrial orders fell 7.4%, more than -2.5% forecast (Bloomberg) and the worst since 2009, following a gain by 5.2% in Dec. Domestic orders fell 10.5% and even exports orders fell almost 5%. Tomorrow’s industrial production report might a disappointment—again, following -3.0% in December.

On the geopolitical front, concern about Trumps’ mental health (or tactical ploys) is shoving something else off the front page—N. Korea said it “was practicing to strike United States military bases in Japan with its latest barrage of missiles, state media in Pyongyang reported Tuesday, and it appears to be trying to outsmart a new American antimissile battery being deployed to South Korea by firing multiple rockets at once,” according to the Washington Post. oh no! The US is sending over to S. Korea its biggest, best anti-missile defense system, named THAAD. “The Korean Central News Agency states “If the United States or South Korea fires even a single flame inside North Korean territory, we will demolish the origin of the invasion and provocation with a nuclear tipped missile.” 


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