The US dollar is firmer against most of the major currencies in fairly quiet Asian turnover, but is seeing those gains pared in early Europe. The highlights include the RBNZ meeting that left rates on hold, as widely expected. The concern about the strength of the kiwi saw the market reduce the perceived likelihood of a rate hike. NZD came off.
Japan reported stronger core machine orders (6.7%, more than twice the median). German trade surplus was smaller than expected at 18.7 bln euros rather than 20.5 and 22.7 previously. Exports were off 3.3% in December and follows the disappointing drop in December industrial output reported earlier this week (-3.0% rather than +0.3% as the median would have had it).
Large option expiries today: EUR: $1.06 (570 mln euros), $1.0650 (510 mln euros), $1.07 (929 mln euros): Tomorrow: $1.06 (1.2 bln euros). JPY: 111.15 ($450 mln), 112.35 ($330 mln), 113.00 ($626 mln), 113.50 ($800 mln): Tomorrow: 111.00 ($1.2 bln) 112 ($1.7 bln).
The MSCI Asia Pacific shares are off about 0.3%. The Nikkei traded heavily (-0.5%) as the auto sector was under pressure, ahead of Abe's meeting with Trump tomorrow. A good part of the US trade deficit can be traced to autos and auto parts. Japanese companies are thought to be vulnerable to the new America First thrust, even though Japan produces in the US most of the cars it sells to the US. Still, it looks like Japan has surpassed Germany to move into second place with the largest trade surplus with the US after China. Separately, in the region, we note that China's shares that trade in Hong Kong were the strongest with a 1.2% rise. It is a 14-month high.
Core bond yields are firmer, including US 10-year yields. Of note, despite the continued political focus, the premiums over Germany are mostly narrowing again. The French premium is smaller for the third consecutive session, for example. The Italian premium pushed through 200 bp at the start of the week, but is now back near 190 bp.
US highlights are not very high: weekly initial jobless claims and wholesale sales and inventories, not the stuff that moves the market. Two Fed officials speak: Bullard and Evans. Bullard adopted a new framework last year and his views were a bit of an outlier. Evans has been a dove but most recently he suggested he sees scope for two and possibly three hikes this year.
Sterling has been pushed to a new high for the week. The $1.2570 level in cable that has been tested corresponds with the 61.8% retracement of the drop since the key reversal on February 2. A move above $1.26 could spur another cent higher, and several of our technical signals converge near $1.28.
The euro slipped to its lowest level yesterday since January 30 near $1.0640. It is consolidating in a narrow range near $1.07. A move above $1.0720 warns of another run at $1.0800-$1.0830.
The dollar is continuing to consolidate against the Japanese yen in narrow ranges. The range was largely established on Monday of roughly JPY111.60 to JPY112.80.
The Australian dollar is finding support near $0.7600, while the $0.7700 ceiling remains intact. The US dollar bounced from CAD1.2970 in late January to CAD1.3210 a couple of sessions ago. The CAD1.3120 area is a 38.2% retracement of that bounce. The 50% retracement is found near CAD1.3090.