Friday 08:25 GMT
Overview
The US dollar is in the ascendancy as the currency once again benefits from hopes for a stronger US economy — optimism that also has helped push Wall Street to record levels.
European bourses are mixed after a holiday-thinned Asian session. Commodities are muddled, with oil firmer but gold on the back foot.
Hot topic
The US dollar is in focus as it strives to retake its place as part of the “Trumpflation trade”, a strategy that bets on the new US president delivering faster economic growth, quicker price rises and consequently tighter monetary policy.
The dollar index (DXY), which measures the buck against a basket of its peers, hit a 14-year high of 103.82 at the start of the year, but dipped below 100 this week as investors appeared wary that President Trump’s protectionist stance could harm the US economy.
But, after a flurry of executive infrastructure orders from the White House highlighted the speed at which the new administration may push through its policies, the greenback is once again on the front foot.
The DXY is up 0.3 per cent to 100.69 as the euro slips 0.1 per cent to $1.0673, sterling drops 0.3 per cent to $1.2547, and the yen weakens 0.5 per cent to ¥115.10 — the latter after inflation data showed headline prices took a step back in December.
Forex analysts at Citi said it was too early to tell if the dollar’s rally is “the start of a new trend or a head fake”.
“On one hand, there’s a core group of investors who still believe that the USD will prevail on President Trump’s policies. Meanwhile, others hold that view but are weary of how much volatility is required to see that view come to fruition. And of course, there’s those that think Trump’s administration will over talk and under deliver,” Citi added.
Still, emerging market currencies are feeling the dollar’s renewed strength, with the Turkish lira, beset by its own political and economic problems, off 1.5 per cent to 3.8984 and in line to close at a fresh record low.
The Mexican peso is down 0.5 per cent at 21.3240 per greenback, also near a record trough, as relations with the US deteriorate.
What to watch
A flurry of US economic reports will be released later in the session.
Fourth-quarter GDP data and durable goods orders for December are due for publication at 13:30 GMT. Analysts expect the world’s biggest economy to have grown 2.2 per cent on an annualised basis in the last three months of 2016.
The University of Michigan Consumer Sentiment report is slated for 15:00 GMT.
The US earnings season rumbles on, with Honeywell and General Dynamics among those presenting their results.
Commodities
Dollar-denominated commodities are generally struggling, with traders also wary that China’s closure for the lunar new year break removes a major player in the sector.
Base metal prices are mixed, with copper leading the declines, while oil is subdued after strong gains on Thursday. Brent crude, the international benchmark, is down 0.1 per cent to $56.16 a barrel after a 2.1 per cent advance in the previous session. West Texas Intermediate, the US-based contract, is off 0.1 per cent at $53.74.
Gold is down 0.4 per cent to $1,184 an ounce, on track for its first four-session losing streak since early October.
Equities
Stock markets are mixed, though underpinned by Wall Street holding overnight at peak levels, with the Dow Jones Industrial Average closing above 20,100 for the first time.
Futures indicate the benchmark S&P 500 index will add 2 points to 2,298.7, in line to finish the week with another record.
In Europe, the Stoxx 600 index is down 0.3 per cent but London’s FTSE 100 is flat, boosted by the weaker pound and a bounce for Tesco shares after the retailer unveiled a £3.7bn deal for Booker.
Asia trading was thinned by markets like China and South Korea being shut for lunar new year. Japan’s Topix rose 0.3 per cent as exporters were helped by the softer yen, while Australia’s S&P/ASX 200 returned from a public holiday to gain 0.75 per cent as financial shares played catch-up with the sectors’ global rally.
Fixed income
Conditions are fairly stable in the sovereign bond market, with yields, which move inversely to price, holding near recent highs for the “Trumpflation” bounce.
The 10-year US Treasury yield, which was trading around 1.86 on the day of the US election in November, is up one basis point to 2.52 per cent.
Equivalent maturity German Bunds are slipping 1bp to 0.48 per cent, having touched an intraday 13-month high of 0.50 on Thursday, and UK gilts are off 1bp to 1.50 per cent.
Additional reporting by Peter Wells in Hong Kong
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