Friday 08:00 GMT
Overview
Equity markets are steady, holding near recent highs, as the dollar’s bounce to a 14-year peak on expectations of a more hawkish Federal Reserve pauses for breath.
Bond markets are calmer too after the recent battering that pushed yields to their richest in many months, while gold edges up.
Hot topic
The dollar and surging bond yields has been one of the biggest stories of the December quarter thanks to a more robust outlook for US inflation and growth following the election to president of Donald Trump.
That scenario facilitated the Fed’s decision on Wednesday to lift interest rates 25 basis points, and underpins the central bank’s projection of three more of the same in 2017.
Aided by this slightly more hawkish stance, the dollar index (DXY) on Thursday hit a 14-year intraday high of 103.56, while 2-year US government bond yields, which are particularly sensitive to monetary policy expectations, broke above 1.30 per cent, the highest since August 2009.
Longer-duration bonds have been hit too. The 10-year Treasury yield touched 2.64 per cent at one stage on Thursday, a 27-month high following a jump of nearly 80 basis points since the US election. Peers have followed suit, with Bunds and Japanese government bond yields rising.
Friday sees a pause in the trend, however. The DXY is easing 0.1 per cent to 102.96 and the US 2-year yield is 1.27 per cent. The 10-year Treasury is off 1bp to 2.57 per cent and equivalent duration Bunds and JGBs are down 2bp to 0.34 per cent and a fraction of a basis point softer at 0.08 per cent, respectively.
“Its been a quiet Asian session with the US dollar in consolidation ahead of the weekend,” said forex analysts at Citi.
What to watch
Can the Dow Jones Industrial Average break through 20,000 for the first time?
The Wall Street barometer — though a price weighted gauge of just 30 blue-chip stocks — sits at 19,852, less than three-quarters of a percent shy of the big number, having bounced nearly 2,000 points in just six weeks.
And if the Dow does hit the mark, will that encourage additional buyers or be taken as a signal to take profits after such a sharp bill run?
In a thin day for economic news, US housing starts for November will be published at 13:30 GMT. Analysts will be keen to see if the recent rise in mortgage costs, or possibly uncertainty over the US election earlier in the month, had started to impact building projects.
Forex
The greenback’s recent rally has badly hit the euro, yen and many emerging market currencies. Again, these units are striving to stabilise in the new session.
The common currency, which on Thursday fell to its weakest since the winter of 2002, is up 0.3 per cent to $1.0440. The yen is just 6 pips softer at ¥118.21, holding near a 10-month trough.
The People’s Bank of China on Friday set the midpoint for the renminbi’s daily trading band weaker than Rmb6.95 to the dollar for the first time since May 2008.
The JPMorgan Emerging Market currency index is adding 0.1 per cent.
Equities
Stock markets have by and large taken the spike in the dollar and bond yields in their stride. Futures suggest the S&P 500 will add 2 points to 2,264 when trading gets under way later in New York, leaving the benchmark index just 8 points shy of Tuesday’s record closing high.
The pan-European Stoxx 600 is up 0.1 per cent, as gains for energy groups counteract a dip for miners.
Weakness in the yen continued to underpin gains for Japanese exporters, with the Topix up 0.5 per cent and the Nikkei 225 adding 0.7 per cent to a 12-month peak.
Australia’s S&P/ASX 200 dipped 0.1 per cent and Hong Kong’s Hang Seng lost 0.2 per cent but mainland China’s Shanghai Composite edged up 0.2 per cent.
Commodities
Gold in the previous session fell to a 10-month intraday low of $1,122 an ounce, pressured by the rising buck and rising implied borrowing costs. It is recovering $6 to $1,134 and outperforming an otherwise lacklustre commodity sector.
In energy, Brent crude, the international oil benchmark, is up 0.1 per cent at $54.07 a barrel while West Texas Intermediate is unchanged at $50.90.
Additional reporting by Peter Wells in Hong Kong
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