Overview: The US dollar is enjoying broad gains against most major and emerging market currencies. Sterling, dragged down by Brexit concerns, is leading the way. With today’s losses, sterling has shed nearly 3.7 cents over the last four sessions. The euro, for its part, is at a new 17-month low (~$1.1250). Market talks suggest that that large double no-touch option by a large sovereign, which had seen to be defending the $1.13 area may have expired. Equity markets are mixed. In Asia, the Nikkei gained, but the Topix did not. The greater China markets (China, Hong Kong, and Taiwan) moved higher, but most others did not. In Europe, the Dow Jones Stoxx 600 is off about 0.4% near midday. The only sectors that are advancing today are energy and materials. Oil prices are struggling to maintain the upside momentum is seen in Asia in response to the OPEC gathering over the weekend that is expected to lead to less oil supply next month. Saudi Arabie has indicated it will export 500k barrels a day less starting in December, as it tries to reassert its role as swing producer. Benchmark 10-year yields are a little lower today, though the rally in Gilts leading the way, with the 10-year yield off four basis points. The weaker sterling and lower rates are underpinning the internationally-exposed FTSE 100.
Asia Pacific
Last week Japan reported a dreadful core machinery orders report for September. The 18.3% plunge on the month was more than twice what economists had projected and the largest on record. Today Japan followed up with a poor October machinery orders data. The 1.1% year-over-year decline is the first fall in nearly two years. Foreign orders are off 2.5% year-over-year. A key challenge here is China.
While the October data does not come with a country breakdown, the September data showed Chinese orders fell 22% and was the seventh consecutive decline. Chinese orders are at around half of last year’s peak. Many observers link it to the rising trade tensions, but the reality may be more complicated. Japanese projects n China, such as helping build semiconductor plants in China, are nearing completion. China’s capital investment cycle may be an under-appreciated factor.
