· Dollar bounce fades as U.S. yields slip
The dollar nursed losses on Wednesday as a retreat in U.S. yields sapped momentum from its recent rebound and investors cautiously resumed bets that it can resume sliding.
Benchmark 10-year Treasury yields fell more than 6 basis points from a 10-month high hit on Tuesday and the turnaround snuffed out a three-day streak for the dollar. [US/]
Against the euro, it posted its sharpest daily fall in more than a month and it dropped more than 1% against the pound, which was also boosted by the Bank of England governor talking down the prospect of negative rates.
Sterling made a new one-week high of $1.3693 in Asian trade on Wednesday, while the euro steadied at $1.2214.
The Australian and New Zealand dollars rose from one-week lows, lifting the Aussie above 77 cents again to sit at $0.7758 and the kiwi over 72 cents to trade at $0.7220. [AUD/]
The pullback in yields pushed the dollar below 104 Japanese yen to trade at 103.66 yen by midsession in Asia though moves were slight as dollar bears’ conviction wavered.
“People are debating whether (market drivers are) going to be back toward interest rate differentials,” said Paul Mackel, global head of foreign exchange research at HSBC on an outlook Zoom call with journalists.
“We don’t think that’s going to be the case,” he said.
The dollar index was steady at 90.004 after falling 0.5% on Tuesday and is not far above last week’s nearly three-year low of 89.206.
GREAT EXPECTATIONS
Investors expect that to usher in huge sums in government borrowing to fund big-spending stimulus plans and have figured that higher U.S. rates might make dollars more attractive.
Mixed signals from some U.S. Federal Reserve members as to how much longer policy can stay so accommodative also dragged on Treasuries.
Boston Fed President Eric Rosengren and Kansas City Fed President Esther George have allayed some of those concerns ahead of a busy schedule of Fed speakers.
December U.S. inflation figures are also due at 1330 GMT, with expectations for annual core CPI to hold steady at 1.6%.
Later on Wednesday, Reserve Bank of St. Louis President James Bullard is due to participate in a discussion on monetary policy at a Reuters Next Virtual Forum at 1430 GMT.
Federal Reserve Board Governor Lael Brainard and Vice Chair Richard Clarida are also due to speak on Wednesday and the Fed issues its “Beige Book” of economic indicators at 1900 GMT. Fed Chair Jerome Powell is due to speak on Thursday.
· 10-year U.S. Treasury yield may head toward 1.50% by end 2021: BlackRock
· Despite rising yields, $7.9 billion money manager believes inflation comeback worries are premature
· Euro could hit 1.16-1.17 against dollar by end 2021: RBC Capital Markets
Alvin Tan of RBC Capital Markets discusses the outlook in 2021 for the euro and the Chinese yuan.
· US CPI December Preview: Markets take the Fed's cue and look away
Inflation in the US has been stable for five months since prices recovered from the lockdown collapse in April and May. Prices are expected to rise slightly in December but is there no discernible pressure to return to their pre-pandemic levels.
The Consumer Price Index (CPI) is forecast to rise 0.4% on the month and 1.3% annually up from 0.2% and 1.2% in November. The Core Consumer Price Index is projected to climb 0.1% and 1.6% in December after 0.2% and 1.6% in November.
Both indexes have declined slightly since reaching their respective top, 1.7% in August and September for core CPI and 1.4% in September for CPI.
Retail Sales
Retail Sales recovered smartly from the 22.9% plunge in the lockdown months of March and April adding 29.7% from May through September. Since then however they have slipped 0.1% in October and 1.1% in November as payrolls dropped by more than half to to 245,000. Sales are expected to be flat when December's figures are reported this Friday.
This level of consumption will be unable to restore any measure of pricing power to retailers and manufacturers. One lesson of the financial crisis recession and quantitative easing is that no amount of liquidity will produce price gains when demand is weak.
Federal Reserve
The Fed's move to an inflation averaging model for interest rate policy recognizes what has been unofficially true since the financial crisis, the labor market and economic growth take precedence over price changes.
Under the new policy inflation can range above the ostensible 2% target for an indeterminate time before the governors will entertain price concerns.
Conclusion and markets
The combination of weak price increases and the Fed's new inflation averaging outlook has removed CPI, Core CPI and its Personal Consumption Price Index (PCE) counterparts from market consideration.
If the Fed can officially countenance inflation over its 2% target for a considerable period then no foreseeable monthly result will be of interest to markets.
· Brazil researchers now say China’s Sinovac vaccine is 50% effective — lower than announced earlier
Butantan Institute said last week that CoronaVac was 78% effective among volunteers with mild to severe infections, reported the Wall Street Journal. But the institute said Tuesday that the overall efficacy rate fell to 50.4% when including “very mild” cases that did not require medical assistance, the Journal reported.
In comparison, Covid vaccines from Pfizer-BioNTech and Moderna were found to be about 95% effective in their late-stage trials.
· France’s vaccine-skepticism is making its Covid immunization drive much harder
France’s coronavirus vaccination program has gotten off to a slow start, and the country is seeking to ramp it up amid pressure from rising coronavirus infections and the threat of several new mutations that make it more transmissible.
Antoine Bristielle, an associate professor of social sciences and political science researcher at the PACTE laboratory at Sciences Po Grenoble, has written extensively on the issue.
Having collected and studied data on vaccine sentiment, Bristielle found that older people tended to trust vaccines more than younger people in France, and women were more likely to be hesitant about vaccines than men, and had a greater fear of possible side effects.
He added that people politically aligned to the far-left and far-right were also more likely to express anti-vaccine sentiment and distrust in government.
How to improve vaccine trust?
France, which has insisted that Covid vaccines will not be compulsory, now has the task of persuading the public to trust in immunization.
“It’s important we don’t only communicate through politicians and senior civil servants in our ministries of health, we need other partnerships with lots of different organizations in civil society, through businesses, community organizations,” Flemming Konradsen, professor of international environmental health at the University of Copenhagen, told CNBC.
“Not all people trust their prime minister or civil servants, they need to get this message from friends or their boss at work … it has to be a very broad remit of communication,” he added.
· Japan’s state of emergency is seen having limited impact on the economy
This latest state of emergency in Tokyo, Saitama, Chiba and Kanagawa till Feb. 7 was announced by Japanese Prime Minister Yoshihide Suga last week, in a bid to combat the latest surge in coronavirus infections.
· Scammers are claiming to sell Covid-19 vaccines on the dark web for up to $1,000 worth of bitcoin
· December jobs number makes new stimulus checks more likely, Jim Cramer says
· YouTube suspends Trump's channel after violating policy on inciting violence
· Biden plans to appoint interim agency heads during confirmation process
· With some Republicans on board, U.S. House Democrats press forward on impeachment vote
the House will vote on Wednesday on an article of impeachment accusing the Republican of inciting insurrection in a speech to his followers last week before a mob of them stormed the Capitol, leaving five dead.
· Oil prices gain more than 1% after bigger-than-expected inventory draw
Oil prices gained more than 1% on Wednesday, with U.S. crude rising for a seventh day, after industry data showed a bigger than expected drop in inventories and investors shrugged off worsening developments in the pandemic.
U.S. West Texas Intermediate (WTI) was up 67 cents, or 1.3%, at $53.88 a barrel by 0420 GMT after gaining nearly 2% on Tuesday. Brent crude was up 79 cents, or 1.4%, at $57.37, having risen 1.7% in the previous session.
Both benchmarks are trading at the highest since February, before the coronavirus outbreak in China began spreading across the world and billions of people went into lockdown to prevent a pandemic that is now in a deadlier second wave.
Reference: CNBC, Reuters