A look at the day ahead in U.S. and global markets from Mike Dolan
The dollar breezed into December on the front foot, helped by Donald Trump’s weekend support for its global reserve status just as the euro wavered on tense French politics and China’s yuan swooned on fresh easing expectations there.
As U.S. markets return in earnest from Thanksgiving into the final month of a bumper year, the dollar recaptured its mojo after a tepid holiday week for the greenback.
Without any obvious prompt, the President-elect’s latest social media swipe warned the BRICS bloc of developing nations against pushing a rival currency to the dollar in global trade and commerce – adding they faced 100% tariffs if they did.
While the trade threat seems notional, it contained some heft in markets who had assumed a second Trump presidency would be overtly behind weakening the dollar’s value. Reserve status and exchange rate value are two different things, of course, but the comments seemed to bolster the currency nonetheless.
More immediately the 0.5% jump in the dollar index on Monday was driven largely by the relapse in the euro as markets assessed the risk of a collapse of the French government.
France’s far-right National Rally will likely back a no-confidence motion against the government unless there’s a “last-minute miracle”, with lawmaker Marine Le Pen giving Prime Minister Michel Barnier until Monday to yield to RN’s demands as a part of protracted horse trading over the annual budget plan.
The euro fell almost a cent at one point first thing on Monday before regaining a toehold above $1.05 and France’s benchmark CAC 40 dropped more than 1%.
And yet French sovereign debt, in the eye of the storm, appeared calmer – with nominal 10-year yields falling to their lowest in a month and premiums over German equivalents edging in from Friday’s levels.
Part of the subsidence of borrowing costs is related to heightened expectations of European Central Bank easing as the euro wide economy struggles and German manufacturing activity shrinks amid auto sector woes, trade worries and election angst.
German bund yields fell to their lowest since early October, eyeing lows of 2% for the first time since January.
But the other balm for French bonds was relief that Standard & Poor’s on Friday held its rating on France’s long-term sovereign debt steady at “AA-” and kept its outlook at stable.
And it wasn’t just euro government yields on the retreat.
Despite more upbeat November business surveys from China this weekend, which helped benchmark stocks indexes there outperform on Monday, intense speculation about further easing from the People’s Bank of China saw 10-year yields dip below 2% for the first time on record – more than 220 basis points below U.S. equivalents.
