A look at the day ahead in European and international markets from Stella Qiu
The decline in prices in the last few days, with a move of 50 bp in Switzerland and Canada and a reduction of 25 bp by the European Central Bank, helped to charge the American dollar, which jumped 1% on the euro, 1.6% on the Swiss franc and 1.8% on the Japanese yen.
The dollar also gained strength from higher Treasury yields as investors played down aggressive expectations of US policy easing next year. Markets are still confident of a cut by the Federal Reserve next week but they have all given up on a move in January, which is bought with a 20% chance.
The big wild card of market observation – the American President-elect Mr. Donald Trump – will be back in the Oval Office during the next meeting of the Fed and may have pushed out a lot of regulatory orders with various trade and policy.
The persistent strength of the dollar is squeezing funds in emerging markets, limiting their room for policy easing. The Indonesian rupiah hit a four-month low on Friday and its central bank had to intervene several times to boost the currency.
India’s central bank appears to be selling dollars through state-owned banks to support the rupee, which is near a record high.
The yen has also lost heavily, weighed down by expectations that the Bank of Japan will not raise interest rates next week. Small firms’ wage woes are another reason the BOJ may proceed with caution on any tightening.
Another important thing to note for the US yield and the dollar is that the US PPI data released on Thursday was biased upward with egg prices and the average rate was better behaved, so that analysts revised the expectation of the key PCE index to 0.13 % from 0.2%-plus.
Long-term Treasurys this week lost the most, with the 10-year benchmark bond yielding 17 bps while the 30-year yield rose 22 bps, the biggest weekly rise in more than a year.
Disappointing results from the 30-year bond market on Thursday were also to blame but the rise in yields reflects rising prices. US prices are seen falling gradually to 3.8% by the end of 2025, compared to 1.75% for Europe and 2.7% for Canada.
In Asia, most stocks are down, with China leading the losses.
Hopes were high for China’s Central Economic Work Conference in Beijing after the Politburo meeting changed the monetary policy to “liberal”, the first such change in 14 years, but nothing came of it.