Bonds and Equities Rally, Dollar Heavy

Hit by profit-taking ahead of the weekend,
despite US jobs data that remove the last hurdle to another Fed hike this week,
the greenback remains on the defensive. 
It has softened against all
the major currencies and many of the emerging market currencies.  The
chief exception is those in eastern and
central Europe.  

Turkey and Dutch tensions rose over the
weekend as the Dutch refused to the left
Turkey’s foreign minister to enter the
country to campaign, took another minister to the border, earning the wrath of
Turkey’s Erdogan. 
The Dutch go to
polls Wednesday.  The Rutte government is
credited
with handling the affair well, and although supporters for the
Freedom Party, may have become more enthusiastic, the PVV does not appear to be
growing its base.  Overall, the market impact looks minor. 

What will be the
busiest week of the quarter, if not year, has begun off slowly.
 

The main economy news was the Italian industrial output figures.  They
disappointed, and follow the poor French figures are the end of last week
(-0.3% instead of the expected 0.5% gain).  Italian output fell 2.3% in
January after a 1.4% gain in December.  The median estimate in the
Bloomberg survey was for a 0.8% decline.  

Last week’s ECB meeting gave investors the
clear impression that the central bank recognizes that the downside risks have
lessened in the region.
  No more rate cuts are anticipated, and greater attention is being given to the eventual exit from the unorthodox monetary
policy.   The sequencing of the exit between asset purchases and
negative interest rates may take a different form than the exit by the Fed or
the earlier exit by the BOE.  

Still,
we can’t help but wonder who leaked news that there was a discussion along
these lines (reduced negative deposit rate before asset purchases are complete)
and to what end. 
It seems those who are critical of the ECB’s course
may have had the incentive to provide that information to the media.  Of
course, it is reasonable to expect a push back.  It came from Belgium’s
central banker Smets, who recognize the macro improvement, was clear that no
decisions were taken.  

Also, over the weekend, the head of the US
administration’s strategic and policy committee, Schwarzman, told a CNN
interviewer the confrontation with China that candidate Trump had seemed to
emphasize, might not materialize after all. 
Treasury Secretary
Mnuchin had already indicated that the normal Treasury review would take place
before any judgment was made about China
and its yuan policy.   Chinese stocks, especially those that trade in Hong
Kong, did well.  The Hang Seng Enterprise Index rallied 1.8%, the most
since November, and is now up 9.2% year-to-date.  The MSCI Asia Pacific
Index advanced 0.8%.  The index has been down only two week’s this year
for a 7.7% gain.   

European shares began firmer but surrendered
the early gains.
  The Dow Jones Stoxx 600 was fractionally lower in
later morning turnover.  Telecoms and energy led most sectors lower. 
Materials seemed to like the rebound in some industrial goods (iron ore, zinc,
copper) and the second was up nearly 1%.   

The UK is edging closer to triggering Article
50 to start the formal negotiations of its exit from the EU.
  The
House of Commons is expected to reject the amendments submitted by the House of
Lords.  If the House of Lords passes the stripped version, Prime Minister
May could announce her intention to trigger Article 50 as early as
tomorrow.   Another twist to the plot is the push for another
Scottish referendum.  While the May government could withhold legal
approval, it appears that the main interest is pushing it until after the UK
leaves the EU.   The latest Mori poll showed a dead heat.  

Sterling is 0.4% against the US dollar near
$1.2215.
  It ran out of steam in early Europe near $1.2240.  Last
week’s high was a little above $1.2250.   A base seems to be in place
near $1.2130-$1.2150.  A gain above
$1.2300 would lift the technical tone; otherwise,
it is bouncing along its trough.  

The euro’s pre-weekend gains extended to nearly $.10715, its highest level
in a month.
  It briefly took out the 61.8% retracement of the down move
since February 2 (~$1.07). European participants sold into the gains recorded
in Asia.   The 50% retracement and the 100-day moving average of found near $1.0660.  Additional support is seen in the $1.0600-$1.0620
area.  

The dollar is trading with a downside bias
against the yen.
  US yields are softer,  which is consistent
with the heavier dollar tone against the yen.  The day’s lows have been recorded in the European morning near
JPY114.50, but the intraday technicals suggest the potential for a recovery in the North American session.  

The Canadian dollar is trading within the
pre-weekend range, but the Australian dollar continued to recover, reading
almost $0.7600.
  Its 0.5% gain puts it atop the best
performers.   It has met the 38.2% retracement objective of its slide
since late February’s $0.7740.  The next target is near $0.7615. 
Support is now seen in the $0.7550 area.
   

The US and Canadian economic calendars are
light today.
  The market is positioning for this week’s events. 
There is some chunky option expires
today.  In the euro, strikes rolling off today include, 
$1.0646-$1.0650 (1.33 bln euros) and $1.0670 (560 mln euros) and
$1.0680-$1.0690 (2 bln euros) and $1.07 (680 mln euros)..  In dollar-yen,
JPY114.00 ($400 mln), JPY114.50 ($295 mln) and JPY115. ($690 mln).  In
dollar-CAD, there is CAD1.35 ($555 mln) and CAD!.3530 ($522 mln), and in the
Aussie, $0.7600-$0.7610 (A$728 mln).  



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