A look at the day ahead in U.S. and global markets from Mike Dolan
The dollar continues to feed on a mix of post-election tariff and tax cut speculation, China’s struggle with deflation and Germany’s simmering political crisis – with the euro plumbing its lowest levels in almost five months.
Even with bond markets effectively shut on Monday for the Veteran’s Day holiday, the dollar built on last week’s election-related surge – spurred by Friday’s reports, later denied by other sources, that protectionist Robert Lighthizer had already been asked to be President-elect Donald Trump’s new trade chief.
During Trump’s first term, Lighthizer was a key figure behind tariffs on Chinese imports and the renegotiation of the North American Free Trade Agreement with Mexico and Canada.
With the final results of the House Of Representatives elections still awaited but widely expected to complete a Republican ‘clean sweep’ of White House and Congress, attention has now switched to names of the unfolding Trump team.
Ironically, while Trump tariff speculation is seen as a dollar positive, Lighthizer is also seen as a big advocate of a weaker dollar to aide trade competitiveness and reports earlier in the year said he and others were seeking ways to devalue the currency.
Yet, with only vague ideas of how that could be engineered, the market seems happy just to lean toward a straight tariff read-across instead and the dollar index rose to within a whisker of last week’s 4-month highs on Monday.
Prominent investor Scott Bessent met with Donald Trump on Friday, meantime, as he and fellow investor John Paulson emerge as leading candidates for the key role of Treasury Secretary.
Leading the retreat against the dollar were the euro and China’s offshore yuan, the latter hit by yet another wave of investor disappointment at Beijing’s debt-raising stimulus plans on Friday and then the worryingly sub-forecast weekend inflation news there.
China’s consumer prices rose at the slowest pace in four months in October at an annual rate of just 0.3% – while producer price deflation deepened to as much as 2.9% in the year through last month.
Offset by U.S. tariff fears, markets were under-whelmed by the latest stimulus from the country’s top legislative body, which approved a 10 trillion yuan ($1.4 trillion) package on Friday to ease local government “hidden debt” burdens.
But new bank lending in China fell more than expected in October from the previous month and trailed behind analysts’ expectations as the latest wave of policy stimulus has failed to boost credit demand.
