The DXY Index rose 0.7% to a high of 106.92 on geopolitical risks before better tech earnings fuelled a late US stock market rally and lowered the DXY to 106.65 overnight. The S&P 500 Index initially fell 1% but ended the overnight session unchanged at 5917. The US Treasury 2Y yield rose 3.4 bps to 4.31%, its highest level since November 12. After the FOMC meeting on November 6, the futures market has reduced the odds of another 25 bps cut in December from 80% to almost 50%. The US Treasury 10Y yield has risen 70-80 bps to early July levels despite two rate cuts totalling 75 bps in September and November. The Fed and other central banks are still looking to reduce monetary policy restrictions but have turned cautious on growth/inflation uncertainties over Trump’s policy pledges and heightened geopolitical risks.
Following significant gains this year, investors will be tempted to book profits on their Trump Trade ahead of next week’s US Thanksgiving holiday. Markets need to monitor the dangerous escalation in the Ukraine-Russia war, now driven by increased military engagements from both sides, strategic policy shifts, and heightened international involvement.
Russia launched massive missile and drone attacks in Ukraine after North Korea deployed troops to support Russian forces in Ukraine. Kyiv retaliated by firing missiles supplied by the US and the UK, in line with NATO’s stance of allowing Ukraine to use Western-supplied weapons without restriction. Russian President Vladimir Putin responded by amending Russia’s nuclear doctrine, which permitted nuclear retaliation against non-nuclear states that are supported by nuclear powers. The US and several European nations temporarily closed their embassies in Kyiv, citing intelligence of imminent large-scale Russian air attacks. Putin offered to discuss a ceasefire deal with US President-elect Donald Trump. Expectedly, Ukrainian President Volodymyr Zelensky rejected Putin’s demands for Ukraine’s withdrawal from the occupied territories and abandonment of NATO aspirations.
Despite the USD’s rebound on Wednesday, currencies appear supported after their sharp declines to critical levels following Trump’s victory in the US elections. Over the past week, EUR/USD consolidated mostly in a 1.05-1.06 range and GBP/USD between 1.26 and 1.27. USD/JPY, USD/CAD, and AUD/USD pivoted around 155, 1.40, and 0.65, respectively. The USD’s upside appears capped at significant levels for many Asian currencies, for example, USD/CNY at 7.25, USD/KRW at 1400, USD/SGD at 1.35, USD/THB at 35, and USD/MYR at 4.50.
Quote of the Day
“To invent, you need a good imagination and a pile of junk.”
Thomas Edison
November 21 in history
Thomas Edison announced his “talking machine” invention (phonograph) in 1877.
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