The Middle East war is escalating. The market seems unimpressed with the announcement that strategic oil reserves will be released. The announcement is light on details, such as pace and composition. Moreover, the markets’ understanding of the disruption is well beyond oil and includes gas, fertilizer, sulfur, and urea. Adding to geo-economic morass, late yesterday, the US announced it was open trade investigations (under Section 301 of the Trade Act) to around 16 countries, including China, the EU, Mexico, Japan, South Korea, Taiwan, Switzerland, Norway, and several others in East Asia.
The is mostly firmer. Equities are lower and rates are mostly higher. April is above yesterday’s high and is May . and are consolidating but slightly firmer.
Prices
G10
• The trended lower in Europe and North America yesterday. It reached nearly $1.1560 and selling earlier today took it to almost $1.1530. The four-month low set on Monday was slightly above $1.1505. It recovered back to yesterday’s low in Europe but stalled. The technical tone is poor, and although the momentum indicators are stretched, they do not appear poised to turn higher.
• The dollar stalled slightly in front of JPY159 in North America yesterday and edged up to almost JPY159.25 today. It held the January 23 high (~JPY159.25) when the Fed reportedly checked prices on behalf of the US Treasury. The dollar slipped to session lows a little ahead of JPY158.65 in Europe, where it appears to be finding bids.
• slipped below $1.34 in the North American session yesterday, but it did not spur fresh selling. It spent most of the NY afternoon consolidating in a narrow range below $1.3415 before being sold to about $1.3360 in Asia Pacific turnover today. It has returned to the $1.3400 area in Europe but may be running out of steam. Options for almost GBP500 at $1.3375 expire today. Sterling has outperformed the euro since the war began and policy expectations have shifted. The euro traded at a two-month high near GBP0.8800 at the end of February and fell to almost GBP0.8620 yesterday, which has held so far today. A six-month low was recorded in early February slightly below GBP0.8615
• The US dollar poked above CAD1.36 briefly yesterday to take out Tuesday’s high, but the consolidative tone remains intact. It flirted with the CAD1.36 level today but after slipping to almost CAD1.3575, it found new bids. The greenback remained below the week’s high set Monday, slightly below CAD1.3610, where options for almost $400 mln expire today. A move above CAD1.3615 would spur near-term gains toward CAD1.3640-50.
• After reaching almost $0.7190, a marginal new session high in North America, and its best level since mid-2022, the consolidated around the middle of the day’s range. It stalled today and is consolidating between about $0.7110 and $0.7160.
EM
• The risk off mood dampened the enthusiasm for the yesterday, and most emerging market currencies. The peso surrendered about half of the gains recorded in the previous two sessions. The dollar extended its gains today and entered a resistance band in the MXN17.75-80 area before being sold in Europe to back toward session lows (~MXN17.64). Options about $400 mln at MXN17.61 expire today.
• The dollar consolidated mostly between CNH6.86 and CNH6.88 yesterday. It reached CNH6.8855 today before coming off. The session low (~CNH6.8675) was recorded in the European morning. The PBOC set the dollar’s fix at CNY6.8959 (CNY6.8917 yesterday). Beijing does not appear to be taking advantage of the current market volatility to weaken the or harass Taiwan.
• The dollar reached marginal record high today against the , near INR92.3640. There have been some reports of central bank intervention. Dollar sales drain rupee liquidity from the banking system, and the central bank conducted foreign exchange swaps to counter the drain.
Other Markets
• Equities are under pressure. The MSCI Asia Pacific Index fell for the first time in three sessions today. Europe’s Stoxx 600 is off about 0.25%, and US index futures are 0.25%-0.40% lower.
• The US rose 13 bp in the past two sessions, including slightly more than seven basis points yesterday. Although the 10-year JGB yield edged up 1.5 bp to nearly 2.17%, Australia and New Zealand yields jumped 10 bp. European benchmark 10-year rates are mostly 1-2 bp higher, while the 10-year Gilt is up nearly four to 4.72%. The US 10-year Treasury yield is slightly softer, around 4.22%.
• Gold is trading quietly and remains in Tuesday’s range (~$5118-$5239). Silver slipped to a three-day low slightly below $84 but recovered to session highs near $87.20 in Europe.
• April WTI gapped higher today and reached almost $96 before consolidating. It is above $91 in Europe. The market has not been swayed by the IEA announcement yesterday. It remains light on details (pace and composition). The US says it will release 172 mln barrels of oil but it will take 120 days to deliver. Even during the 2022 release following Russia’s invasion of Ukraine, the release never exceeded 1.1 mln barrels a day.
Data
• The US reports January’s trade deficit today. It likely will be around half of last January’s $128.3 bln shortfall, which was a blow-out from the $67-$69 bln deficit in January 2024 and January 2023, respectively. Imports were nearly flat last year after rising an average of 1% a month in 2024. Exports rose by an average of 0.5% a month last year, and 0.3% a month on average in 2024. Weekly were 213k for the past two weeks, while reached eight-week highs in the week ending February 20 (1.868 mln). Poor weather likely weighed on January . They rose last November and December. Lastly, the US reports Q4 25 household net worth. House prices on average slipped less than 0.5% in Q4, the 10-year yield rose slightly, though the twice in Q4 25, and the rose almost 2.4%. Despite the chronic current account deficit and budget deficit in excess of 5% post-Covid, US household net worth has never been higher. The issue is distribution, not wealth creation per se.
• Canada reports the January merchandise trade balance today. It recorded a C$31.3 bln goods deficit last year, swelling after a C$7.2 bln shortfall in 2024, and slightly less than a C$1 bln deficit in 2023. Canada reports February jobs data tomorrow. It is difficult to imagine a better report than January’s, which saw the unemployment rate fall to 6.5% from 6.8% and 45k full-time jobs created. However, the participation rate did slip to 65% from 65.4%, matching the low since January 2021.
• Australia’s Melbourne Institute’s consumer inflation expectations edged up to 5.2% from 5.0% in February. This is almost a three-year high, and keeps expectations elevated for a rate hike next week. There is nearly a 66% chance discounted in the futures market, up from almost 11% at the end of last month.
