The euro and French government bonds are under pressure as investors are rattled by political risks, damping demand for equities while boosting the dollar.

Haven sovereigns like Treasuries and Bunds are in demand, though gold is struggling in the face of the stronger buck.

What to watch

The US trade report for December is due for release at 13:30 GMT and the JOLTS job openings survey for the same month is on the slate to be published at 15:00 GMT.

The US corporate fourth-quarter earnings season rumbles on and those presenting their results include General Motors, Mondelez International and Walt Disney.

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The common currency is under pressure again as investors are rattled by political risk in the eurozone.

The continent faces a number of national elections this year, with traders wary that an upsurge in support for “populist” parties will increase uncertainty about the bloc’s future.

In particular, there are concerns that difficulties facing France’s one-time frontrunner, the centre-right’s François Fillon, could bolster support for the far right and anti EU candidate Marine Le Pen of the National Front.

The euro is down 0.7 per cent to $1.0678 and the yield on French 10-year government bond, which moves inversely to the price, is 1.13 per cent, only a fraction below its highest since September 2015.

Crucially, the premium investors are demanding to hold French bonds over those of Germany — known as the yield spread — has hit a four-year high of 76.5 basis points.

This reflects a fresh dip in benchmark Bund yields, down 1bp to 0.36 per cent on Tuesday as traders absorbs news that German industrial production saw a shock contraction at the end of last year.

Fixed income

Indeed, much of the government bond sector is seeing softer yields, a function of the broader market’s risk averse tone.

The 10-year US Treasury yield is off 2.40 per cent and the more policy-sensitive 2-year note is down 1bp to 1.15 per cent. The 2-year yield brushed 1.30 per cent in mid-December, a seven-year high that reflected expectations that the election of Donald Trump would boost the US economy and cause the Federal Reserve to raise interest rates at a faster pace.

Bets on that trade have been pared of late as investors have become more wary that the new president’s protectionist policies could counteract his mooted fiscal moves.


Stocks are having great difficulty making any headway. US index futures suggest the S&P 500, which closed on January 25 at a record high of 2,298.4, will dip 1.5 points to 2,291.

The pan-European Stoxx 600 is up less than 0.1 per cent as shares of BP weigh following poorly-received results.

Japan’s broad Topix index lost 0.3 per cent, not helped by a firmer yen on Monday, and Hong Kong’s Hang Seng shed 0.1 per cent.

Mainland Chinese bourses matched the cautious mood, with the Shanghai Composite and Shenzhen Composite down 0.1 and flat, respectively.


The dollar is the main beneficiary of the market’s tentative stance. The dollar index, which tracks the US currency against a basket of peers, is up 0.5 per cent to 100.41.

The pound is down 0.7 per cent to $1.2383 and the Japanese yen appears not able to command much in the way of “haven” inflows, weakening 0.5 per cent to ¥112.24.

The Australian and New Zealand dollars initially were notable outperformers, but their gains have faded. The Aussie rose after the central bank sounded upbeat on the economy but is now off 0.2 per cent to US$0.7641.

The Kiwi has pared its advance, now adding 0.1 per cent to US$0.7328 after data showed inflation expectations for the March quarter were up strongly from the December quarter. Graeme Wheeler, central bank governor, said he would not seek a second term and would step down in September.


Oil prices are stabilising after sliding on Monday amid concerns over more aggressive pumping by US drillers. Brent crude, the international benchmark, is up 0.1 per cent at $55.77 per barrel after falling 1.9 per cent the previous day.

West Texas Intermediate, the US marker, is gaining 0.1 per cent to $53.04 per barrel after dropping 1.5 per cent on Monday.

Gold is faltering in the face of the firmer greenback, losing $5 to $1,230 per ounce.

Additional reporting by Hudson Lockett in Hong Kong

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