The US dollar continues to consolidate after last week’s gains amid greater confidence that the Federal Reserve will likely raise rates next month. Similarly, after a steep sell-off, major bond markets are recovering today, partly in the face of a push lower in stocks. The US markets gave back 1% yesterday, and global equities have been dragged down.  

MSCI’s Asia-Pacific Index was off about 0.7%. The Dow Jones Stoxx 600 is off 0.4% near midday in London, led by materials, technology and financials. The MSCI Emerging markets equity index is off about 1.2%, extending its losses for the fourth consecutive session. 

The US dollar is little changed. Of note, today is the first this month that the dollar has not taken out the previous day’s high against the yen. The pullback in US bond yields (~5 bp on the 10-year) and weaker equities appear to have given the dollar bulls cause for pause. Japan reported a smaller than expected current account surplus for September (JPY1.47 trillion vs. expectations JPY2.27 trillion. Although trade and income from investors are the two dominant items, what caught our eye was the 47% year-over-year increase in tourism (record 1.6 mln in September) which helps reduce Japan’s service deficit. The increased tourism may also force an opening up of Japan that officials will likely welcome as preparation for the 2020 Olympics gets under way.  

The Norwegian krone is the weakest of the majors, off about 0.25%. Seemingly counter-intuitively, the krone weakened following news of somewhat higher than expected inflation. Headline CPI rose 0.4% in September (consensus 0.3%) and this lifted the year-over-year rate to 2.5% from 2.1%. There were two mitigating factors. First, the underlying rate, which excludes taxes and energy, eased to 3.0% from 3.1%. The consensus was for an unchanged reading. Second, while some countries are easing policy to arrest deflationary forces, like Sweden, Norway’s challenge is not inflation but growth. The central bank meets against on December 17, after the ECB and FOMC.