A look at the day ahead in U.S. and global markets from Mike

Dolan

Helped by a backup in U.S. Treasury yields, the dollar has

rediscovered its mojo ahead of a wave of overseas interest rate

cuts this week, with China's markets giving only a hesitant

welcome to Beijing's new policy orientation.

As Treasury debt sales resume in earnest later on Tuesday

and Wednesday's consumer price inflation report is awaited,

10-year yields have nudged back above 4.2%.

That follows a three-week swoon of more than 30 basis points

from post-election highs and a puncturing of bond volatility

gauges to their lowest in more than two years.

The foothold for yields helped lift the dollar too,

especially against currencies facing another round of central

bank easing this week.

The greenback hit its highest against the Canadian dollar

since April 2020, as traders mull whether the Bank of

Canada will cut its main interest rate by another 50bps on

Wednesday - not least as U.S. President-elect Donald Trump's

tariff threats hit sentiment there.

But with the European Central Bank and Swiss National Bank

also expected to cut rates again this week, the euro and

Swiss franc were also back under pressure.

Even though the Reserve Bank of Australia held the line

overnight, there were enough dovish noises there to drag the

Aussie dollar lower too.

In China, the full market reaction to Monday's historic

Politburo shift in monetary and fiscal direction was a bit

underwhelming - in part because the latest sweep of economic

reports show just how badly more stimulus is needed.

China's exports slowed sharply and imports unexpectedly

shrank in November, another worrying sign for the world's No. 2

economy as Trump's imminent return to the White House brings

fresh trade risks.

While markets had recently been encouraged by surveys

showing manufacturing sentiment at its best in seven months,

they also warned they were receiving fewer export orders.

And all that follows fresh price data this week showing the

country still dallying with deflation more broadly.

Monday's late announcement on the new policy tack had lifted

Hong Kong stocks by more than 2% but they gave back about

0.5% of that today. Mainland indexes were closed by

the time Monday's reports hit but gained less than 1% today.

Ten-year Chinese government bond yields plumbed

new record lows below 1.9%, but the offshore yuan held

steady.

More broadly, the worrying Chinese trade numbers dragged oil

prices back down and basic resources stocks led

European indexes lower too.

Continued political tensions in South Korea, meantime, saw

the won fall again even though the KOSPI stock benchmark

bounced back about 2%.

South Korea's opposition-controlled parliament on Tuesday

passed a government budget bill for 2025 that was slashed from

the government's proposal and triggered President Yoon Suk

Yeol's short-lived martial law decree last week.

The Indian rupee slipped to a record low and

government bond yields fell on Tuesday, as the appointment of

career bureaucrat Sanjay Malhotra as the next governor of the

Reserve Bank of India prompted traders to up bets on rate cuts.

In Brazil, there may be some anxiety over the health of

President Luiz Inacio Lula da Silva, who underwent surgery

overnight in Sao Paulo to drain a bleed on his brain linked to a

fall at home in October. The surgery was successful and the

79-year-old Lula is "well" and being monitored in the intensive

care unit, doctors said.

Back on Wall Street, the CPI vigil and a 3-year Treasury

note sale are accompanied by the latest NFIB small business

survey that should give a glimpse of post-election sentiment.

Fed futures still price about a 90% chance of another rate

cut next week, while stock futures held steady despite

Monday's modest pullback from new records.

The S&P500 slip was led by Nvidia ( NVDA ) after China said

on Monday it had launched an investigation into the U.S. chip

giant over suspected violations of the country's anti-monopoly

law - a probe widely seen as a retaliatory shot against

Washington's latest curbs on the Chinese chip sector.

Key developments that should provide more direction to U.S.

markets later on Tuesday:

* U.S. November NFIB small business survey, Q3 unit labor costs

and productivity revisions

* US corporate earnings: Autozone

* European Union finance ministers meet in Brussels on draft

budget plans, with European Central Bank Vice President Luis de

Guindos

* U.S. Treasury sells $58 billion of 3-year notes

(Editing by Christina Fincher

[email protected])