The Dollar Consolidates Pre-Weekend Advance

Overview

The capital markets are off to a cautious start of a week that features the central bank meetings in the UK, Australia, Norway, Poland, Czech, Turkey, and Brazil.  The UK holds local elections, and the US and Canada report employment data at the end of the week.  In addition, the earnings season continues, while the US will also announce details of its quarterly refunding plans.  Several markets are closed for holidays, including China and Japan (through Wednesday).

Mars, Red Planet, Planet, Space

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UK markets are closed for a bank holiday.  After falling 1.15% last week, the MSCI Asia Pacific Index traded heavily today, with only Australia and New Zealand bucking move.  Europe's Dow Jones Stoxx 600 fell for the second consecutive week to the end of April and is struggling to sustain early upticks today.  US S&P and Dow futures are trading higher, but the NASDAQ was nearly flat after a mixed performance last week.  European benchmark 10-year yields are 1-2 bp firmer.  The US 10-year yield begins the new week around 1.63%.  The dollar, which rose sharply ahead of the weekend is narrowly mixed today.  Sterling and the Swedish krona are leading European currencies higher, while the yen, and to a lesser extent, the Canadian dollar, are nursing losses.  Similarly, among emerging market currencies, eastern and central European currencies are mostly firmer, while Asian currencies are mostly lower, led by a 1% loss of the South Korean won.  The JP Morgan Emerging Market Currency Index is little changed after losing 1% in the last two sessions.  Gold is consolidating in last Thursday's range (~$1756-$1790) and is slightly firmer.  Oil prices have slipped lower.  Last week, June, WTI tested $65.50 and found support in the $62.90-$63.00 area. (GLD, OIL

Asia Pacific

Australia reported a small upward revision in April's manufacturing PMI and a further gain in house prices.  The PMI edged up to 59.7 from the preliminary estimate of 59.6 and 56.8 in March. The average in Q1 was 57.0.  The rise in house prices is becoming a greater concern to policymakers (in New Zealand and Canada).  Prices rose by 1.8% in April after a 2.8% rise in March.  Prices have risen steadily since the middle of last year.  The average monthly gain over the past six months is 1.5%, while over the past three months, the average has accelerated to 2.2% a month.   Tomorrow it reports March trade figures ahead of the central bank meeting.   

South Korea is integrated into global supply chains, making its trade figures reported ahead of most other countries a lead indicator.  Its April trade figures were released over the weekend, and the 41.1% jump in exports from a year ago exaggerates the strong recovery that is, in fact, taking place.  There were two additional working days, which, if adjusted for, still lifted South Korean exports by almost 29.5%.  The second distortion comes from the base effect.  The 25.6% year-over-year decline in April 2020 made for a low base.  Nevertheless, the takeaway is that the South Korean economy, which returned to its pre-pandemic peak in Q1, is continuing to expand. Exports are averaging about $2.2 bln a day this year. Shipments of semiconductor chips rose by a little more than 30%, and auto exports rose by almost 73.5% from year-ago levels.  Rising South Korean exports to its major trading partners, including China, the US, EU, ASEAN, and Japan, underscore that the global recovery is accelerating.  South Korean imports also surged. The nearly 34% year-over-year increase is exaggerated for the same reason imports were flattered. Three forces appear evident.  First, South Korea is embarking on a capex cycle for semiconductor chips.  Fabrication equipment imports soared by nearly 135%.  Second, importing intermediate goods and components, like display panels, will be used as inputs for exports.   Third, the 25% increase in consumer goods imports speaks to the strength of the domestic economy.  

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Read more by Marc on his site Marc to Market.

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