US GDP: The V

Overview:  The market's initial reaction to the Federal Reserve statement and the press conference was that it was dovish: the 10-year yield slipped, and the dollar was sold to new lows.  In fact, the two countries that appear to be ahead of the curve among high-income countries, Canada and Norway, saw their currencies rally to new three-year highs.  However, Asia and Europe have seen it the other way.  US yields have recovered and helped the dollar.  Asia and European equities have shrugged off the nonplussed US response. Besides Japan, where the markets were closed for a local holiday, Asia Pacific equities advanced.  South Korea's Kospi was a notable exception. 

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In Europe, the Dow Jones Stoxx 600 is approaching last week's high record high.  US futures are also pointing to a strong opening, helped by a series of strong earnings from tech giants.  The US 10-year yield is near 1.66%.  Recall that the yield peaked in late March near 1.77% before falling to around 1.52% this month.  The yield has risen about 10 basis points this week.  European yields are also firm, and German, French, Dutch, and Italian benchmark yields are recording new three-month highs today. 

The greenback is broadly firmer, but only after yesterday's losses were extended in early Asia.  The euro initially rose to $1.2150, and the dollar fell to about JPY108.45.  On the other hand, emerging market currencies are trading better, led by the Indian rupee, which is rising for a fourth consecutive session amid talk of strong foreign demand for local shares, and the Chinese yuan rose to almost two-month highs.  The JP Morgan Emerging Market Currency Index is up a little more than 1% this week.  Gold initially extended its gains but faltered near $1790 as US yields and dollar found traction.  Oil is firm, and the June WTI contract is trading near yesterday's high, near $64.40.  Recall that last week, and at the start of this week, it found support near $60.60. (GLD, OIL, UUP)  

Asia Pacific

Japan's markets were closed to celebrate Showa Day (Emperor).  Tomorrow it reports unemployment (expected flat at 2.9%) and no change in the job-to-applicant ratio (1.09), Tokyo CPI headline unchanged at -0.2% and core rate may be flat from -0.1%), and March industrial production, which is expected to have slumped by 2% (after a 1.3% decline in February).  The Ministry of Finance also reports the weekly portfolio flows and note Japanese investors have stepped up their foreign bond-buying in recent weeks. 

Australia confirmed that it is experiencing a positive terms-of-trade shock.  Its export price index is rising much faster than its import price index and more so than the market expected.  In Q1, export prices jumped 11.2% (Bloomberg median forecast was for 9.0%) after a 5.5% gain in Q4 20.  Import prices were also stronger than expected, rising by a marginal 0.2% (Bloomberg median forecast was for a decline of 1.6%) after a 1.0% decline in Q4 20.  Separately, Australia also reported that Chinese tariffs on its wine have a powerful impact.  Australian exports of wine to China fell from A$325 mln in Q1 20 to A$12 mln in Q1 21. Lastly, comments by Australia's Treasurer Frydenberg suggested an alignment with the central bank on wanting to drive the unemployment rate lower, which implies additional fiscal support in the May 11 budget.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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