Animal Spirits Return And The Euro Probes Two-Month Lows

Overview: The recovery from last week's equity slide continues today. In the Asia Pacific region, Taiwan and India led with more than 2% gains. Stepped fiscal efforts, the establishment of a bad bank, and privatization efforts are bolstering Indian shares. Europe's Dow Jones Stoxx 600 gapped higher today and has recouped around half what it lost last week.US shares are trading higher, and a gap higher opening is possible. Benchmark 10-year yields are firm, with the US Treasury near 1.10%. European yields are 1-2 bp higher. Indian bond yield is up another 5 bp (to 6.11%) after rising 16 bp yesterday. The greenback is mixed but has strengthened in the European morning. The euro has taken out its recent lows, and the Australian dollar looks poised to do the same. Emerging market currencies are mostly firmer, led by the liquid and freely accessible South African rand, Mexican peso, Turkish lira, and Russian ruble. The JP Morgan Emerging Market Currency Index is appreciating for the fourth consecutive session. Gold is giving back most of yesterday's gains but remains within its pre-weekend range (~$1839.6-$1875.7). March WTI made a smart recovery yesterday after initially falling through its pre-weekend low and rose above last week's high. Follow-through buying has lifted the March contract to almost $55, its highest level in a year.  

Asia Pacific

The Reserve Bank of Australia left rates on hold and reiterated that rates will remain low for a prolonged period. Governor Lowe was explicit. There is no need to raise rates until inflation is within the 2-3% target, which does not seem likely until 2024. It will extend its bond purchases by A$100 bln. The current program expires in mid-April. Even with the central bank meeting out of the way, Australia's economic calendar in the coming days is jam-packed with the final services and composite PMI, trade figures, and retail sales. Lowe speaks first thing tomorrow in Canberra, testifies before Parliament, and the RBA will issue a formal statement on monetary policy.  

What does it mean that the UK formally requested to join the Comprehensive and Progressive Trans-Pacific Partnership? Apparently, the impact on the UK economy will be so small that the government has controversially declined to publish an assessment. Procedurally, Japan holds the rotating presidency, and New Zealand is responsible for access requests. The UK is the first. The UK signals its free-trade stance, now freed from the EU, while the CPTPP members see it as a confirmation of its legitimacy. It is the largest trade agreement without the US, China, or the EU.  

Japan sticks to the rhetorical hope that the US would join, but this seems a longshot at best.  The domestic economy and the response to the pandemic is the first priority of the new US administration. More broadly, it is difficult to envision the world's largest economy apply to join someone else's trade agreement. Beijing does not share such sensitivities, and Secretary-General Xi seemed keen to participate at the end of last year. Being a member would give China almost a seal of good housekeeping approval of its trade practices. That is the rub.CPTPP's standards are too high for China to join. It would have to jettison its preferential treatment of state-owned enterprises, for example, and stronger protection of intellectual property would be required, along with other changes Beijing resists. South Korea, Taiwan, and Thailand have also expressed interest in joining the CPTPP.  

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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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