Animal Spirits Roar Like A Lion To Start The New Month

Overview: Equities and bonds jump back. Most Asia Pacific markets advanced 1.5-2.5% after the regional MSCI benchmark dropped 3.65% before the weekend and 5.3% last week. The recovery in European stocks was even more impressive. The Dow Jones Stoxx 600 was up around 1.55% near midday, recouping the pre-weekend loss in full and making a gallant effort to recoup last week's 2.4% loss. US shares are trading higher, and the futures' benchmarks are up 1.0%-1.4%. While the US 10-year yield is firm at 1.43%, yields have fallen elsewhere. Benchmark yields are 4-7 bp lower in Europe. The markets await the ECB report to confirm it stepped up its bond-buying efforts last week. Australia's 10-year yield plummeted nearly 25 bp following the central bank's aggressive purchase today. New Zeland's 10-year yield fell 17 bp. The dollar is back to the fulcrum among the major currencies. The dollar-bloc, Norwegian krone, and sterling trade higher, while the European complex and yen are weaker. Emerging market currencies are mixed as well. The freely accessible currencies, like Russia, Turkey, South Africa, and Mexico, advance. Central European currencies appear to be weighed down by the heavier euro. The JP Morgan Emerging Market Currency Index is posting minor gains after sliding 2.1% last week. Gold is recovering. It is up almost $12, around $1746, as it snaps a four-day slide of more than $75.April WTI is up almost $1 a barrel to recoup half of its pre-weekend drop. On February 1 was near $53.40.Today it is near $62.40.  

Asia Pacific

China's manufacturing PMI fell to 50.6, the lowest since last May. The report was weaker than economists expected if understanding the Lunar New Year holiday would weigh on activity. New export orders fell to 48.8 from 50.2, and employment weakened further to 48.1 from 48.4. The non-manufacturing PMI softened to 51.4 from 52.4. It has not been this low since last February. Still, counterintuitively, the composite reading of 51.6 remained above both the manufacturing and non-manufacturing PMI, though down from 52.8. The Caixin manufacturing PMI was softer than expected to at 50.9 compared to 51.5 in January. 

Japan's manufacturing PMI was revised to 51.4 from 50.6 preliminary reading and 49.8 in January. It is the first reading above 50.0 since January 2019. Tomorrow Japan reports January employment data. Later in the week, the weekly portfolio flow report will be watched closely after last week's report showed Japanese investors sold almost JPY1.9 trillion of foreign bonds, the most since August 2018.  

The Reserve Bank of Australia meets first thing tomorrow. The upward pressure on interest rates challenges the credibility of its yield curve control policy that caps the three-year yield cash rate of 10 bp. It finished at 14 bp before the weekend, and despite its purchases, earlier today, estimated to be more than A$3 bln, the yield is at 13.5 bp. The RBA is unlikely to be deterred by the market right away, and it will need to expand its bond-buying. Note that Australia runs a trade deficit with the US. Ostensibly, this would give it a freer hand to intervene in the foreign exchange market and not be accused of currency manipulation under the US Treasury rules. Australia's manufacturing PMI was revised to 56.9 from the initial 56.6 reading, but still off the 57.2 seen in January. Perhaps of greater concern to officials, according to CoreLogic, house prices rose 2% in February, the largest monthly increase in 17 years, and home loan value grew by over 10% in January. The low-interest rates needed given the low price pressures and high unemployment may be spurring excess in the housing market. The Reserve Bank of New Zealand has recently had house prices included in its remit, and the Governor of the Bank of Canada has also expressed some initial concerns. 

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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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