Consolidative Mood Grips Markets

Overview:

The dollar is consolidating yesterday's advance and is confined to fairly narrow ranges in quiet turnover. Most of the major currencies are within 0.1% of yesterday's close near midday in Europe. The $1.1700-level held in the euro. Most emerging market currencies have edged a little higher. Despite the largest fall in the US NASDAQ in three weeks and the largest fall in the S&P 500 in a month, the MSCI Asia Pacific Index rose for the first time in five sessions today, led by a nearly 1.2% gain in China's CSI 300.

The Dow Jones Stoxx 600 in Europe and US futures indices are sporting small losses. The US 10-year note yield is firm, around 1.27%, while European benchmarks are 1-2 bp softer. The Reserve Bank of New Zealand, citing the lockdown, held off lifting rates, though indicated a move was still coming, and its 10-year yield that fell 10 bp yesterday rose five today.

Gold is consolidating inside yesterday's range, but the market does not appear to have given up on a test of $1800. Crude oil prices fell for the fourth session yesterday, the longest losing streak since March, but has steadied today, with the September WTI contract straddling the $67-level.

China's iron ore contract fell 2.7% to its lowest level in five months today, while copper (JJC) remains heavy after falling nearly 4.3% in the past two sessions and is trading near its lowest level in a month (~$418). 

 Asia Pacific

The Reserve Bank of New Zealand appeared poised to hike rates today, but the government's decision to impose a three-day lockdown deterred them. The official cash rate remains at 25 bp. Officials signaled their intent to hike rates and project that the cash rate will reach 1.15% in Q2 22. The New Zealand dollar fell to new lows since last November near $0.6870 before rebounding about $0.6950 before stalling. Still, it is struggling to maintain the re-entry into the Bollinger Band (two standard deviations below the 20-day moving average) found by $0.6915 today. The next area of support is seen near $0.6800.  

Japan reported a smaller than expected July trade surplus as both exports and imports slowed more than expected. As a result, the seasonally adjusted trade surplus of JPY52.7 bln is a little less than half of the median forecast in Bloomberg's survey anticipated. Exports rose by 37% year-over-year, down from 48.6% in June and a bit weaker than projected.  Exports to the region of steel, semiconductor products, and chip-making equipment led, while auto parts and steel to Europe were strong. Still, to assess the contribution to growth, one needs to take into account imports as well.  Recall that the net export function shaved 0.3% off Q2 growth and 0.2% of Q1 growth.  

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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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