Disappointing Economic News In Europe, Elevated Geo-Political Risks, And Rising Yields Help The Greenback Recover


The dollar has come back bid. A disappointing and unexpected increase in the US weekly jobless claims pressed yields lower, with the 10-year falling a two-week low and seemingly dragging the greenback with it. The greenback is trading higher against nearly all the major and emerging market currencies today amid heightened geopolitical risk, a stronger than expected rise in China's inflation gauges, and poor European industrial production data, despite the improvement in the PMI. The US 10-year yield is around five basis points higher at 1.67% and appears to be dragging European yields higher too. Equity markets have been knocked back. Japanese stocks bucked the regional trend to post modest gains that pared this week's losses. European shares are trading a little softer, but barring a dramatic increase in selling pressure, the Dow Jones Stoxx 600 will post a gain for the fifth consecutive week. In fact, it is off only three weeks since mid-December. US futures indices are narrowly mixed. Coming into today, the S&P 500 is up 3.1% and the Nasdaq, 4.4% on the week. Gold overcame resistance in the $1750-$1755 area but is pulling back today. Initial support is seen in the $1730-$1735 area. After swinging dramatically in the second half of March, May WTI prices have ground down into a narrow range in recent days. It has not been above $60 since mid-week. It has not been below $58.00 since Monday. 

Asia Pacific

China's March inflation readings were higher than expected. After negative readings for the past two months and three of the past four, China's CPI poped to 0.4% year-over-year in March. Food prices fell by 0.7%, while core prices rose by 0.3%. The more pressing issue is producer prices. They jumped 4.4% year-over-year, the most since mid-2018. Commodity prices have surged. Part of this is a base effect, which is recognized in the US and Europe, but few accounts of Chinese inflation acknowledge this. Beijing has already moved to slow lending and appears to have reduced its commodity purchases, and maybe looking for cheaper substitutes, such as scrap steel, to reduce imported iron ore.

Japan is edging toward what could be an inflection point. Specifically, in the highest reaches of the government, there is interest in selectively moving toward a four-day workweek. Initially, it is conceived to be voluntary, and the three-day weekends could vary. The main purpose is social, but an experiment at Microsoft in Japan saw an increase in productivity. Japanese policymakers are interested in work/life balance, but a troubling undercurrent led to Prime Minister Suga appointing the first Minister of Loneliness in February. Last year, Japan experienced the first rise in suicides in 11 years. More people have committed suicide in Japan than have died from Covid-19. Meanwhile, social restrictions will likely be reinstated for Tokyo, Kyoto, and Okinawa, which could be extended to May 5 or May 11. Restrictions have already been imposed in Osaka, Hyogo, and Miyagi. Opening ceremonies for the Olympics are slated for July 23.

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Read more by Marc on his site Marc to Market.

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