Dollar Gains Initially Extended, But Now Awaits US Leadership

Overview: The preliminary PMI readings for March have been mostly stronger than expected, but setbacks with the virus, including new lockdowns in Germany, France, and Italy and rising cases in many US states, have hit sentiment. Hong Kong has suspended the BioNTech vaccine. A ship run around in the Suez Canal simply exacerbates supply bottlenecks. Asia Pacific equities got hit the hardest, with 2%+ declines in Tokyo and Hong Kong. Australia escaped the carnage and rose by about 0.5%. It was the fourth consecutive drop in the MSCI Asia Pacific Index. Europe's Dow Jones Stoxx 600 is off slightly but appears to be finding support near 420, last month's high.US futures are firm. Benchmark yields are softer. The US 10-year yields hovering around 1.62% after falling for the past two sessions, and briefly trading below 1.60%. European bond yields are 1-2 bp lower. While Australia's 10-year yields fell 8 bp to about 1.65%, New Zealand's tumbled almost 16 bp to nearly 1.50%, as ideas of an early rate hike diminished. The dollar remains firm against most of the major currencies. The Canadian dollar and the Norwegian krone are the most resilient. Sterling is off the most (~0.2%) following a softer than expected CPI report and is near its lowest level since early last month. The euro closed below its 200-day moving average yesterday (~$1.1865) and dipped below $1.1815 today, its lowest since late November before steadying. Among the emerging market currencies, the Turkish lira was the weakest but has recovered most of the initial losses that saw the dollar move back above TRY8.0. The liquid-accessible emerging market currencies, like the Russian ruble, Mexican peso, and South African rand, are posting small advances. Gold slipped to a fresh four-day low just below $1724 but has steadied and consolidated in yesterday's range in quiet turnover around $1730. Oil prices have also stabilized after yesterday's nearly 6.2% slide in WTI for May delivery. After falling to about $57.30, the lowest since February 12, it has rebounded to near $59. A move above $60.20 would begin to repair the technical damage. 

Asia Pacific

A day after the Japanese government downgraded its assessment of exports for the first time in 10 months, the preliminary March PMI shows the manufacturing sector improving. The manufacturing PMI rose to 52.0 from 51.4. The service PMI edged up to 46.5 from 46.3. However, given the formal emergency's end, it would not surprise if the final reading showed a little more improvement. The composite stands at 48.3 compared with 48.2 last month. The reading is consistent with expectations that the world's third-largest economy is contracting here in Q1.  

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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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