Dovish Fed But Yields Rise, Helping The Greenback Recover From Yesterday's Slide

Overview:  Asia Pacific equities mostly advanced after the US benchmarks recovered following the dovish FOMC Meeting.  Australia, New Zealand, and India did not participate in today's gains. European bourses edged higher, but US shares are struggling, and the Nasdaq futures are off nearly 1%, threatening to end the three-day rally.  Part of the weight is coming from a sharp sell-off in bonds.  The US 10-year yield is up seven basis points to 1.72%, while benchmark yields in Europe are mostly 2-4 bp higher.  The greenback is mostly firmer, though the Australian and Canadian dollars and sterling are proving a little resilient.   The JP Morgan Emerging Market Currency Index is giving back around half of yesterday's 0.5% gain.  The higher yields appear to be sapping gold's luster too.  The rally fizzled near $1755 in early Asia and has dropped more than $20.  It looks set to test the $1725 support area.  A rise in US oil inventories and reports of weaker demand in Asia keeps the downward pressure on oil prices, and the May WTI contract is extending its loss for a fifth consecutive session.  It finished last week near $65.65 and is now straddling the $64 area.  

Asia Pacific

Australia's February job report was better than expected.  It created nearly three times more jobs than economists expected, and of those 88.7k jobs, a little more than 89k were full-time positions.  Part-time posts slipped.  While the participation rate was unchanged (66.1%), the unemployment rate fell to 5.8% from a revised 6.3% (initially 6.4%).  On the eve of the pandemic, Australian unemployment was hovering around 5.1%-5.3%.  Separately, New Zealand surprised by reporting a 1.0% contraction in Q4 after a 13.9% expansion in Q3 (was 14%).  Economists anticipated a small expansion.  

A Japanese newswire appeared to be the first to leak that the G7 will formally endorse a $650 bln SDR allotment.  If true, this is huge.  It more than doubles past cumulative issuance. Last year, when the pandemic first struck, an initial push for an SDR issuance ($500 bln suggested) was ultimately rebuffed by the US.  The objections were two-fold, and they are still relevant even if not decisive.  First, the SDR allotment is based on the IMF quota (subscriptions). That means that the UK, a few other large European countries, and the US will receive half of the SDRs. The poorest countries that are the raison d'etre of the issuance receive a little more than 3%. Second, it was opposed because the funds would likely be used to service debt, and, given that China is the largest bilateral lender, it would bail out Chinese lenders. The report suggests that the G7 will virtually meet ahead.  US Treasury Secretary Yellen had previously eluded some conditions or arrangements for the SDR that would minimize these misgivings, but the details are not yet clear.  

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Read more by Marc on his site Marc to Market.

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