Dreadful EMU PMI And US Machinations Rival Brexit For Attention

Overview: The S&P 500 recovered from the post-FOMC reversal to close a new 5-month high yesterday, led by technology. Financials were the only main sector to retreat. The large equity markets in Asia, Japan, China, Australia, South Korea, and Taiwan all advanced. Europe's Dow Jones Stoxx 600 reversed its initial gains and is nursing a small loss on the week. US shares were little changed but are being dragged down by the reversal in Europe.    Benchmark 10-year yields are softer. Soft inflation data saw the 10-year JGB yield slip to nearly 2.5-year lows of minus 8.5 bp, while the yield on the 10-year Bund has fallen four basis points to almost zero after the dismal flash PMI. The US-German 10-year spread is virtually flat on the week. The 10-year US-Japan spread has narrowed by about four basis points. The dollar is mostly firmer, with the yen and sterling a little higher, and disappointing flash EMU PMI saw the euro slip below $1.13 after peaking after the Fed's dovish surprise near $1.1450. The Scandis are the weakest as the recent advance is pared by profit-taking following Norway's hike yesterday. The Mexican peso is the strongest currency in the world this week. Coming into today's session, it is up about 1.5%.  

Asia Pacific

Japan's February CPI disappointed. The headline rate was unchanged at 0.2% year-over-year. The core rate, in which the price of fresh food is excluded, slipped back to 0.7% from 0.8%. But even this is flattered by energy. When both fresh food and energy are excluded, price pressures were unchanged at 0.4%. At the same time, Japan's flash manufacturing PMI was unchanged at 48.9. Finance Minister Aso reconfirmed the government's intention to go forward with the sales tax increase in October.   

Separately, we note that the MOF data shows foreign investors were heavy sellers of Japanese shares for the second consecutive week. The last time foreign investors were such heavy sellers as in mid-September and that time before that was the middle of last March. Although foreign investors are not good timers of Japanese shares, it appears these stepped up sales are seasonal, related to the end of the Japanese fiscal year and a half.

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Read more by Marc on his site Marc to Market.

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