ECB In Focus, While Australia Pokes The Panda


The capital markets are mostly quiet ahead of the ECB meeting, today's highlight.  The rise in US equities yesterday is helping lift equities today.

The MSCI Asia Pacific Index snapped a two-day fall, and Europe's Dow Jones Stoxx 600 is rising for the second session.  US shares are little changed.  The bond market is subdued as 10-year is hovering around 1.56%, while European yields are slightly firmer  The dollar is mostly firmer, with the Antipodeans and sterling the weakest.  The Swiss franc (FXf) and Norwegian krone are holding on to minor gains.  The liquid and freely accessible emerging market currencies are 0.25%-0.33% lower, but controversy over Turkey's reserves and the US preparing to recognize the mass killing of Armenians in 1915 as a genocide will not sit right in Ankara, and the lira is off around 1%. Gold edged closer to $1800 but stalled and is hovering around $1790. Oil is off for a third consecutive session, and below $61 a barrel, June WTI is near six-day lows.  

Asia Pacific

Ahead of next week's BOJ meeting, the Japanese government maintained its overall assessment that the economy is improving slowly from a low base.  However, it downgraded public spending and upgraded capex.  After adjusting policy in March, the BOJ is expected to stand pat next week.  At that March meeting, the BOJ scrapped its JPY6 trillion ETF purchase target and indicated it would no longer buy ETFs tied to the Nikkei 225.  When the market was off 1% on Tuesday, the BOJ did not step into the market as it had previously done.  However, yesterday with the market off 2%, the BOJ bought (~JPY70 bln) ETFs tied to the Topix.  Ironically, the Nikkei was up nearly 2.4% today while the Topix rose by 1.8%.  

The Australian parliament had given the government the right to review foreign deals struck by Australian states and universities last year.  Yesterday, the foreign minister announced it was canceling four deals, two of which had been negotiated by the state of Victoria under the auspices of China's Belt Road Initiative.  The deals had been signed in 2016 and 2019.  Canberra's relationship with Beijing had been stressed ahead of yesterday's decision.  Australia was the first country to ban Huawei from its 5G network and has been a vocal critic of Beijing's behavior, including the treatment of HK,  Moslems, and the lack of transparency about the virus's origins.  China absorbs a third of Australia's exports and has used it as a weapon to express displeasure with Canberra's foreign policy. Beijing responded sharply to the decision to nix the deals. 

The US dollar initially edged lower against the yen, falling to almost JPY107.80, and matching its lowest level since March 5, before rebounding to resurface above JPY108.00, where a $1.6 bln option will expire today.  Another option, for $1.3 bln is struck at JPY108.30, also expires today.   The greenback has not risen above the previous session's high since April 9.  Yesterday's high was just above JPY108.25, where the 5-day moving average is found.  The dollar has not closed above the 5-day moving average since April 2.  The Australian dollar is trading in about a 15-tick range in either side of $0.7750, where a A$565 mln option expires today.  More broadly, the Aussie appears to be in a $0.7700-$0.7780 range.  The US dollar initially threatened to extend its eight-day slump against the Chinese yuan and slipped to its lowest level since March 12 near CNY6.4825.  It rebounded back above CNY6.49 and managed to close the local session with the smallest of gains at CNY6.4910.  Against its CFETS basket, the yuan rose to three-week highs.  The PBOC set the dollar's reference rate at CNBY6.4894, which was in line with the average projection in Bloomberg's survey (FXY, FXA, CYB).  

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Read more by Marc on his site Marc to Market.

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