Equities Firm, But Markets Tread Gingerly

Overview: Yesterday's new record highs in the S&P 500 and Dow Jones Industrial helped set the tone for today's advance in the Asia Pacific region and Europe. The MSCI Asia Pacific Index snapped a two-day decline, with other major markets rising today. The Dow Jones Stoxx 600 had edged to new highs as it continues to approach the pre-pandemic high, which is a little less than 2% away.US shares are trading with a firmer bias. Arguably helped by the third consecutive decline in oil prices, benchmark yields are little changed in the US (~1.60%) and Europe. Australia and New Zealand's 10-year yields fell 8-10 bp. The dollar is mostly firmer. Sterling, the dollar-bloc, and the Norwegian krone are bearing the brunt, while the Swiss franc and Swedish krona are the most resilient. Emerging market currencies are mixed. Most of the liquid and accessible EM currencies, but the Turkish lira are trading heavily, and the JP Morgan Emerging Market Currency Index is giving back yesterday's gains. Gold is trading quietly near last week's high ($1740)

Asia Pacific

The US Treasury's International Capital report showed China bought nearly $23 bln of US Treasury bonds in January. It was the third month of purchases and the most since 2017. Its holdings stand at $1.095 trillion, the highest level since October 2019. Japan's holdings of Treasuries increased by $25.4 bln, snapping a five-month divestment streak. These two largest holders of US Treasury bonds increased their holding by nearly $49 bln, which turns out to match the sales of Treasury bonds by the Caribbean banking centers, a proxy for hedge funds.  

Outside of China's apparent crackdown on Alibaba, forcing it shed of media assets, Australian developments dominate the news from the region today. First, the minutes from the recent central bank meeting tighten the link between policy and the labor market. The minutes indicated that it would take wage growth above 3% to be consistent with the inflation target, which is unlikely before 2024. It said it would re-evaluate the 3-year yield target later this year. The issue here is whether to continue to target the April 2024 bond or shift to the November 2024 bond. Second, reports indicate that Facebook has struck a multi-year revenue deal with News Corp and Sky after last year's dispute. Third, US officials have formally linked its relations with China to Beijing's economic coercion of Australia for the first time. Australian goods have been targeted by Beijing as a protest over Canberra's pro-US foreign policy. 

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Read more by Marc on his site Marc to Market.

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