Equities Try To Stabilize And Low Short-Term Rates Help Keep The Dollar On The Defensive

Overview: The sharp recovery in US shares yesterday that saw the S&P 500 snap a five-day slide failed to carry into Asia Pacific trading earlier today. All the markets fell save India and Singapore. Losses were led by a 3% drop in Hong Kong as the first increase in the stamp duty (financial transaction tax) since 1993 was announced (0.13% from 0.10%). Most of the large markets in the region were off 1.5%-2.5%. Europe's Dow Jones Stoxx 600 is posting minor gains in late morning turnover. Materials and energy are the strongest sectors. US shares are firmer, but little changed. Benchmark 10-year yields are higher, with the US Treasury at 1.37%. The steep sell-off in the Australian and New Zealand bond market continues. The five basis point increase today brings the five-day increase to 21 bp and 17 bp, respectively. Among the major bond markets, the 10-year UK Gilt yield has also risen 17 bp over the past week. The US 10-year yield is up nine basis points in the same time. Sterling spiked to almost $1.4240 in early Asian trade but has steadied in the $1.4150-$1.4200 area. It is not even the strongest currency today. That honor goes to the New Zealand dollar, which is up about 0.6%to reach almost $0.7400, a new three-year high. The Japanese yen and Swiss franc are the laggards with losses of around 0.50% and 0.25%, respectively. Emerging market currencies are mixed. Russia, Mexico, and China have stronger currencies, while Turkey, South Africa, and South Korea currencies are softer. The JP Morgan Emerging Market Currency Index is posting minor gains for the second session. Gold is quiet and consolidating above $1800. Resistance is seen in the $1815-$1820 area. Oil is also moving sideways, with April WTI gravitating around the middle of yesterday's range (~$60.70-$63.00). 

Asia Pacific

Australia's Q4 wage index was stronger than expected but does not appear to portend a cost-push threat to the inflation outlook. The 0.6% increase in the index was twice what the market expected. The year-over-year rate was steady at 1.4%, the lowest on record. It appears that the lower wage bill that was a product of the lockdowns was reversed. A pay freeze in the public sector continued. The slack in the labor market, where unemployment is reported at 6.4% vs. 5.1% before the pandemic, is expected to constrain wage pressures.  

The Reserve Bank of New Zealand kept rates (0.25%) on hold as widely expected. Its asset purchase program was maintained at NZ$100 bln. The economic outlook was upgraded. It now sees last year's contraction at 2.7% rather than 4%, and this year's growth forecast was tweaked up to 3.7% from 3.4%. Unemployment is expected to peak at 5.2% vs. 6.4% previously. Nevertheless, the central bank remains cautious and remained committed to its stimulus measures. It also expected price pressures to ease next year.  

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Read more by Marc on his site Marc to Market.

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