Greenback Slips Into The Weekend

Overview: Many narratives link the prospect of higher capital gains tax on about a third of 1% of Americans as the catalyst for losses in US equities yesterday (and Bitcoin) and weakness in some global shares today. Of the large markets in the Asia Pacific region, only Japan, which is reimposing a formal emergency in Tokyo, Osaka, and two other prefectures, fell. India, which is experiencing a dramatic surge in the contagion, fell. European shares are trading lower, and the Dow Jones Stoxx 600 is set to snap a seven-week advance.US shares are trading with a slightly firmer bias. The US 10-year yield is little changed at 1.55%, while European benchmark yields are softer. The dollar is under broad pressure to put the finishing touches on a poor week. The Australian dollar, sterling, and the euro lead today's move. On the week, the Japanese yen and euro are the strongest (~0.8% and ~0.6%, respectively). The Aussie, in contrast, virtually flat. Among emerging market currencies, eastern and central Europe are the best today, while the Chinese yuan ends a nine-day advance. The Russian ruble was bid ahead of the central bank meeting, and a 50 bp rather than 25 bp hike was delivered. The JP Morgan Emerging Market Currency Index is edging higher for the third consecutive session and eight of the past ten. Gold is nearly flat as it tries to secure its third weekly advance. Oil is trading with a firmer bias but is still off a little more than 2% this week, paring last week's 6.5% gain. 

Asia Pacific

Japan reported March CPI figures and the preliminary estimate to the April PMI. The inflation was in line with expectations, with the headline rising from -0.4% to -0.2%. The core rate, which excludes fresh food, stands at -0.1%, up from -0.4%, and the measure excluding fresh food and energy was 0.3% higher than a year ago. The PMI showed improved manufacturing (53.3 vs. 52.7), but the service component was flat (48.3). Nevertheless, the composite poked above the 50 boom/bust level (50.2) for the first time since January 2020. Nevertheless, with formal states of emergency starting Sunday and running through May 11 for Tokyo, Osaka, Kyoto, and Hyogo, whatever momentum the economy enjoys is at risk. Still, Prime Minister Suga reaffirmed the Olympics would proceed as scheduled, with opening ceremonies scheduled for three months from today. 

Australia's preliminary PMI shows its recovery is extending. The manufacturing component rose to 59.6 from 56.8, and the service component rose to 58.6 from 55.5. These combined to lift the composite to 58.8 from 55.5. Australia's stronger growth will likely translate into a smaller budget deficit, and this will be evident when the FY21-22 budget is presented on May 11.  

The UK parliament joined Canada and the Netherlands to declare China's treatment of Uyghurs as genocide. It is a non-binding resolution. The motion was led by one of the five MPs that Beijing barred from entering China in retaliation for sanctions imposed by the UK (in coordination with the US, EU, and Canada). Still, it will likely force the government in a direction that it already appeared to be moving, and that is a more confrontational stance. With some conservative assumptions, China's economy may surpass the size of the American economy within the next decade, and it is the biggest trading partner of many, including the EU, Japan, Australia, Germany, and India. Yet, it is terribly isolated on the world stage. The genocide accusation will likely fuel a movement to boycott the next winter Olympics in Beijing. A US official had suggested that the Biden administration was sympathetic, but it was later denied by the Secretary of State Blinken. Still...

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Read more by Marc on his site Marc to Market.

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