Here's To A Better Second Quarter

The global capital markets have begun the new month and quarter on a good note.  Equity markets are encouraged by yesterday's gains in the US.  Most markets in the Asia Pacific region rallied, led by Hong Kong, even though earnings reports saw trading halted in around 50 companies. 

Europe's Down Jones Stoxx 600 is edging closer to last year's record high, and US futures are trading with a clear upside bias, led by the Nasdaq.  Benchmark bond yields are a little softer, with the US 10-year yields around 1.71% (SPTL). The dollar is mostly firmer, but the euro held the $1.1700 support.  The greenback has remained below JPY111, which it approached yesterday.  The Turkish lira, South African rand, and central/eastern European currencies are leading emerging market currencies higher. The JP Morgan Emerging Market Currency Index is posting back-to-back gains for the first time in three weeks.  Gold (GLD) is extending yesterday's recovery but has met resistance at $1720.  As the market awaits the outcome of the OPEC+ meeting, May WTI is straddling the $60-level.  

Asia Pacific

Japan's Tankan survey results were a bit better than expected.  Sentiment among all businesses improved more than expected.  This was particularly true of large manufacturers, where reading rose above zero for the first time since Q3 19.  Small businesses are less pessimistic than they were.  Capex plans were stronger, a 3% increase expected rather than a 1.4% decline.  Separately, the March manufacturing PMI rose to 52.2 from 52.0 of the preliminary estimate and 51.4 in February.  Taken together, investors and policymakers may be more a little more confident of a stronger Q2 after the virus-related state of emergency, earthquake, and fire at the chip factor depress growth in Q1.  The BOJ announced it would reduce its JGB buying across the curve in April.  It is not seen as tapering--a step towards removing some accommodation and making it more sustainable for longer.  

China's Caixin manufacturing PMI disappointed.  It unexpectedly fell to 50.6 from 50.9. Economists had expected a gain to 51.4.  Recall that the official manufacturing PMI rose to 51.9 from 50.9.  Yesterday's IMF reserve data (more below) reported an increase in the use of the Chinese yuan (CYB).  The media seems to exaggerate it.  Over the past two years, to gain perspective, yuan holdings have risen by about $64.5 bln to $267.5 bln.  Over the same two years, dollar reserves by nearly $382.5 bln.  The dollar increase is more than 50% of the stock of yuan reserves.  

Australia disappointed with a smaller than expected trade surplus as exports fell (1%) and imports rose (5%), more than anticipated.  The trade surplus stood at A$7.53 bln in February, and the January surplus was shaved to A$9.6 bln from A$10.1 bln as exports were revised down to 4% from 6%.   Domestic demand may be holding in better than feared.  Retail sales fell by 0.8% in February.  Economists had projected a larger decline, and the January series was revised to show a 0.3% gain instead of a 1.1% decline as initially reported.  

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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