Market Pushes First Rate Hike Into 2022

Overview: Many financial centers in Asia and Europe remain closed for the extended holiday. Although several markets that were open were higher in the Asia Pacific region, India was an exception as a record contagion sent stocks down the most in five weeks.US futures are pointing higher, led by the Dow, while the NASDAQ lags. The US 10-year yield is little changed after surging before the weekend on the back of the stronger than expected employment report. It is hovering around 1.71%. The dollar is narrowly mixed. Sterling is the strongest, rising above last week's high and knocking on resistance near $1.3880, the top of a two-week range. The dollar-bloc currencies are also firm. European currencies, including the Scandis, euro, and Swiss franc, are the laggards. Emerging market currencies are also mixed, leaving the JP Morgan Emerging Market Currency Index a little changed after rising by about 0.35% last week. Gold is softer, holding below $1730 in quiet turnover.OPEC+ decision to boost output is weighing on oil prices today. May crude that closed at $61.45 is now more than a dollar lower. The low for the second half of last week was closer to $58.85.  

Asia Pacific

When the IMF announces its updated forecasts tomorrow, there will likely be two drivers. The US fiscal stimulus is significant, and so is the recovery of China's economy. The weakness seen in China's service PMI readings was attributed to uneven recovery that favored supply over demand. That was partly a reflection of asynchronous activity. The service PMI has picked up, and this could signal that the world's second-largest economy is seeing a broadening of economic activity.  

Separately, the State Administration of Foreign Exchange report last year's capital inflows. They were nearly evenly divided between direct (~$265 bln) and portfolio ($255 bln). That said, note that direct investment may include retained earnings, not just acquisitions or greenfield investment. While direct investment rose by 14%, portfolio flow surged by 73%, as global benchmarks including China's asset market. Flows into the bond market dominated portfolio flows, rising 86% to $190.5 bln. Foreign investors bought more than $64 bln of Chinese shares. However, China is also a larger exporter of savings too, and SAFE reported that China's financial accounts were in a deficit for the first time since 2016. There are three channels. First, Chinese investors are diversifying savings offshore, buying foreign bonds and stocks. Second, there is outbound foreign direct investment, and third, banks have expanded their foreign loans and deposits.  

1 2 3 4
View single page >> |

Read more by Marc on his site Marc to Market.

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

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.