Markets Unsettled, Dollar Rides High

Overview: The combination of OPEC+ decision not to boost output next month and Fed Chair Powell's seemingly lack of concern about the level of long-term rates pushed on a door that was already open. Oil is higher, yields are higher, most equity markets are lower, and the dollar has surged. The S&P 500 is practically flat for the year after yesterday's losses, and the NASDAQ is off nearly 10% from the record high set in the middle of last month. Most Asia Pacific markets fell, though Japan's Topix was a notable exception. Malaysia and Thailand equities also escaped the carnage. Europe's Dow Jones Stoxx 600 is off around 0.4%. It is the second day of losses, but it is still up a little more than 1% for the week.US futures indices are paring earlier losses. The US 10-year Treasury yield is near 1.55%. European benchmark yields are 1-3 bp higher, while Australian and New Zealand yields rose another 6-7 bp. Australia's 3-year bond yield, targeted at 10 bp, will finish the week a little above 15 bp. The dollar is riding higher. The euro fell to new lows for the year near $1.1915, and the dollar pushed above JPY108.50.The Antipodeans and sterling are leading the majors lower with 0.5%-0.7% declines. The JP Morgan Emerging Market Currency Index is falling for a third consecutive session and is at new lows for the year. Gold was is trying to stabilize after being sold below $1690. The $1700 may now offer resistance. April WTI jumped 4.2% yesterday on the back of OPEC+ surprise and is up another 2% today to push above $65 a barrel.  

Asia Pacific

Weekly portfolio flows from the Ministry of Finance showed that Japanese investors have sold what appears to be a record JPY3.6 trillion (~$33.5) of foreign bonds in the past two weeks. Some accounts link it to the approaching fiscal year-end (March 31), but it seems early for such strong seasonal flows and maybe a reaction to market developments. When Japanese institutional investors, especially the government-run pension funds, buy foreign assets, some observers want to call it an intervention, but when they repatriate, as they apparently have been doing, not a peep. Meanwhile, reports suggest that what they are selling are off-the-run issues and that their US counterparts are hedging by selling on-the-run issues. Due to the negative general collateral repo rate, those giving cash for Treasury securities pay for the privilege. Separately, BOJ Governor Kuroda played down market talk that the central bank could widen the band that the 10-year bond is allowed to trade under the yield-curve control policy (+/- 20 bp around zero). 

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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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