Oil Slide Helps Lift Bonds While The Dollar Recovers

Overview: The relative calm in the capital markets, outside of the dramatic reaction to the dismissal of Turkey's central bank governor over the weekend, has given way today to greater anxiety. Nearly all the major bourses are lower. In the Asia Pacific region, India and New Zealand are exceptions. Europe's Dow Jones Stoxx 600 has surrendered yesterday's gains and more. US futures indices are around 0.3% lower. Bond yields are softer. The US 10-year yield is about five basis points lower to 1.64%. The yield remains within the range set last Thursday when the low was around 1.62%. European benchmarks are 1-3 bp lower. The dollar is stronger against all the major currencies, though the yen is near a two-week high. The New Zealand dollar is off 1.4%, which is linked to the new housing market curbs. The Aussie is off around 1.0%. Most of the liquid and accessible emerging market currencies have lost over 1.0% today. The Turkish lira is off about 0.5, and the local currency 10-year bond yield is up over 70 bp, and stocks are off 4-5%. The cost of insurance against default (credit default swap) is extending yesterday's rise. Gold is consolidating between $1730 and $1742, but more importantly, it remains within the range set last Thursday (~$1719-$1755). The same is true of crude oil. The May WTI contract has been sold in the European morning but is holding above the low seen last Thursday near $58.30.

Asia Pacific

The US, UK, EU, and Canada announced sanctions against China yesterday for human right violation. Although the different parties took their own course, for the first time since 1989, a common front was shown. Beijing seemed to react angrily and struck out at the EU, announcing sanctions against ten people and a few entities. This reinforces the sense of China's clumsiness on the international stage. While a strong rhetorical defense was anticipated, the counter-sanctions seem ill-advised. Targeting members of the European Parliament may be counter-productive if Beijing still needs to secure its approval for the investment pact reached at the end of last year following years of negotiation.

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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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