Quarter-End Adjustments Blunt Trend Moves

Overview: The US dollar is paring its recent gains against most major and emerging market currencies today, mainly on the back of month and quarter-end position adjustments. The euro held the $1.1700 level, while the Japanese yen continues to trade heavily. Better than expected PMI readings from China appeared to help sentiment. The JP Morgan Emerging Market Currency Index is higher for the first time this week. Asia Pacific equities traded lower after losses in the US yesterday. Australia was an exception, where the bourse gained about 0.8%. European shares are slightly firmer, and the Dow Jones Stoxx 600 drew closer to the record high set last February.US shares are narrowly mixed. The debt markets are quiet. The US 10-year benchmark yield is a little firmer at 1.73%. European yields have also edged higher. Gold prices are hovering near the month's low ($1677) and have been unable to resurface above $1690. Oil is a little changed ahead of the OPEC+ Joint Ministerial Meeting. API reported an unexpected build in US inventories, while the EIA report today was anticipated to show the first drawdown in six weeks.  

Asia Pacific

As it typically does after the Lunar New Year holidays, China's PMI bounced back in March. The manufacturing PMI rose to 51.9 from 50.6, well above expectations. The service PMI was even more impressive, jumping to 56.3 from 51.4 and just missing last year's high set in November at 56.4. The net result was that the composite reading now stands at 55.3, up from 51.6. Last year's high was 55.7. To be sure, March's recovery is not simply from depressed February readings. Recall, the composite PMI fell for three months through February. However, confirmation that the world's second-largest economy is out of its soft patch will come from the economy's performance in April. 

Japan reported disappointing February industrial output figures, which served to dent a bit of the optimism that stemmed from the much stronger than expected retail sales figures reported yesterday (3.1% vs. median forecast in the Bloomberg survey for a 0.8% gain). Industrial output slumped 2.1% in February, well more than the 1.3% decline economists projected. The world's third-largest economy appears to have contracted in Q1. Tomorrow it reports the Tankan Survey, and the split is not simply between manufacturing and services, but even more pronounced is the divergence between large companies and small. Capex plans are expected to still be weak.  

Australia reported slightly softer than expected growth in private sector credit expansion. However, the dramatic recovery in building approvals blew away forecasts. Building approvals have fallen 19.4% in January, and economists expected a modest 3% recovery in February. Instead, building approvals surged by 21.6%. Approvals for private homes jumped 15.1% after a revised 11.8% decline in January (initially -12.2%). The Antipodeans, Canada, the US appear to be seeing rising home prices. The UK often is grouped here too, but Nationwide's house price index reported today slipped in March (-0.2%), and the year-over-year gain is modest 5.7%. It is tempting to attribute it to the low yields, but given that the EMU and Japan have even lower interest rates, it seems that rates are a necessary but not sufficient condition. The political economy culture that encourages widespread homeownership is also important. Macroprudential measures that regulate loan-value and aspects are preferred over the blunter instrument of rates to address concerns, which do appear to be gradually rising.  

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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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