EC Risk Appetites Return Bigly

Overview: In Asia, equities markets rallied strongly, led by the more than 5% gain in Taiwan, the most in over a year as Monday's 3% drop was more than overcome. The Nikkei gained more than 2% despite the deeper than expected contraction in Q1 GDP. Hong Kong, South Korea, and India also rose more than a 1% gain as tech came roaring back. In Europe, where equities have edged higher, the focus seemed to shift to the foreign exchange market, and the dollar was sold off, with the euro climbing above $1.22 and sterling pushing above $1.42. Only the Canadian dollar, Swedish krona, and Japanese yen rose less than 0.3%. Emerging market currencies, led by eastern and central Europe, are broadly higher, and the JP Morgan Emerging Market Index is up for the fourth consecutive session. The Turkish lira, a notable exception, is sporting a softer profile. US yields continue to deny the greenback much support. The 10-year benchmark is hovering around 1.65%, little changed on the day, while European yields are slightly softer. Gold traded at four-month highs today over $1870 and is consolidating in the European morning. Oil prices are also higher, with Brent testing $70 and July WTI probing $67. 

Asia Pacific

Japan's economy contracted by 1.3% in Q1 quarter-over-quarter, which is a somewhat larger contraction than economists anticipated. As the recent retail sales report hinted, consumption held up better than feared, falling 1.4% instead of -1.9%. However, the big miss was on business spending. It was expected to rise by 0.8% and instead fell by 1.4%. The deflator was -0.2%, which was also deeper than expected. Inventory accumulation was a little stronger than expected. Net exports shaved 0.2% off GDP, in line with expectations, and a good reminder that Japan is not an export-driven economy. Net exports contributed an average of 0.1% to growth over the last four quarters and the last 20. With the third state of emergency covering 40% of the economy set to continue through the end of the month, the current quarter is challenging.  

The minutes from the Reserve Bank of Australia's meeting failed to shed fresh light on the policy outlook. Upcoming economic data and financial market developments are the keys to the next policy decision of whether to roll over the yield curve control target of the next three-year bond and extend QE. The RBA meets on June 1, but the officials have already pointed to the July 6 meeting as the timing of its decision. Meanwhile, the trade agreement with the UK, hoped to be concluded by the G7 meeting next month, is reportedly running into a debate in London over Australia's agriculture imports.  

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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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