Softer Yields = Softer Dollar

Overview: The surge in consumer prices reported on Wednesday saw rates jump and the dollar push higher. Stronger than expected producer prices yesterday, and news of wage increases (average 10%) at Mcdonalds and for 75,000 people Amazon wants to hire, saw rates ease and the dollar's upside momentum stall. Before the week draws to a close, the US reports April retail sales and industrial production figures. US stocks recovered smartly from the stomach-clenching sell-off on Wednesday, which helped lift sentiment in Asia and Europe. The largest markets in the Asia Pacific advanced mostly 1%-2.3%. New social restrictions in Singapore as the contagion reached a 10-month high saw the Strait Times Index drop 2.5%. Europe's Dow Jones Stoxx 600 recovered yesterday, though finished off less than 0.2%, and helped by stronger gains in consumer staples and financials, is posting modest gains today. US future indices are trading broadly higher. The US 10-year yield briefly poked above 1.70% yesterday for the first time in a month but pulled back to around 1.64% now, shrugging off a lukewarm 30-year bond auction (despite higher rate, low bid coverage). The softer US yields were are doing little to European benchmark 10-year yields, which are extending yesterday's push to the year's highs. As go US interest rates, so goes the dollar. After rallying on Wednesday, its gains were pared against most of the major currencies and remains under modest pressure today, with the Norwegian krone leading the way (~+0.85%), while sterling, yen, and the Australian dollar lagging (~+0.1%). On the week, only sterling is higher (~+0.50%), while the Antipodeans and Scandis led the decline (~-0.8% to -1.3%). Emerging market currencies are also trading higher today, led by eastern and central European currencies. After falling in the first half of the week, the JP Morgan Emerging Market Currency Index is extending yesterday's minor gains and for the week is off about 0.65%, after gaining nearly 1.8% last week. Gold is extending its recovery after dipping below $1810 yesterday and is near $1833 near midday in Europe. Crude oil prices are stabilizing in yesterday's trough after June WTI slid 4.3% yesterday. Near $64.50 a barrel, it is off a little less than $0.50 this week.

Asia Pacific

China's Premier Li Keqiang called for measures to address the surge in commodity prices yesterday, and the market took it to heart. The materials sector underperformed in the Chinese equity rally today. Iron ore prices, for example, had risen by nearly 18% in the five sessions through Wednesday. Prices for the September futures contract fell by nearly 3.6% yesterday and another 6.4% today. Copper prices are off for the third consecutive session today. It is off 2% this week after a five-week, 19.5% rally. Steel rebar futures had rallied nearly 12% in the five sessions through the middle of the week, and the cumulative decline between yesterday and today is around 5.5%. The resumption of US pipelines that was hacked and indications that some 700 barges on the Mississippi held up by cracks in a highway bridge may able to continue their journey over the weekend also contributed to the 2.4% decline in the CRB index, its largest fall in nearly two months, and will likely snap a five-week advance of nearly 11%. 

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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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