The Greenback Continues To Trade Heavily

Overview: US officials called for a pause in the J&J vaccine, and the company has delayed the rollout in Europe. The market seems to be looking past what appears to be an abundance of caution that now looks to last a few days. Risk-taking appetites have barely been impacted. Most equity markets are firmer today. In the Asia Pacific region, Japan was a notable exception, and a poor core machinery order reported did not help. Europe's Dow Jones Stoxx 600 is firm.US shares are mixed ahead of the earnings report of a few large banks and Coinbase IPO. The US bond market has absorbed the week's heavy coupon without stress, and around 1.63%, the US 10-year yield is a couple of basis points lower than last week's settlement and 10 bp lower than where it was at the end of Q1. European benchmark yields are mostly softer, though a slightly higher than expected Swedish inflation appears to be weighing on its bonds. The dollar remains heavy. It is slipping against all the majors, but the Canadian dollar and Swiss franc. The Antipodeans, Scandis, and sterling are leading the move. Most emerging market currencies are also higher, led by South Korea, Russia, and Turkey. The JP Morgan Emerging Market Currency Index is appreciating for the second consecutive session. Gold is a little softer and confined to a $10 range below $1750.Iran's push for 60% enrichment threatens a new disruption in efforts to get it and the US back into the former agreement, which means the curbs on its oil will continue.US API also estimated inventories fell (~3.6 mln barrels) for the third week. June WTI is up $1 barrel to around $61.30, near two-week highs.  

Asia Pacific

Core machine orders in Japan unexpectedly fell by 8.5% in February. Bloomberg's survey's median forecast called for a 2.5% gain after a 4.5% drop in January. The weakness was purely a domestic event. Foreign orders surged over 76% month-over-month and were the fifth consecutive month of increased foreign orders. The foreign orders were twice the private domestic orders, where the service sector orders were particularly weak (-10.9%). The virus restrictions squeezed the domestic economy, while the Capex cycle in other Asian countries, especially China, points to favorable exports. The outlook is more favorable. The Tankan survey showed Japanese companies plan on increasing Capex and preliminary March machine tool orders reported earlier this week rose.  

China's persistent harassment of Taiwan with increasingly more jet fighters and bombers runs parallel to Russia's build-up of forces near Ukraine. Ukraine is not a member of NATO, though it wishes it were, and its overtures to that effect did not sit well in Moscow. Taiwan's support is more ambiguous. The US talks in terms of helping Taiwan defend itself or making sure it can. This can be construed to mean selling advanced weapons. There is no mutual defense treaty. However, a bill submitted by a Senator (FL-R) would end the strategic ambiguity in favor of Taiwan. The strategic ambiguity was initially designed not to leave Beijing guessing America's intent but to discourage Taiwan from acting unilaterally and declaring its independence. So far, the Biden administration is pushing at what China considers a red-line and extend the direction that Trump had begun. The State Department will be issuing new guidelines to allow more US officials to meet with Taiwanese officials. Biden sent a small "unofficial" delegation to Taiwan and marks the 42nd anniversary of the Taiwan Relations Act. 

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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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