The US Dollar Comes Back Bid After Being Squeezed Yesterday

Overview: European bourses are playing catch-up as they reopen after the long holiday weekend. The Dow Jones Stoxx 600 gapped higher and is trading at record levels, led by materials and financials. Asia Pacific markets were mixed after US indices rallied yesterday. A sharp fall in household spending may have weighed on Japanese shares. US futures are softer too. The US 10-year yield is flat neat 1.70%, while European benchmark yields are 2-4 bp higher. The dollar is paring yesterday's losses. The Antipodean currencies and sterling are leading the way, with around 0.5%-0.6% losses in late morning turnover in Europe. The euro is hovering around $1.18, and despite the brief slippage yesterday, the greenback is holding above JPY110.00.Emerging market currencies are mixed, with Asia mostly higher and Europe mostly lower, leaving the JP Morgan Emerging Market Currency Index little changed. Gold is firmer, reaching its best level in almost two weeks, a little under $1739.Oil is recovering from its biggest drop in two weeks. The market seemed to overreact to the talks today in Vienna as an international effort tries to get both the US and Iran back into compliance with the arms/embargo agreement. However, it does not mean that Iranian oil will hit the markets any time soon. Still, May WTI has so far been unable to regain the $60-handle and remains within yesterday's range.  

Asia Pacific

Japanese data underscore the pressure on the world's third-largest economy. Household spending fell a sharp 6.6% in February, a larger drop than expected. It has been falling since the sale tax was hiked in October 2019. There were two exceptions, last October and November. While data was distorted by the leap year, consumption fell from a year ago even without it. Part of what weighs on consumption is weak income. Cash earnings fell 0.2% year-over-year in February. This was a bit better than expected but was largely offset by the downward revision in the January series to show a 1.3% decline from a 0.8% fall initially reported.  

The press reports that China has requested domestic and foreign lenders limit loan growth going forward after a 16% surge in the January-February period. The idea is to stay within last year's levels. The stimulative efforts have boosted the property market and new home sales. Small banks are thought to be particularly vulnerable. The move further underscores the shift in Chinese policy from boosting growth to controlling credit risks. Separately, note that S&P Dow Jones reports that its indices that had dropped from its benchmarks due to the US stance will be reinstated starting in July.  

As widely expected, the Reserve Bank of Australia left policy unchanged. It reiterated that it does not intend to lift rates until CPI is back into the 2%-3% target, which it does not anticipate for a couple of years. Growth is expected to be above trend this year and next. The pressures are building, and house prices are one release. Officials also expressed concern for house prices, which have risen by the most in 30 years.  

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Read more by Marc on his site Marc to Market.

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