The US Dollar Finds Footing

Overview: Equities have a more stable footing today, despite yesterday's losses in the US, as the relative stability in the bond markets bolster risk-appetites. Led by a 2.7% rally in Hong Kong, which matches its largest advance of the year, Asia Pacific markets all advanced. Europe's Dow Jones Stoxx 600 is up for the third consecutive session, and US shares enjoy a firmer tone. Bond yields are firm (2-3 bp) in Europe after some slippage in Australia, New Zealand, and Japan. Australia's 3-year note yield remains above the 10 bp target. The US 10-year is up to five basis points at 1.44%. The dollar is finding better traction in Europe as even the Antipodean currencies are struggling to maintain the upside momentum. Sterling is a bit stronger ahead of the budget. Emerging market currencies are mostly higher, and the JP Morgan Emerging Market Currency Index is higher for the third consecutive session. However, the cumulative gains are modest and put the benchmark only slightly above last week's settlement. Gold recovered from yesterday's test near $1700 (~$1707), but the upside momentum stalled near $1740 and is back below $1725. Oil is ended a three-day slide. April WTI peaked last week near $63.80 fell to $59.25 today before finding a good bid that has lifted it back above $60.  

Asia Pacific

China's calculation of its PMI remains strange. The composite of both the official and Caixin versions is above the manufacturing and service readings.  The official report was at 50.6 and 51.4 for manufacturing and services, and the composite was at 51.6. The Caixin version had reported manufacturing at 50.9, and today the services PMI was reported at 51.5. The composite stands at 51.7. Leaving aside this counterintuitive result that has not triggered much of a response, the takeaway is the world's second-largest economy may have lost some momentum at the start of the year. Still, the Lunar holiday in February likely exaggerates the extent of it.  

Japan's preliminary service and composite PMI were revised up from the initial readings, but the sub-50 reading still warns that the world's third-largest economy appears to be contracting here in Q1. The service PMI was revised to 46.3 from the preliminary 45.8 and the January 46.1. The composite was revised to 48.2 from 47.6 and January's 47.1. Recall that the manufacturing PMI stands at 51.4. Initially, it was reported at 50.6 after 49.8 in January. Meanwhile, Tokyo seems prepared to extend its formal declaration of emergency, though other prefectures are lifting theirs. 

Australia's services and composite PMI were revised lower from their preliminary estimates. The composite stands at 53.7, down from the initial estimate of 54.4, and January's 55.9. It is the second monthly decline but still points to an economy that is expanding. Australia reported Q4 GDP expanded by 3.1% quarter-over-quarter in Q4 20. Bloomberg's survey median forecast was for a 2.5% expansion after a 3.4% pace in Q3 20 (revised from 3.3%). It leaves the Australian economy about 1.1% smaller than at the end of 2019. 

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Read more by Marc on his site Marc to Market.

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