Turkey Drags EM Lower While US Yields Soften Ahead Of Supply

Overview:  Equities in the Asia Pacific region and Europe found little support from the lower bond yields.  Chinese, Taiwanese, and Australian equities managed to post modest gains.  A fire at a Renesas auto chip facility in Japan weighed on auto shares.  This yet another disruption in chip production which was already estimated to cut global auto production by more than a million vehicles this year. The Dow Jones Stoxx 600 is recouping initial losses.  Real estate and energy are laggards, while information technology and consumer discretionary sectors advance. Nasdaq futures are around 0.5% higher, while the S&P 500 futures are little changed.  The US 10-year yield is off around four basis points to 1.68%, and European yields are 1-3 bp lower, as the ECB's report of last week's buying is awaited, the first since the ECB committed to a "significant increase" in its purchases.   The dollar (UDN) is mostly softer against the majors. The Swiss franc (FXF) and Japanese yen are the strongest in late morning turnover in Europe with around a 0.2% gain. The euro and sterling are little changed.  The Turkish lira has stabilized and is currently off about 8%.  It had lost more than 15% as the markets initially responded to the dismissal of the central bank governor that hiked rates 200 bp last week.  Other liquid and accessible emerging market currencies, like the Mexican peso, South African rand, and Russian ruble, were dragged lower.  The JP Emerging Market Currency Index is off around 0.8%.  Gold (GLD) had been flirting with the $1750 area last week and has come back offered today and is straddling the $1730 level in the European morning.  Last week's low was around $1719.30.  After snapping a five-day losing streak ahead of the weekend, May WTI is trading lower again today.  Unlike the past couple of sessions, though, the contract is holding above $60 and is gravitating around $61.

Asia Pacific

As widely expected, China left its loan prime rates unchanged for the 11th month.  The one-year rate remained at 3.85%, and the five-year stayed at 4.65%.  Over the weekend, China appointed two new economists to the central bank's monetary policy committee.  Terms are typically for three years, and this seemed to be the normal rotation.  The PBOC is not an independent central bank, and decisions by the MPC require approval by the State Council.

The dollar slipped to a six-day low against the Japanese yen near JPY108.50.  A band of support extends to around JPY108.35.  The dollar fell against the yen last week, the first decline in five weeks. Today could be the first session in six that the dollar does not trade above JPY109.00.  There is a $605 mln option at JPY109.05 that expires today (FXY).   The Australian dollar briefly traded below last week's lows (just below $0.7700) but found support closer to $0.7690 (FXA) It recovered but stalled in front of resistance at $0.7740.  Torrential floods in Australia are complicating the vaccine rollout and impacting economic activity.  The US dollar firmed slightly against the Chinese yuan for the third session.  It is the longest advance since January.  Still, the movement should not be exaggerated.  It has settled between CNY6.5040 and CNY6.5090 for the past four sessions and is just a little firmer now.  Net-net, it has not closed more than 0.1% in either direction for the fifth session.  The PBOC's reference rate for the dollar was spot on the projections of the banks Bloomberg surveyed at CNY6.5191 (CYB).  

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Read more by Marc on his site Marc to Market.

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