Waiting For The Fed

Overview: The US dollar and Treasury yields firm ahead of the outcome of the FOMC meeting. The failure of US stocks to hold on to early gains yesterday lends itself to the continued consolidative tone day. Asia Pacific equity markets were mixed, but a downside bias was evident. Europe's Dow Jones Stoxx 600 is paring yesterday's gains. The US equities indices are also looking at small losses. The 10-year Treasury yield is hovering around 1.64%, while other benchmarks yields have edged 1-2 bp higher. The UK 10-year Gilt yield is up four basis points, and sterling is firm. The Australian and Canadian dollars and Swiss franc are bringing up the rear, with around 0.2% losses. Most emerging market currencies are lower, though the Chinese yuan and most central and eastern European currencies enjoy firmer tones. Gold is a little higher even if not above $1740.May WTI is softer for the fourth consecutive session and near $64.50 ahead of the US inventory report. The IEA played down ideas that oil is in a supercycle and sees ample supplies. The American Petroleum Institute estimated a small drawdown, but EIA is expected to report another build. 

Asia Pacific

Japan's February trade surplus was smaller than expected on the back of a larger than anticipated 4.5% decline in exports. Although some observers still complain that international investment by government pension funds is tantamount to intervention to covertly intervene for trade advantage, Japanese exports fell every month (on a year-over-year basis) from December 2018 through November 2020. They rose in December 2020 and January 2021 before falling again last month. Imports also fell consistently from May 2019 through January 2021 and rose by 11.8% in February. Japan recorded a small trade surplus (~JPY563 bln) last year after running deficits of JPY1.2-JPY1.7 trillion in 2019 and 2018, respectively.  

The US tightened restrictions on sales to Huawei and announced sanctions on another 24 Chinese and Hong Kong officials over actions in Hong Kong ahead of the bilateral talks tomorrow. Secretary of State Blinken and Defense Secretary Austin are visiting Quad members, Japan and South Korea. The White House obviously has low expectations of the first formal talks with Chinese officials. The US has signaled that there will not be a joint statement or major announcement.  

Australia reports February employment data tomorrow. The central bank has linked the monetary policy to inflation and inflation to wages. The Australian labor market is recovering. From March through June last year, Australia lost about 378k full-time positions. With January's 59k gain, it has recouped 311k full-time posts. The unemployment rate stood at 5.3% in January 2020 and was at 6.4% in January 2021. It is forecast to slip to have slipped to 6.3% last month.  

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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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