- * The US dollar is mainly firmer today but the yen and Swiss franc are posting small gains.
- * Japan’s BOJ notably did not step in to purchase ETFs after its Topix suffered its sharpest three-day fall since last June. Its new rules of intervention came into effect on April 1st. Japan also reported a smaller than anticipated March current account surplus but its trade surplus was larger than forecast.
- * European yields are 2-5 bp higher as the benchmark yields are at the high for the year.
- * In the US, PPI is expected to slightly increase and weekly initial jobless claims are also on tap to for a minor decline.
It is as if the bond vigilantes were pushed too far. US inflation is accelerating more than expected, and it cannot all be attributed to the base effect, and the Federal Reserve, to many investors, is tone-deaf. With powerful fiscal stimulus, nominal growth above 10%, and the economy re-opening, albeit unevenly, does the monetary accelerator need to be fully engaged?
The US 10-year yield jumped, providing a nice concession at the quarterly refunding and lifted the dollar broadly. Stocks got hammered, and still no safe-haven bid for Treasuries. Near 1.70%, the yield is almost 25 bp above the post-jobs disappointment low.
The sharp sell-off in US shares, which continues today, with the futures indices off 0.3%-0.5%, knocked Asia Pacific bourses 1%-2% lower and the MSCI Asia Pacific Index is now nearly flat on the year. Europe’s Dow Jones Stoxx 600 appeared resilient yesterday but is off about 1.3% today to bring the week’s drop to almost 3%. Bonds have yet to see safe-haven demand. The US 10-year yield is steady, near 1.69%, while European yields are 2-5 bp higher, with benchmark yields at the high for the year.
The dollar is mostly firmer, but the yen and Swiss franc are posting minor gains. The euro steadied in Asia Pacific turnover but found sellers in the European morning. Emerging market currencies have a clear downside bias today. The JP Morgan Emerging Market Currency Index is lower for the fourth consecutive session, which would be the longest losing streak in a couple of months.
After four days of approached but unable to push above $1850, rising yields sapped gold, which fell to nearly $1810 in Europe.
News that the US pipeline will re-open took the bid from crude oil. The June WTI contract reached nearly $66.65 yesterday and is now below $64.50 and poised to test the 20-day moving average around $63.90. It has not closed below that moving average in a month.
Bannockburn Global Forex