Market Stabilize After Yesterday’s Tumultuous Session

Today’s Highlights

• •    Softer yields may have limited enthusiasm for the US dollar as it is falling versus most of the majors. 
• •    Japan’s net export figures indicate that Q2 is off to a robust start with the country’s trade surplus rising to JPY255 bln spurred by strong exports to the US, China and Europe.
• •    The European Parliament voted upon appealing to the European Council to formally halt ascension negotiations with Turkey due to human rights concerns and Ankara’s foreign policy. The EC which is composed of heads of state with varying attitudes towards Turkey, will decide next month.
• •    The US Treasury auctions $13 bln of 10-year TIPS today which is intensifying an evident shortage and, perhaps, distorts the signal of inflation expectations utilized by policy makers and investors.
• •    The Philly Fed survey is anticipated to see the outlook drop to 41.0 from slightly above 50 but even at 41.0 the reading is strong. 
• •    Weekly jobless claims are anticipated to have fallen to roughly 450k last week, which would be the second straight release under 500k.

US equity indices finished lower, but the real story was their recovery. Asia Pacific equities were mixed, with Australia’s 1.5% rally leading the recovery in some markets, including Tokyo and Singapore. Europe’s Dow Jones Stoxx 600 is up a little more than 0.5% near mid-session, led by information technology and industrials, while energy and financials lagged with small gains. US futures are narrowly mixed.

The other main development was the jump in US Treasury yields as the market (over) reacted to the FOMC minutes that showed that the discussion of tapering has already begun. The rising yield lent the dollar support. The US 10-year yield is hovering around 1.65%, while European yields have edged a little higher. The German two-year bond yield is at the high for the year near -66 bp.

The dollar has come back offered, falling against most of the major currencies. The Swiss franc and Japanese yen are leading the move advancers with around 0.25% gains, while the Scandis are lower. The euro and sterling are firmer but little changed. Emerging market currencies are split, with most of the Asian currencies softer and the European currencies higher. Yesterday’s 0.4% drop in the JP Morgan Emerging Market Currency Index ended a four-day advance, but it is recovering a little today.

Gold is consolidating in yesterday’s broad range (~$1852-$1890) and is holding above $10 inside both extremes.

After falling around 4.5% Tuesday-Wednesday, July WTI is trading quietly between about $63.20 and $64.  Iron ore prices tumbled 6.3% in China, but copper prices that fell more than 3% yesterday have stabilized today. July lumber futures prices snapped a seven-day 25% slide yesterday with a nearly 5% gain.  

Marc Chandler

Managing Director
Bannockburn Global Forex
www.bannockburnglobal.com