Marking Time ahead of the Week’s Big Events
• The US dollar has edged mostly higher in quiet turnover. The 10-year yield near 1.55% is still making it difficult for the greenback to find much traction.
• Japan revised up Q1 GDP to still show a significant contraction. Q2 looks soft as well but the rise in labor income bodes well for Q3 after the formal emergency is lifted.
• German industrial production disappointed. The focus is on Thursday’s ECB meeting, where elevated bond buying (compared with Q1) is expected to persist through the summer.
• The UK may delay the economy-wide re-opening planned for June 21 by a couple of weeks.
• US bill auctions have begun reflecting expectations that the Fed makes a technical adjustment to the interest it pays on reserves or the reverse repo rate to prevent the Fed funds rate of getting too close to the zero bound.
• Bank of Canada meets tomorrow. A decision on taking the next step on tapering is expected in July.
• Peru’s election remains too close to call but Castillio’s slight lead sent local stocks and the sol tumbling yesterday.
The capital markets appear to be in a holding pattern ahead of this week’s big events, including the US CPI and the ECB meeting. Equities are little changed but with heavier bias evident. Most of the large bourses in the Asia Pacific region were lower, except Australia, which eked out a small gain. European markets are little changed, and the Dow Jones Stoxx 600 is straddling unchanged levels. US futures are a little heavier.
Benchmark 10-year yields are going no place quickly. The US 10-year is holding just above 1.55%, while European yields are slightly softer.
Despite the limited yield support, the dollar is steady to firmer, with sterling, New Zealand dollar, and yen nursing 0.20%-0.35% losses. The Norwegian krone and Swiss franc are posting small gains. Emerging market currencies are little changed, with most of the liquid and accessible currencies posting small declines.
Gold was sold after pushing above $1900, and July WTI, which tested $70 yesterday, slipped to around $68.50 today. Those industrial commodities we track, like iron ore, steel rebar, and copper, are down for the second or third consecutive session. The Baltic Dry Index fell for the ninth consecutive session yesterday to bring the decline to more than 25% over the past month. It has returned to mid-April levels, which are still nearly 80% above where it settled at the end of last year.
Bannockburn Global Forex