The Dollar Stabilizes but Stocks, Not so Much
- * The US dollar is firmer today versus the majors except against the Canadian dollar.
- * Australia revealed their budget yesterday showing a larger than anticipated deficit. The government is preparing for next year’s election and supports the monetary effort to encourage a robust recovery.
- * The UK’s data reveals its economy contracted by 1.5% in Q1 however its economy completed the quarter stronger than anticipated. March monthly GDP rose by 2.1% and February’s growth was revised upwards. Notably its trade deficit was significantly smaller than expected.
- * The US will report today April CPI. While the headline rate may increase this will prove transitory. Supply bottlenecks and shortages are also part of this transitory theme.
The markets remain on edge. Asia Pacific and US equities have yet to find stable footing, and inflation fears are elevated.
The foreign exchange market has turned quiet, as the dollar consolidates its recent losses. China and Hong Kong escaped the sell-off equities that saw Tokyo and Seoul fall over 1%, but Taipei was the highlight with a stunning 8.6% intrasession plunge before recouping a little more than half. A combination of more Covid-related restrictions and the global sell-off of tech took a tool. TSMC, which is 30% of Taiwan’s index, finished nearly 2% lower after a more than 9% slump.
The US removed Xiaomi from the blacklist, and shares rallied in Hong Kong. The less-tech sensitive Dow Jones Stoxx 600 is trading steadily after dropping nearly 2% yesterday. US futures are still heavy.
Ahead of today’s auction, the US 10-year yield is slightly softer, around 1.61%. European bond yields are also around a basis point or so lower. On the back of a larger than expected Australian fiscal stimulus, its 10-year yield jumped five basis points to 1.76%.
The Antipodeans are the weakest among the major currencies, off about 0.45%-0.50% near midday in Europe, while the others are 0.05%-0.15% softer. The Canadian dollar is the only major posting a small gain against the greenback. Emerging market currencies are mostly lower as well. The Turkish lira and the South Korean won are off almost 0.5% to bear the brunt.
Gold is consolidating after recovering from $1818 to $1838 yesterday. Crude oil remains bid, and the June WTI contract is mostly holding above $65 today.
Bannockburn Global Forex