Tokyo Escapes Deflation, Leaving the Greenback Trapped Between Two Expiring Options Against the Yen
• The US dollar surged last week, but has drifted lower this week against most of the major and emerging market currencies. The yen is the notable exception among the majors.
• After yesterday’s surprise 25 bp hike from Mexico’s central bank, the peso remains bid. It is the best performing currency in the world this week, rising by about 4.25%. The Brazilian real is in second place with a 3.6% gain, coming into today.
• Chinese banks’ dollar holdings surpass $1 trillion, while the country’s oil inventories are at four month lows.
• Russia announced an export tax on several industrial metals.
• The German and French initiative to seek better relations with Russia was rebuffed by the EU and was dropped from the final statement.
• The US reports May personal income and consumption figures, alongside the inflation measures. Yesterday’s bipartisan infrastructure measure was agreed on, though the funding is murky at best. Banks passed the Fed’s stress test, which will allow for a significant payout to shareholders, and the moratorium on evictions was extended another month to end the of July.
New record highs in the S&P 500 and NASDAQ yesterday helped lift most Asia Pacific markets today. China and Hong Kong led the regional gains and were sufficient to lift the MSCI regional benchmark to halt a two-week drop. European equities are little changed but will rise for the fifth week in the past six, barring a sharp sell-off ahead of the weekend. US indices’ futures are firm.
The bond market is quiet. The US 10-year benchmark is hovering around 1.48%, little changed on the week. European yields are firmer on the day but are also flattish on the week.
After last week’s exaggerated rally, the dollar drifted mostly lower this week. The yen is the notable exception, with the Scandis and dollar-bloc leading the move. On the day, the greenback is softer, with sterling the only major to be underwater. Emerging market currencies are also mostly firmer against the dollar, and the JP Morgan EM FX Index is up for the fifth consecutive session. It is the first week since February that it has risen every session of the week. The Mexican peso is firm after being propelled higher yesterday by the surprise rate hike by the central bank.
Russia announced export tariffs on several industrial metals (steel products, nickel, aluminum, and copper) estimated to be around $2.3 bln for the fourth quarter. Many industrial metals traded higher today, including copper, which is paring yesterday’s loss, the only decline this week. August WTI is little changed in a narrow range around $73.00. Crude oil prices are up about 3% this week and have only fallen one week in the past two months. Gold is firm near $1783 after peaking in the middle of the week near $1795.
Bannockburn Global Forex