From Marc to Market:
Overview: The pendulum of market expectations has swung dramatically and now looks for 100 bp cut in the Fed funds target this year. That seems extreme. At the same time, the dollar's downside momentum has stalled, suggesting that the dollar may recover some of the ground lost recently as the interest rate leg was knocked out from beneath it. The euro twice in the past two days pushed through $1.09 only to be turned away. Similarly, sterling pushed above $1.23 but has failed to close above it. The Dollar Index snapped back after dipping below 102.00 yesterday for the first time since February 2. It ended a five-day drop. Follow-through dollar buying has left the intraday momentum indicators stretched ahead of North American open.
Bank shares remain under pressure today. There is concern that Asian banks AT1 assets have similar clauses as the Swiss banks. The Topix bank index fell 0.75% today to take the weekly loss to 1.5% after a 10.55% drop last week. The Stoxx 600 bank index in Europe is off 5.7% today, its biggest loss of the week. It is off 2% this week after falling 13.4% last week. Equity markets in Asia Pacific, Europe, and US futures are lower. Bonds though are on fire. Benchmark 10-year yields are 11-17 bp lower in Europe, with peripheral premiums widening. The 10-year Treasury yield is off 13 bp to almost 3.29%. The US two-year yield is 25 bp lower (~3.58%). Gold is firmer near $2000. May WTI reached $71.65 yesterday but has come back offered today amid reports that the US will not be in a hurry to replenish is strategic holdings. It is trading near $67.35, leaving it little changed on the week....
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