Tuesday, June 20, 2023

Capital Markets: "Scandis and Antipodeans Lead the Greenback's Recovery"

From Marc Chandler at Bannockburn Global Forex:

Overview: The market continues to resist the Fed's signal that another 50 bp of hikes may be necessary to ensure inflation is headed toward its target. Previously, the market had rate cuts priced in, and it took some time for the Fed's push back to be accepted. The market converged with the Fed, and this helped the dollar recover. We suspect a similar pattern to play out again. The market does not have even one of the two Fed hikes discounted. As it moves in this direction, we look for the dollar to get better traction. Today's it is mixed but mostly stronger. It is reversing lower against the yen after reaching new highs for the year. Like yesterday, the dollar-bloc currencies and Scandis are the heaviest. Emerging market currencies are mostly lower. The Mexican peso, which reached new multiyear highs before last weekend is the heaviest, with around a 0.3% pullback.

Equity markets are lower, and the Hang Seng and mainland stocks that trade there were the hardest hit and the cut in the loan prime rates were widely expected and specifics on new stimulus measures has been light. Europe's Stoxx 600 is off almost 0.40% today after falling more than 1% yesterday. US equity index futures are trading heavily. European bond yields are mostly 2-3 bp lower, though the UK Gilts, which have underperformed recently, after rallying today, with the 10-yield off five basis points. The 10-year US Treasury yield is up a couple of basis points near 3.79%. Gold is trading in around a $5 range on either side of $1950. August WTI reached an eight-day high near $72.40 before succumbing to some profit-taking that pushed it back toward $71.80 in the European morning. 

Asia Pacific
Following a cut in deposit rates, and the PBOC reduction in the 7-day repo rate and the benchmark one-year medium-term funding rate, Chinese banks shaved the one- and five-year loan prime rates by 10 bp.
Small beer....