From Marc to Market:
The most important development today has been the stability in the equity markets after last week's meltdown. The recovery from new lows in the US before the weekend set the tone for today's moves.
Tokyo markets were on holiday, and the MSCI Asia Pacific Index excluding Japan snapped a seven-day slide with a nearly 0.6% gain. China's markets led the rally with the CSI 300 gaining 1.3%. There were reports suggesting that some Chinese officials offered informal direction to shareholders to support the market. Separately, the PBOC set the reference rate of the yuan stronger, but the market drove the yuan lower, finishing about 0.5% lower against the dollar.
China also reported strong growth in M1 and M2 money supply, while a surge in new yuan loans (CNY2.9 trillion) accounted for the bulk of the aggregate financing (CNY3.06 trillion). New yuan lending typically rises strongly in January as unpaid loans and interest are often rolled into new and higher loan balances.
The Dow Jones Stoxx 600 in Europe is up more than 1.6% near midday on the Continent. Materials and information technology are the strongest sectors, but all the main industry groups are participating. If gains can be retained, it would be only the second advancing sessions since January 26. The S&P 500 is currently trading a little more than 1% stronger.
Looking at 10-year benchmark yields, Australia and New Zealand are three-five basis points higher, as are core bond yields in Europe and the US. Peripheral European bond yields are softer with Italy and Spain off a little more than one basis point, while Portugal is nearly three basis points lower.
The US dollar is sporting a softer profile against most of the major currencies. The Swedish krona and New Zealand dollar are challenging the generalization. There is little enthusiasm and the market feels tentative. The euro backed off the initial test on $1.2300, but the market does not appear to have given up on it, and appears to be nibbling at the pullback below $.12260. The dollar has been kept in a half a yen range below JPY109. Between JPY108.75 and JPY109.00, there are about $1.1 bln in options struck that expire today. Higher core yields and firmer equities would give one a bias to expect a weaker yen, but it has not materialized yet.
Sterling has held above $.13800 but saw sellers in early Europe cap it near $1.3875....
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If interested see also this weekend's "Thoughts On Dealing With Historically Abnormal Markets".
