Wednesday, April 25, 2018

Capital Markets: "Dollar Regains Luster, but Consolidation Likely Ahead of Key Events and Data"

This actually appears to be a major move to and through the top of the recent range for the dollar index:
From Marc to Market:
The US dollar reversed lower yesterday after US yields softened and equities tumbled. However, the greenback has bounced back, and has extended its gains against the major currencies except the euro and sterling. The on-the-run and generic US 10-year yields are edging above 3%.

Despite a soft reception to yesterday's $32 bln sale of two-year notes, the yield is holding just below 2.50%. The 2-10 year yield curve, who's flattening has caused consternation among investors and pundits, is at 52 bp, which is where it was at the end of last year.

Equities are heavy after yesterday's sharp losses on Wall Street. Dow Jones Industrials were down for fifth consecutive session, and the S&P 500 post its biggest loss in two weeks. The NASDAQ extended its losing streak to four sessions. There is some disagreement over the cause. One camp attributes the equity losses to the rise in yields. The other sees less optimistic guidance by Caterpillar and 3M yesterday as the proximate cause, and ideas that expectations for strong earnings and been largely discounted.

The MSCI Asia Pacific Index fell 0.5%. It is the third loss in the past four sessions. Technology shares continues to lead the way. The benchmark sits at a two and a half week low. One of the flow stories we have been tracking is the foreign sale of Korean shares. The selling accelerated to $791 mln today, nearly twice the pace seen in the previous two sessions. Of the $2.8 bln liquidated this year so far, $1.65 bln has taken place this week.

The Dow Jones Stoxx 600 is off 0.9% in late morning turnover in Europe. Financials, energy, materials and industrials are all off more than 1%. Consumer staples are trying to buck the trend. Yesterday the benchmark traded at its best level since early February and today's drop brings it back to April 17 levels.

European bond yields are being dragged higher by the rising Treasuries. Core bond yields are up 1-2 bp in Europe, and that puts the 10-year Gilt yield at two-month highs (~1.55%) and the 10-year Bund at its highest yield (65 bp) since March 12.

The news stream is light, but the lull will not persist long. Tomorrow the ECB meeting concludes and Friday the BOJ meeting ends. Several countries, including the US and UK will report the first look at Q1 GDP ahead of the weekend....MORE