Capital Markets: "The Capital Markets YoYo Continues"

From Marc to Market:

Overview: The 4.2% rally in the S&P 500 yesterday helped lift Asia Pacific markets earlier today, and the five basis point backing up of the US 10-year yield pushed regional yields higher. However, the coattails proved short, and Europe's Dow Jones Stoxx 600 is snapping a three-day advance and is off about 1.3% in late morning turnover to give back yesterday's gains. US shares are also trading heavily, and the S&P 500 looks almost 2% lower. European benchmark 10-year yields are mostly 1-3 bp firmer, though German Bund yields are slightly softer. The US 10-year yield is pushing back to nearly 95 bp as it unwinds yesterday's pick-up. The dollar is lower against almost all of the major currencies, but the Canadian dollar and the Norwegian krone. The liquid, accessible emerging market currencies are softer, including the South African rand, Turkish lira, and Mexican peso.The South Korean won was the strongest, with a 0.5% gain. Foreigners continue to sell Korean shares, but fully offsetting it and more, are their purchases of Korean bonds. Gold and oil are consolidating inside yesterday's ranges. OPEC+ meet, and many expect that the current cuts in production will be extended, while extra cuts of around 750k barrels per day can be cut for a quarter or two.

Asia Pacific
Foreign investors continued to buy negative-yielding Japanese bonds last week, according to MOF figures. It was the sixth consecutive week of purchases, during which time they bought about $39 bln, the most in a six-week period in over a year. Many seem to be buying on a hedged basis. Consider that a dollar-based investor buys a short-dated JGB yielding minus 25 bp, hedging the yen back into dollars, one is paid sufficiently to turn the overall yield of the trade into more than a US two-year Treasury.

The Bank of Japan does not meet until March 18-19. Market News International reported that officials do not see the need for an emergency meeting unless the yen were to strengthen sharply with the dollar falling through JPY105 toward JPY100. Reports suggest the BOJ will downgrade it economic assessment and either launch a new facility to ensure lending firms disrupted by the virus or scale-up existing facilities.

The head of Australia's Treasury warned that his country will likely experience its first quarterly contraction in nine years but expects a recovery in Q2, avoiding the rule-of-thumb definition of a recession. A measured and targeted fiscal response is likely in the coming days. Asia-Pacific countries have already announced around $38 bln in fiscal measures. The IMF has made $50 bln available to help countries cope with the virus, including $10 bln to be lent at zero interest rates to help the poorest countries....

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