Capital Markets: "Risk Appetites Satiated for the Moment"

From Marc to Market:

Overview: The rally in risk assets in North America yesterday is failing to carry over into today's activity. Asia Pacific equities were mixed. Korea and Indonesia led the advances with more than 1% gain. China and Taiwan also gained. Japan and Hong Kong. Europe's Dow Jone's Stoxx 600 is giving back yesterday's gains (~1.3%) plus some and US stocks are heavy. The early call is for the S&P 500 to open around 1% lower, which would unwind most of the gains seen in the past two sessions. The NASDAQ rallied to new record highs yesterday and has only fallen in three sessions since May 21, including an eight-day streak that may be challenged today. Bond markets are quiet, and yields mostly lower, though Italy's small increase is consistent with the risk-off mood. The US 10-year yield is soft around 70 bp. The dollar, which appeared to be breaking lower yesterday, is coming back firmer today against nearly all the major currencies. The Antipodeans and Scandis are bearing the brunt, while the Swiss franc and yen are faring best with small gains. Outside of a handful of emerging market currencies from Asia, emerging market currencies are trading lower. Gold is extending its recent gains and is at new multiyear highs and drawing closer to the $1800 target. August light sweet crude oil is being pushed back below the $40-a-barrel mark and may find support in the $38.50-$39.00 area.

Asia Pacific
The Reserve Bank of New Zealand left rates and asset purchases steady at the conclusion of its policy meeting. It did keep open the possibility of both lower rates (25 bp cash rate target) and more purchases, if necessary.

China is requiring international shippers of meat and soy sign documents attesting to the safety of its cargo. There has been an effort to link the recent virus outbreak to imported food. Although Tyson, which has seen some of its poultry banned, after containment in a processing plant, signed-off, many US firms are reportedly reluctant, several Brazilian companies have agreed.

India has slapped anti-dumping duties on flat-rolled steel from China, South Korea, and Vietnam. The duties could remain for five years. Separately, India is poised to levy new tariffs on solar energy equipment. It appears, according to reports, to be focused on solar cells, modules, and inverters. This seems to impact China the most, which provides an estimated 80% of the modules, for example. Although there is no official confirmation of the size of the duty, some suggest it could be around 20%.

Japan, like many other countries, including the US, are struggling with the logistics of distributing funds to millions of households. A report out estimates that some 40% of the cash payments to households have yet to be distributed. Separately, some reports are linking the yen's surge yesterday to more flows related to the Softbank-T-Mobile unwind. This was cited as a factor last week as well. Volume in the euro-yen options spiked to roughly twice the five-day average....

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