Overview: The swing in the pendulum of market sentiment toward fear from greed began last week and has carried over into today's activity. Global equities are getting mauled. In the Asia Pacific region, no market was spared as the Nikkei's 3.5% drop, and South Korea's 4.7% fall led the way. In Europe, the Dow Jones Stoxx 600 is recovering from a more than two percent early loss, as it drops for the fifth time in the past six sessions.
US shares are heavier, with at least a 1.5% loss anticipated at the opening. Bond markets are not responding much to unwind of risk appetites. European peripheral yields are off around three basis points and core yields are down around one. The US 10-year yield is 3 bp lower near 67 bp. The dollar is rallying across the board. The yen and Swiss franc are notable exceptions, and the euro is little changed. The dollar-bloc currencies and the Scandis lead the losses, as one would expect in the risk-off mood. Among emerging market currencies, eastern and central European currencies have been aided by the resilience of the euro. The Mexican peso, South Korean won, and South African rand are leading the JP Morgan Emerging Market Currency Index for the fourth loss in the past five sessions. Gold fell to a three-day low near $1710 and the July WTI slipped to a two-week low near $34.35 before steadying.
Asia Pacific
Beijing facing a flare-up in virus cases, closed down the biggest fruit and vegetable supply center and the surrounding neighborhood. Localized lockdowns are more likely than a national shutdown, and various measures show the Chinese economy is recovering. Some economists believe the economy is expanding here in Q2. Nevertheless, more stimulus is expected to be delivered, and its money market operations will be watched closely this week for insight into the setting of the new benchmark, the one-year Loan Prime Rate next week. The PBOC injected funds today via the medium-term lending facility at an unchanged rate of 2.95%, suggesting that officials do not appear to be in a hurry and seem willing to hold off until they believe it can be more effective. In the meantime, lending remains strong as local governments boost infrastructure spending.
China's May economic data showed improvement over April, but the pace disappointed. Industrial output rose 4.4% year-over-year in May, up from 3.9% in April. Economists were looking for something closer to 5%. Retail sales had slumped 7.5% in April and fell 2.8% (year-over-year ) in May. This was a slightly larger decline than forecast. Fixed investment fell 6.3% year-over-year in May after a 10.3% drop in April. Lastly, surveyed joblessness stood at 5.9% after a 6% reading in April.
The Bank of Japan meeting concludes tomorrow. At most, it may boost its support for the corporate bond market. Prime Minister Abe continues to press ahead with fiscal packages incorporate past spending programs as well, inflating the apparent fiscal commitment. Separately, the tertiary index fell 6.0% in April after a 3.8% decline in March. A contraction here in Q2 would be the third consecutive quarter of declining output.
Australia announced it was bringing forward its infrastructure spending. Prime Minister Morrison announced a A$1.5 bln (~1.5% of GDP) new spending, 2/3 of which on shovel-ready programs. The government has previously announced is a A$180 bln 10-year program. This new program is on top of the A$7.8 bln already committed this year....
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