Monday, April 26, 2021

Capital Markets: "Big Week Begins Quietly, with the Greenback Still Under Pressure"

 From Marc to Market:

Overview: What promises to be a notable week has begun off quietly: the US, EMU, and South Korea report Q1 GDP. The eurozone also provides its first estimate of April inflation. Corporate earnings feature tech and financial firms. Equities are mostly firmer in the Asia Pacific region and Europe. Hong Kong, China, and Australia were exceptions, and their equities slipped lower. Taiwan, South Korea, and Indian indices advanced. Europe's Dow Jones Stoxx 600 snapped a seven-week advance last week but is slightly higher today. US futures are narrowly mixed. Ahead of the FOMC meeting and US data, the yield of the 10-year benchmark is firm near 1.57%. Yields in Europe and the Asia Pacific area are a little higher as well. The dollar is sporting a soft profile. The euro rose a little above $1.2115. Sterling is trying to establish a foothold above $1.39, and the dollar-bloc currencies are firm. Among emerging market currencies, eastern and central European currencies, outside the Turkish lira and Czech koruna, are trading lower, while Asian currencies are mostly a little stronger. Gold is has edged up along with the industrial metals. A strike of port workers in Chile over being denied being able to have early withdrawals from their pension funds has driven copper prices to their highest level in a decade. Oil prices are softer amid concerns about weaker Indian demand. June WTI was turned back from the $62.30 area and is trading around a dollar lower near midday in Europe. Last week's low was near $60.60.

Asia Pacific
India reported a million new covid cases over the past three days as the pandemic surges.
Its request that the US allows the export of the vaccine's raw material was rebuffed on the grounds that the US had a responsibility to look after Americans first. A State Department spokesperson was quoted: "It is, of course, not only in our interest to see Americans vaccinated, it is in the interests of the rest of the world to have Americans vaccinated." Aside from the hubris, it was a poor response, and the US quickly amended it. Between Friday and Sunday, a different tone was struck. The US will be sending India raw materials for the AstraZeneca vaccine and provide financial aid for vaccine production. The UK, Germany, and France pledged aid, as has China. The US has a stockpile of an estimated 20 mln AstraZeneca vaccines by earlier this month, but still, American regulators have not approved its use. It has loaned 4 mln vaccines to Canada and Mexico.

Japan held three byelections for the upper chamber of the Diet, and the LDP failed to win a single one. In Hokkaido and Hiroshima, scandals hit the LDP incumbents, and the seat in Nagano stays within a family dynasty. The results may be a warning to the LDP-Komeito national coalition. A general election needs to be held by late October. Prime Minister Suga's support is waning. He continues to support going forward with the Olympics even Japan's largest urban areas are in a formal state of emergency with less than 100 days before the opening ceremonies. Sunk costs and pride seem to be the main motivations for going forward.

Foreign exchange market participants drawn to seasonal patterns, but we are often unimpressed. Most recently, the claim is that the dollar typically rises against the offshore yuan by an average of 1.5% in May-June. The narrative links the yuan's weakness to dividend payments, which peak this year in the June-August period. The five-year period is not long enough for serious analysis, and "average" could be deceiving if the dispersion of the data is high. Bloomberg's data for CNH goes back to 2011. The dollar has risen in six of the past 10 May's and four of the past 10 June's. The dollar's performance in May has ranged from falling 2.2% to rising by nearly 3.1%. In June, the greenback has rallied 3.5% and has also fallen by 1%. The most extreme pattern is actually in October when the dollar has risen twice in the past decade. Still, the sample size is too small to draw a meaningful conclusion....