Wednesday, April 21, 2021

Capital Markets: "The Dollar Finds Some Traction, while Bank of Canada Highlights the North American Session"

 From Marc to Market:

Overview: The sell-off in US equities yesterday helped drag the Asia Pacific bourses lower today, with the Nikkei leading the way with a 2% drop. Australia held up among the best among the large regional markets with a 0.5% loss. The sell-off stopped in Europe, where the Dow Jones Stoxx 600 is up about 0.3% near midday, led by the information technology and health care sectors. However, the US future indices are sporting small losses. The US 10-year yield has stabilized near 1.57% after dropping more than four basis points yesterday. The yield peaked 20 bp higher on March 30 and has fallen in back-to-back weeks for the first time since last September. European bond yields are mixed, with the core slightly higher and the periphery a little lower. The greenback is mostly firmer, though the Canadian dollar is resilient ahead of the Bank of Canada meeting outcome. The euro held the $1.20 level on a test, and although the greenback slipped to its lowest level since early March against the yen (~JPY107.88), it has popped back above JPY108.00. Emerging market currencies are mostly lower, but the Mexican peso, South African rand, and Chinese yuan resist. The JP Morgan Emerging Market Currency Index is lower for the second consecutive session. Gold is little changed near $1780, and oil is consolidating at the lower end of yesterday's wide range and outside down day. June WTI reached a one-month high near $64.40 yesterday before reversing lower to about $61.50. Today's high has been around $62.55, but it is struggling to hold above $62 in the European morning.

Asia Pacific
Japanese shares fell as Tokyo, Osaka, and Hyogo prepare for new formal emergencies as the contagion grows.
In several countries in Europe, the vaccine rollout is accelerating. The J&J vaccine is being re-introduced. The Netherlands is looking to ease some restrictions soon. Even though fatalities in Japan have been lower than in other high-income countries, cases are still rising, and the vaccine rollout is estimated at about 1%.

Australia's preliminary estimate of last month's retail sales rose by 1.4%, above the 1% median forecast in the Bloomberg survey, and bounced back from the 0.8% decline in February. The Australian economy is expected to have expanded by about 1% in Q1, driven by strong government spending. Consumption appears to have been weak in Q1 but is expected to bounce back in Q2. Separately, New Zealand's Q1 CPI rose by 0.8%, in line with forecasts, and is 1.5% higher year-over-year. The year-over-year rate will likely accelerate this quarter due to the base effect as the 0.5% drop reported in Q2 20 drops out of comparison.

South Korean exports for the first 20 days of April underscore the recovery underway. The headline rate of 45.4% exaggerates the gain, but even when adjusted for the number of working days, the 36% rise year-over-year is impressive. Autos, mobile communication devices, and petroleum product shipments rose by more than 50%. Semiconductor exports rose by more than 38%. Exports to China rose by almost 36%, and shipments to the US rose nearly 40%. Exports to the EU jumped 63% and a little more than 20% to Japan. Imports rose by 31.3%....