Tuesday, April 20, 2021

Capital Markets: "Market has Second Thoughts about Timing of First Fed Hike"

 From Marc to Market:

Overview: Even as US yields edge higher, the dollar struggles. With the 10-year Treasury yields now at 1.62%, nine basis points above last week's lows, the greenback has turned mixed against the major currencies. After briefly slipping below JPY108, the dollar has recovered to around JPY108.55. The euro firmed to $1.2080, and sterling pushed through $1.40 before seeing the gains pared. Sterling is now lower on the day as are the Scandis. Emerging market currencies are more mixed, and the JP Morgan Emerging Market Currency Index is snapping a five-day advance. The dollar's weakness, where the Dollar Index is falling for the seventh consecutive session, maybe helping to unpin commodity prices. Although gold is extended yesterday's reversals, base metals and oil are higher, and the CRB Index is at its highest level in over a month. US equity futures have stabilized after yesterday's fall. In the Asia Pacific region, equities were mixed, with Japan, China, and Australia moving lower. Europe's Dow Jones Stoxx 600 is lower for a second session, as utilities, financials, and consumer staples act as the biggest drags. Only energy and materials are higher.

Asia Pacific
Japan's Tertiary Industry Index rose 0.3% in February, missing forecasts, though the January series was revised to show a 1.0% decline instead of a 0.7% fall.
The Bank of Japan meets next week. The virus is surging, and Japan lags behind most other high-income countries, rolling out the vaccine (less than 2% have been vaccinated. Tokyo, Okinawa, and Kyoto have introduced social restrictions but have not declared a formal state of emergency. Osaka is seeking a formal declaration, and Tokyo may as well. The Japanese economy appears to have contracted by around 4% in Q1 but was expected to rebound in Q2, but extended restrictions push out the recovery.

The minutes from the Reserve Bank of Australia's recent meeting warned of a coming pause in the improvement of the labor market. However, that was before the 70k+ surge in employment reported last week, which saw the unemployment rate fall to 5.6%. The RBA appears set to allow its emerging lending facilities and bond-buying programs to finish (June and October, respectively), barring marked deterioration of conditions. About half of the lending facility has been drawn down, leaving another A$95 bln available through June. The RBA is buying its second tranche of A$100 bln of bonds. Whether to extend the yield-curve control to the November 2024 bond from the April 2024 issue does not have to be made for some time. The central bank sees its policies as having kept the Australian dollar weaker than it otherwise would have been. It monitors the rising property prices but appears likely to rely on macro-prudential policies rather than interest rates to address excesses.

The US efforts to strengthen regional check China's projection of power hit a speed bump.
New Zealand's Foreign Minister Mahuta expressed concerns about the mission-creep of Five Eyes (US, Australia, New Zealand, Canada, and the UK). On a separate front, given China's continued harassment of Taiwan, the Philippines' strategic importance may be more significant, but President Durate drew his line. Only if China drills for oil in disputed waters will he favor a confrontation....