From Marc to Market, February 7:
Overview: The capital markets are calmer today, but the re-pricing of interest rates continues. The German 2-year yield is rising for the tenth consecutive session. The yield is minus 23 bp. It was at minus 65 bp when the sell-off began. Japan's 10-year yield reached its highest level since 2016 and no response from the BOJ as the yield approaches the cap of the yield-curve control policy. Equities are mixed. China's market re-opened with solid gains; Hong Kong and Taiwan markets also rose. Japan, South Korea, Australia, and India moved lower, among the regional markets. Europe's Stoxx 600, which lost 3% in the past two sessions is slipping after opening higher. US futures are slightly softer. The US 10-year yield is hovering around 1.90%. Italy's 10-year yield is up nearly 13 bp, and Greece's benchmark yield has risen twice as much. Core yields are 3-5 bp firmer. The greenback is mixed. Among the majors, the Australian and Canadian dollars, alongside the yen are posting small gains. The euro, sterling and Norwegian krona are off 0.25-0.50% lower. Most emerging market currencies are weaker The Russian rouble is the chief exception. It snapped a five-week drop with a nearly 2.7% rise last week. With today's gains its year-to-date loss is pared to about 1.1%. The JP Morgan Emerging Market Currency Index is slightly softer after rising about 0.75% last week, the fourth weekly gain in the first five weeks of the year. Turning to commodities, gold tested a seven-day high around $1815. Crude is around $2 off last week's high, which culminated in a seven-week rally. After pushing to almost $93.20 last week, March WTI slipped below $91 today. Natural gas in Europe and the US is under pressure. Iron ore eased 0.7% last week, but rose in the last four sessions, and advanced 2.4% today and is at new six-month highs. Copper is paring last week's 4% gain.
Asia Pacific
China's markets re-opened today after last week's holiday. There were three notable developments. First, the Caixin January service PMI fell to 51.4 from 53.1, which was not quite as weak as expected. Recall that the Caixin manufacturing PMI had fallen to 49.1 from 50.9. The net result is that the composite fell to 50.1, just above the 50 boom/bust level. Second, China's reserves fell for the first time in four months to stand at $3.221 trillion. Even though the other major reserves currencies and bonds fell, economists surveyed by Bloomberg expected a small increase. The $28.5 bln decline can be accounted for by valuation adjustments, it appears. Third, the PBOC set the dollar's reference rate at CNY6.3580. The median projection (Bloomberg survey) was CNY6.3328. The big miss likely reflects 1) the difficulty the market had in its assessment after the long holiday and 2) the PBOC making its desires known.The rise in Japan's leading economic indicator in December to 104.3 was higher than expected but seems dated. Japan reintroduced quasi-emergency protocols late last month and have a cooling off effect on the economy. Last week, the Markit January composite PMI slipped below 50 for the first time since last September. Meanwhile, progress has been reported that will soon allow the US steel tariffs to be partly lifted, while the aluminum tariffs look likely to remain in place....
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