From Marc to Market:
Overview: Chinese officials offered reassuring words and sparked a dramatic rally of equities and risk appetites more broadly. At the same time yields are surging as the markets anticipate the Fed to signal a more aggressive tightening course as it upgrades its inflation forecasts. China's CSI 300 rallied 4.3%, while the Hang Seng soared 9% and an index that tracks mainland shares listed in HK jumped 12.5%. Most equity markets in the region rose 1-2%. Europe's Stoxx 600 is around 2.2% better and US futures point to a strong opening. The US 10-year yield is a little firmer at 2.15%. European benchmark yields are mostly 2-5 bp higher. The 10-year JGB yield is a little near 0.20%, as it approaches the top of the Yield-Curve Control band (0.25%). The dollar is on its heels. The Scandis are leading the charge followed by the dollar bloc. The dollar managed to extend its advance against the yen for the seventh consecutive session yesterday and is edging higher today. Emerging market currencies are also gaining on the greenback, and the JP Morgan Emerging Market Currency Index is rising for the third consecutive day.
Rising yields seem to be tarnishing gold. It is little changed, after falling for the past three sessions. It is holding above yesterday's low near $1907. April WTI is consolidating inside yesterday's range. So far, it has held below $100 a barrel for the first time this month. US natgas is jumping 3.0% to recoup most of what was lost in the past two sessions. Europe's benchmark is up almost 1% after a nearly 2% advance yesterday. Recall that it dropped 17.3% on Monday. The supportive comments by Chinese officials arrested the six-day slide in iron ore prices with an 8.3% bounce today. Copper is rising for the first time in four sessions. Nickel trading briefly re-opened and shut again, citing a technical issue with the new daily limit. May wheat is about 3% weaker after rallying 5.3% yesterday.
Asia Pacific
Chinese officials confirmed the shift from structural reforms to supporting the economy and growth. A meeting chaired by Vice Premier Liu He promised to keep the stock market stable, support foreign listings, new policies for property developers, and signaled the end of its effort to "rectify" internet platform companies. It could be that Chinese officials understood that the recent batch of economic data was not very convincing, such as the 12.2% jump in fixed-asset investment despite a sharp drop in cement and steel output (-17.8% and -10% respectively).
Reports suggest that Saudi Arabia is considering allowing China to pay for its oil in yuan. It is important to recognize that this is not the first time such a story has circulated. China is Saudi Arabia’s single biggest customer, taking around a quarter of the Kingdom’s oil exports. At $100 a barrel, it runs around $155 mln a day. What is Saudi Arabia going to do with the equivalent amount of yuan? It is not like Saudi companies need yuan to service their RMB-debt or other obligations like they do with the dollar or euro. The Saudi riyal is pegged to the dollar. If Riyadh pushes too hard, will speculators test the commitment to the dollar peg? Will it be costly, like when it decided to grow wheat in the desert and cost it a quarter of its aquifer?Riyadh could boost the allocation of its reserves to yuan, but to what end? Given that the yuan shadows the dollar closely, the diversification argument is weak. The yield premium over 10-year Treasuries has fallen below 70 bp for the first time in three years. Saudi Arabia and US interests have diverged in several areas over the past year or two, including Yemen, Iran, and Afghanistan. It has rejected the US and others’ entreaties to boost oil output, even though OPEC+ is not meeting the 400k barrel addition a month commitment. The US used to buy 2 mln barrels of oil a day from Saudi Arabia. At the end of last year, it was about 500k bpd and surpassed by Russia, Mexico, and Canada.....
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