From Marc Chandler at Bannockburn Global Forex:
Overview: The poor Chinese March PMI and talk that the US could tap its strategic oil reserves by as much as one million barrels a day for six months have rippled through the capital markets. After the S&P 500 snapped a four-day advance yesterday, equities in the Asia Pacific region may have been on the defensive today, but sub-50 boom/bust reading in China took a toll, which only South Korea and India among the large bourses were able to escape. European markets are softer, while US futures are recovering from yesterday's losses. US and European 10-year benchmark yields are mostly 3-6 bp lower. The dollar is trading higher against most of the major currencies. The Scandis and dollar-bloc currencies are bearing the brunt of the losses, with the Norwegian krone off more than 1.6%. Emerging market currencies are mixed. Central European currencies are underperforming.
Gold is off around $7 and is in the $1920-$1934 range. Oil, as one would expect, fell (~6%) on the possibility of a substantial draw down of US reserves, but May WTI is holding above $100 a barrel, even though earlier this week it ahead slipped briefly below $98.50. US natgas is off about 1.5% after gaining 5% yesterday. Europe's natgas benchmark is up about 3.7% after an almost 9% gain yesterday. It is up more than 20% this week. Iron ore is a little higher today after rising almost 3.5% yesterday. Copper is threatening to snap a three-day advance. May wheat is little changed ahead of the USDA planting update report.
Asia Pacific
China's March manufacturing PMI fell to 49.5 from 50.2. The non-manufacturing PMI fell to 48.4 from 51.6. Both were weaker than expected. The composite now stands at 48.8, down from 51.2 in February. As disappointing as the report was, the situation is worse because the survey closed a few days before Shanghai was locked down. It did catch the shuttering of Shenzhen. The weakness of the report fans expectations for easier monetary policy and other initiatives to support the economy. A separate report indicated that the issuance of special bonds by the provinces set a record pace in Q1 (CNY1.25 trillion). The money is thought to help fund infrastructure spending in Q2.
Japan's February industrial output rose a meager 0.1%. The median forecast in Bloomberg's survey looked for a 0.5% gain. This pared the year-over-year gain to 0.2%, not 0.8% that had been expected. That March Tankan will be released the first thing tomorrow and is expected to also reflect the deterioration in sentiment. The BOJ's operations and the decline in US Treasuries helped push the 10-year JGB yield slightly below 0.21% after briefly poking above 0.25% earlier this week. The central bank indicated that next quarter it will boost the amount of 1-10-year bonds it buys. It shaved the amount of 10-25-year bonds will buy at a time but will increase the number of operations over the quarter. The BOJ's balance sheet will grow. The BOE has already begun shrinking its balance sheet. The Bank of Canada indicate it will do the same in a couple of weeks and the Fed is expected to announce its intention at the net FOMC meeting in May.The dollar found support ahead of JPY121.10, which is the (38.2%) retracement of the rally since March 4 that began from around JPY114.65 and peaked this week slightly above JPY125.00. The momentum indicators are rolling over, but we expect a period of consolidation rather than a trend-reversal. Australia reported a surge in February building approval (43.5% vs. median forecasts in Bloomberg survey for 5%, but a volatile series to be sure) and it may build a new port in Darwin after current facilities had been leased to China. The Aussie was turned back yesterday after approaching $0.7540, which has repeatedly capped it in recent sessions. The week's low was a little below $0.7460. A break would initially target $0.7400 and then, possibly, $0.7350. The greenback fell to a three-week low against the Chinese yuan a touch below CNY6.34. The PBOC set the dollar's reference rate a softer than expected (CNY6.3482 vs. CNY6.3494, according to the Bloomberg survey). Note that the mainland markets will be closed next Monday and Tuesday for a national holiday.
EuropeFollowing the surprisingly strong Spanish and German March CPI reports, the French reading was comparatively tame...
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