From Marc to Market:
Overview: Strong US equity gains yesterday helped lift Asia Pacific markets today. Tokyo led the move with a nearly 4% gain in the Nikkei. Taiwan and Korea rose more than 2%, while most other bourses gained more than 1%. However, the US warning that Russia may use chemical or biological weapons after Moscow accused Ukraine of the same has seen risk retreat in Europe. After surging 4.7% yesterday, the Stoxx 600 is off around 1.1%, benchmark yields are off 2-3 bp, and the euro has been pushed lower after approaching $1.11 yesterday in its biggest gain since March 2020. US futures are around 0.5-0.8% lower, while the 10-year Treasury yield is off two basis points to around 1.93%. Several Asia Pacific benchmark yields, including China, Australia, and South Korea are at new highs for the year. The Australian and New Zealand dollars are proving resilient, while most of the other major currencies are softer. Emerging market currencies are mixed. Central European currencies are mostly lower, including the Hungarian forint despite a 50 bp increase in the one-week deposit rate (now 5.85%). The JP Morgan Emerging Market Currency Index is firmer for the third consecutive session, though still lower on the week.
Gold peaked near $2070 on Tuesday and approached $1970 today before finding support and returning to $2000. April WTI surged to $130 on Monday and hit a low near $103 yesterday. It is trading near $113 near midday in Europe. US natural gas is posting its first gain this week and is up about 1.5%. Europe's benchmark tumbled almost 30% yesterday. An attempt to recover in early dealings today faltered, leaving it little changed. Iron ore slipped for a third session as it pares Monday's nearly 6% jump. Copper is up small for the first time this week. The US Department of Agriculture boosted its assessment of the wheat supply (helped by Australia and India). May wheat is off nearly 1% today after a 6.6% fall yesterday. It could be wheat's first weekly loss since early February.
Asia Pacific
China has widened the band for the yuan-rouble exchange rate. The band was doubled to 10% from 5%. The US dollar is allowed to trade in a 2% band around the reference rate and rarely moves outside of a 1% band. There is much talk about how sanctions on the Russia's central bank will encourage a move to the yuan as a reserve asset. Some also have argued that the introduction of a digital yuan will also boost its reserve status. Maybe, but it seems unlikely. Of course, Russia may increase it yuan holdings, but it had appeared to largely have done so already. The lack of convertibility and transparency, and limited depth of the central government bond market seem to be significant hurdles.
Foreign investors sold JPY910 bln of Japanese equities last week, the most since the middle of last September. Offshore investors have been large sellers of Taiwan and South Korean shares this year. Today was only the second day that foreign investors did not sell Taiwanese shares in three weeks. They have sold as much this year already as they did all of last year (~$15.6 bln). Foreign investors bought about $3.6 bln of Indian shares last year and have sold about $14.2 bln this year through Tuesday. Even news that conservative candidate Yoon was elected as South Korea's new president was unable to deter foreign selling of local shares today. The $354 mln sale today brings this year's divesture to $5.5 bln. Last year foreign investors sold almost $23 bln of South Korean equities.There had been some ideas that with the pandemic easing, fiscal deficit would be reduced. This may still happen but a new bout of military Keynesianism may blunt it. Australia announced a A$38 bln (~$28 bln) increase in defense spending. Separately, note that Debelle, Deputy Governor of the Reserve Bank of Australia unexpectedly tendered his resignation, effective next week. Debelle was thought to be a possible successor to Governor Lowe, whose term ends in September 2023. Some suspect Lowe will be offered a second term....
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