From Marc Chandler at Bannockburn Global Forex:
Overview: The capital markets are calmer today. The market is digesting the FOMC minutes, where officials tipped an aggressive path to shrink the balance sheet and confirmed an "expeditious" campaign to lift the Fed funds rate to neutrality. Benchmark 10-year yields are softer, with the US off a couple basis points to 2.58%. European yields are 1-3 bp lower. After the equity losses in the US yesterday, including a 2.2% drop in the NASDAQ, Asia Pacific equities struggled. The largest markets, Japan, China, Hong Kong, South Korea, and Taiwan all fell by over 1%, driving the MSCI Asia Pacific Index lower for the third consecutive session. With the help of health care and utilities, the Stoxx 600 is posting modest gains after dropping 1.5% yesterday. US futures are firmer. In the foreign exchange market, the dollar-bloc currencies heavy. The Swedish krona, sterling, and the yenare posting small g ains. Among emerging markets, the Hungarian forint and South African rand are laggards, while the Polish zloty is still bid after the central bank surprised yesterday with a 100 bp hike.
Gold remains quiet, near the middle of this week's $1915-$1945 range. May WTI is hovering near yesterday's low (~$95.75). The low from last month was closer to $92. US natgas is quiet above $6, while Europe's benchmark has unwound yesterday's 1.2% gain plus more. It is near a two-week low. Iron ore fell 3% to record its third consecutive decline. Copper prices are off around 1% for the second session. Wheat continues to pare the 6% gain scored Monday-Tuesday.
Asia Pacific
The Japanese yen's decline has reached a preliminary pain threshold. We have tracked the changing tone of official comments. They are not earthshattering, but what we describe as low rungs on an escalation ladder. Industry has also begun expressing concerns. First, it was the chair of Japan Iron and Steel Federation, who said the risks from a weaker yen are "unprecedented." Earlier today, the chair of the Japan Chamber of Commerce and Industry said a weaker yen was having a bigger negative impact on the economy than positive. This does not mean that the yen will strengthen. The point is that the easy part of the move is behind it. We see the dollar-yen exchange rate as usually a range-bound pair, and when it is trending it is often moving from one range to another. We suspect a new range is being forged. The JPY125.00-JPY125.50 may mark the upper end. We had thought the lower end of the range is in the JPY119.50-JPY120.00 area, but at least initially the JPY121.00 may suffice.China reported that its reserves fell $25.8 bln in March. It is the third consecutive decline after rising every month in Q4 21. The decline brings the dollar-value of China's reserves to their lowest level since last March. The combination of a stronger dollar and weaker bonds drove what appears to have been a valuation adjustment. We do not think there is much to read into it in terms of policy or intervention. More worrisome is the extended lockdown in Shanghai and doubts that it will prevent the spread of Covid to other area. Some estimates suggest that China's demand for oil has fallen by around 450k barrels a day. Reports also suggest that tankers from Russia, Iran, and Venezuela are congesting the ports, and creating a logistic nightmare....
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