From Marc to Market:
The Yen is Sold Despite Better than Expected Q1 GDP and the Greenback Pushes Above CNY7.0
Overview: Better than expected US core retail sales and manufacturing output sent US rates higher and helped lift the greenback during the North American session after a heavier tone in Asia and Europe. The US two-year note rose to almost 4.12% and the 10-year note yield increased to 3.57%. Both are the best levels in two weeks. The dollar traded firmer against most of the major currencies and the Dollar Index approached the one-month high set on Monday and punched through it to probe the 103.00 area today. It is the best level since April 3. Still, as the debt ceiling negotiations continue, it is becoming clear to many that one result will be tighter fiscal policy, a greater drag on the economy. Besides extended its gain against the G10 currencies, the greenback has surpassed CNY7.0 for the first time since early last December.
A weak yen helped Japanese equities extend their rally, but equities were mixed in the Asia Pacific regions. The Hang Seng slumped by more than 2% as did Chinese shares listed in Hong Kong. Europe's Stoxx 600 is trading with a heavier bias. US equity index futures are a little firmer. Despite stronger than expected Q1 GDP, the 10-year JGB yield is off nearly three basis points to 0.36%. European benchmark yields are 4-5 bp lower. The 10-year US Treasury yield is about two basis points softer slightly below 3.52%. The firmer dollar has not prevented June WTI from recovering after testing the $70 a barrel level today. Monday's lows were near $69.40 and yesterday it reached almost $71.80. Gold fell by a little more than $27 an ounce yesterday to close below $2000 for the first time since May 1. It is off around $5 today to test the $1984 area. The yellow metal forged a shelf in the $1970-$1977 area in late April and early May....
....MUCH MORE
We noted on Monday the yuan is being allowed to weaken:
...They're pushing on a string as central bank aficionados are wont to say. There is plenty of liquidity in the system but no one is taking it up.
As the central bank adjusts reserves to further ease, the yuan has been slowly weakening since February. (up is weaker, more yuan required to buy a dollar):
And
as we saw last year, the Chinese authorities are not shy about allowing
the yuan to trade above 7 to the dollar even though that makes dollar
denominated debt more expensive to service. It also makes their exports
cheaper as compared with Germany and other competing exporters.
6.959 last.
