From Marc to Market:
Overview: Some creeping optimism about the US debt ceiling, easing of pressure on bank shares, and a continued rise in US rates helped the dollar extend its recent recovery. Over the past two weeks or so, the US 2-year premium has risen 25-30 bp against Germany and nearly 25 bp against the UK. The 10-year US Treasury has risen from the lower end of its seven-month range (~3.30%) earlier this month to approach the upper end of the range that has prevailed since the banking stress emerged in March (~3.60%) helping lift the dollar to new highs for the year against the Japanese yen. We note that there has also been a dramatic swing in interest rate expectations for Canada and the central bank's "conditional pause" is seen ending in favor of another hike. The dollar's strength against the G10 currencies has helped lift it against the managed Chinese yuan, against which the greenback is trading a new six-month high today (CNY7.03+).
Global equities are advancing. The weakness of the yen has helped extend the rally in Japanese stocks and Hong Kong and Chinese equities stabilized after yesterday's erosion. The large bourses in region, outside of India rallied. Europe's Stoxx 600 is snapping a two-day decline and its 0.5% gain has nearly recouped those losses. US index futures are enjoying a firmer tone. Benchmark 10year bond yields are higher. European yields are 5-6 bp higher and the 10-year US Treasury yield is a couple of basis points firmer near 3.59%. Higher rates and a stronger dollar weigh on gold. It is approaching the shelf from the second half of April around $1970. A break of this area could signal a move toward $1950. June WTI rallied nearly 2.8% yesterday to about $73.25 and stalled near the 20-day moving average, which it has not closed above in nearly a month. The moving average is found by $73.15 today. US debt ceiling developments blunted the impact of the 5 mln barrel rise in US inventories, the largest in three months....
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