Friday, May 24, 2024

Capital Markets: "Calmer Markets Ahead of the Weekend"

From Marc to Market:

Overview: The dollar is paring yesterday's advance that was spurred by the rise in US rates following the preliminary PMI, which reached its best level in two years. The survey also picked up higher prices. The dollar is in narrow trading ranges but softer against nearly all the G10 currencies today. The Swiss franc and Japanese yen are laggards. Despite a large disappointing miss on UK retail sales, sterling has steadied after falling yesterday for the first time in five sessions. The Dollar Index approached but did not take out the 20-day moving average (105.10), which it has held below since May 2. Emerging market currencies are mostly firmer, but Asian currencies are underperforming central Europe, with the notable exception of the Indian rupee, which is up around 0.25% today. Lastly, the G7 communique is expected to be released tomorrow. There may be a reiteration of the stance on intervention:  markets are best to determine exchange rates and intervention should be rare and aimed at addressing disorderly or volatile markets. The focus is likely on Ukraine funding and Russia's reserves, but a formal decision is not expected until next month's leaders' meeting.

Asia Pacific and European equities have sold off in the wake of yesterday's slide in the US. Many large markets in the Asia Pacific region, including the Nikkei, Hang Seng, CSI 300, South Korea, and Australia fell by more than 1%. Europe is faring better and is off almost 0.5% today to bring this week's loss to almost 0.75%. US index futures are slightly firmer. Asia Pacific bonds played catch-up after yesterday's Treasury sell-off. European benchmark 10-year yields are 1-2 bp lower today. The US 10-year Treasury yield is a little softer near 4.47%, leaving it up about three basis points on the week. The Fed funds futures show that the first cut is now pushed out to December, though there is still about an 85% chance of a cut in November, according to the current pricing. Gold has steadied after recording its two worst sessions of the year, during which fell by around 3.8%. July WTI is extending its losing streak to the fifth consecutive session today. It settled below its 200-day moving average (~$77.55) yesterday for the first time in three months, and is trading near $76.25, its lowest level since March....