- Major currencies trade flat except for the NZ dollar which continues trading on the back foot
- European stocks mixed while the SP500 futures are set to open broadly higher
- Bonds muted while the US 10Y yield keeps flirting with 3%
Major currencies are trading on the sideways except the NZ dollar keeping its overnight loss, it’s down 0.4% at the time of writing. The shared currency has retraced some of its earlier losses and come back above a 1.22 handle despite a miss in the German IFO reading. On the other side, the Swedish krona is trying to get back some ground being 0.2% against the greenback in anticipation of the Riksbank meeting later this week (Thursday). Let us point that the SEK has been battered of late, and as a result the EURSEK has struck its highest point since December 2009. Since then, some have begun talking that FX traders have gone too far downplaying the likelihood for higher rates (we still perceive any rallies as a selling opportunity, and this may be especially true when the euro has lost some of its appeal on the back of a revival seen in the US dollar (possibly a short-lived one though). Looking beyond the G10 space let’s take a glimpse at the Turkish lira being traded 0.5% higher as investors impatiently await the tomorrow’s CBT decision (there is guesswork the bank could lift rates in a bid to shore up the currency and thereby ease inflationary pressures). The decision will be announced at the midday on Wednesday.
Getting back to the Asian session it’s worth mentioning Australian inflation which turned out quite dormant in the first quarter. Do notice that core inflation, the RBA focuses on, is just under or at the lower bound of the target (it depends on which indicator we watch) suggesting there is still a lot to do in order to get inflation persistently anchored within the goal.
This week has been supportive of riskier assets as of yet, and after encouraging developments from North Korea Chinese equities were boosted by fresh hopes that the PBoC will be willing to cut the reserve requirement ration even further despite a slash delivered last week. Bear in mind that these moves are aimed at helping the smallest firms which could struggle with tighter financial conditions being implemented by the authorities in order to cut back on inflated debt in some parts of the economy. It looks like European investors needed some time to digest mentioned upbeat stories as after the cautious opening they decided to switch on a risk-on mode. A while after the midday European stock markets keep trading close to their earlier levels. Meanwhile, the SP500 futures are pointing to a green beginning (+0.6%) following upbeat earnings from Coca-Cola, United Technologies, Biogen or Caterpillar we’ve been offered thus far in pre-market trading.
Bond traders have not had too much to digest so far, the US 10Y yield keeps moving a shy of 3%, the German 10Y bund is trading at 0.63% (little changed on the day) whereas the UK 10Y yield is losing 1bps and it’s trading at 1.53%. While everybody is talking about higher yields across the pond being a major driver for the stronger greenback, it looks that looking at hedge-adjusted yields may add up even more. From this standpoint it turns out that the US 10Y yield has not become more attractive for Japanese investors compared to the same yield in Germany over the recent days, the spread has even widened.
The biggest cryptocurrencies in terms of market capitalization have experienced a significant jump in price throughout the last 24 hours. Bitcoin moved above the $9250 mark while Ethereum is eyeing the $700 handle. An improved outlook on the digital currencies may result from the research conducted by one of the major information firms showing an increased interest in this kind of assets.
As NY traders are slowly coming online it’s worth taking a look into the macroeconomic calendar.