The US dollar is narrowly mixed after a brief attempt in Asia to extend
its pre-weekend gains fizzled, and a
consolidative tone has emerged. The news stream is light and largely limited to the current Japanese account and the Sentix survey
from Europe.
Geopolitical anxiety is still running high,
and the South Korean won and Kospi bore the brunt. The Korean won is
the weakest of the Asian currencies, losing 0.7%, only “bested” by
the South African rand, which is off nearly 1%. The won has
fallen for five consecutive sessions and nine of the past 10 sessions. The Kospi is off nearly
0.9%, while small-cap stocks were hit even harder. It is the fifth
consecutive decline as well.
The yen, which is often seen as a safe haven, is the weakest of the major
currencies today, losing about 0.2% to reach its lowest level this month.
The US dollar approached the 20-day moving average(~JPY111.70). The
greenback had not closed above this
moving average since the day before the Fed hiked rates in the middle of last
month. The recovery in US yields before the weekend seems like the
most important driver. It is the third consecutive session of
dollar gains against the yen. The Nikkei advanced 0.7%, the most since
March 28, led by financials, consumer discretionary, and information technology
sectors.
The current account surplus was largest than expected at JPY2.81
trillion. The trade surplus of JPY1.08 trillion was larger than
expected by JPY100 bln, but the other 2/3 of the surprise comes from the primary
income balance (interest and dividends from past foreign
investment). Although Japan does not export much more than the US
as a percentage of GDP, its external sector provides what impetus there is for
growth with a shrinking population. The better performing external sector
should underpin capex and industrial
output, both of which will be reported later this week.
The euro was sold through $1.06
before the weekend, and outside of early Asian-Pacific activity, has been
unable to resurface that level. It is now pushing through a trend
line connecting the January and early March lows which held after the US jobs
data. It is seen near $1.0585 today. The $1.0555 area
corresponds to the 61.8% of the Q1 rally. The $1.05 area held in late
February and early March. European Sentix survey was stronger
than expected at 23.9 in April, which represents a new cyclical high (since
2007). The impact was marginal as surveys and sentiment have been running
ahead of the real sector.
News that the latest polls show left Melenchon surpassed Fillon in the
latest polls to move into third place has spooked investors. This has seen the French premium jump over
Germany. The French 2-year yield is up nearly four basis points.
Italy’s 2-year yield is up nearly as much after disappointing industrial output
figures. The French 10-year yield is up two basis points, and Italy is up
three. German yields are off
a single basis point across the curve.
Yellen’s speech at the University of Michigan which will be followed by a
question and answer session (live and on Twitter) is the US highlight.
However, it is not until after the market’s close. US yields are a touch
softer. The trend line off the year’s high and the mid-March high is found near 101.55, which may be tested today or tomorrow.