Dollar Pushes Back

After being shellacked last week, the US dollar is trading with a firmer
bias against all the major currencies, but the euro and New Zealand dollar.  
 
To be sure, it is not that a new development has emerged to take investors’
minds from intensifying political uncertainty in the US.  

Rather it seems to be simply the absence of more negative developments
that is allowing the greenback to post corrective gains.
  The deals
with Saudi Arabia announced were very much seen
as the strength of the transactional orientation of the Trump Administration. However, impact on US employment or the US
trade balance may not be particularly significant.  

There also seem to be a sense that the markets may have gone too far too
fast last week.  
  Asian shares got the ball rolling today. 
The MSCI Asia-Pacific Index gapped higher today,
and the 0.7% gain was the most in two weeks.  The Nikkei had gapped lower
last Thursday and left a potential island
top in its wake.  Today’s 0.5% gain saw the index enter but not close the
gap.  The Hong Kong Enterprise Index (H-shares) snapped a four-day slide
to close a little more than 1% higher, while mainland shares (A-shares) in
Shanghai and Shenzhen fell.  Korea’s Kospi rose almost 0.7% and set a
record closing high. 

European equities are mixed, but
the Dow Jones Stoxx 600 is up marginally in late morning turnover. 

Real estate and telecoms are leading the advance.  Utilities, information technology, and utilities are providing drags.   Recall; that week’s little
more than 1% decline was the worst performance since last November and ended a three-week
rally.    Spain and Italian share are trading lower  

Some are linking Spain’s losses to the Sanchez re-capturing the Socialist
Party’s leadership post from the party establishment.
  Spanish bonds
are also underperforming in the periphery.  The 10-year yield is up a
little more than two basis points, while Italy’s 10-year yield is off two basis
points as is a similar yield in Portugal.  Core yields in Germany, the
Netherlands, and France are up 1-2 bp. 

There are three notable developments.  First, Japan’s April
trade surplus was a little smaller than expected at JPY481.7 bln.  
Exports rose 7.5% compared with the median forecast in the Bloomberg survey for
an 8% year-over-year gain after a 12% in March.  Imports held in better,
rising 15.1% after a 15.8% gain in March.  Exports of auto parts,
electronic parts, and motors were strong, while the imports featured crude and
partly refined oil and communication
equipment.    Exports to the US rose 2.6% year-over-year, while
exports to the EU were up 2.2%.  However, exports to China, its biggest
trading partner rose 14.8%.  

The dollar rose in early Asia and rose to JPY111.60, just shy of the high
from the second half of last week in the
JPY111.75 area.
  On the downside, support is seen around JPY110.80.   The US 10-year yield is a
single basis point firmer just below 2.25%.

Second S&P cut the credit scores of nearly two dozen financial
institutions in Australia due to risks emanating from the property market.
 
The rating agency exempted the country’s four largest banks ostensibly on ideas
that they would be backstopped by government
support
.  The Australian dollar fell about a quarter of a cent
before finding a bid near $0.7435.  It is little changed on the day as
North American dealers return to their posts.  The Aussie was advanced in
seven of the last eight sessions coming into today.  The five-day moving
average is set to cross above the 20-day average for the first time since early
April today.  It is bumping along a downtrend line that is near $0.7475
today.  

Third, sterling has lost some
luster.  It is the weakest of the majors, off about 0.4% against the
dollar. 
There are two drags
today, leaving aside the proximity of the $1.3055 retracement objective of the
losses since last year’s referendum.  A couple of polls suggest the
national election may have tightened in recent days.  Some bookmakers in
London have upgraded the odds of what Britain calls a hung parliament, which
means a coalition government in other countries.  

The other drag was the threat issued by the UK’s Brexit Secretary Davis
that warned the UK would abandon negotiations if the EU did not drop its demand
for a “divorce payment.”  
EU officials have put this
payment between 40-60 bln euros, while the Financial Times claims it could be
100 bln.   Sterling is consolidating within the broad ranges
established at the end of last week. Demand was seen in the London morning
ahead of $1.2960

The euro had been trading within its pre-weekend range, as the market
seems content to consolidate as it awaits from developments.
  However, it  caught a good bid $1.1160 and surged back to take out last week’s high in response to reports that Merkel said the euro was too weak.  This is not a new German argument but the timing of it may be more important, and the contrast with the US is notable.  The euro reached almost $1.1230 in response. 

It is a light economic calendar this week and today begins off in
form. 
The Chicago Fed’s national economic indicator will be reported.  It is hardly a market
mover.  Three regional Fed presidents speak (Harker, Kashkari, and Evans).  Kashkari dissented
against the March rate hike, and would likely dissent against a June move as
well.  Governor Brainard speaks late in the session.  She had
emphasized international sources of caution previously, but these headwinds
seem to have lessened.

Disclaimer

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