Geopolitics Overshadow the Fed, Greenback Steadies

The US dollar steadied at lower levels, while equities eased as investors
remain focused on the preparations to strike Syria and still tense rhetoric on
  Reports indicate that the US and France have moved warships
into the area and the UK has moved submarines within striking distance as well.

One thing that complicates matters is Russia’s threats to retaliate in
defense of Syria.  This obviously
risks a larger confrontation with Russia.
  That there is a civil war
in Yemen that has killed tens of thousands of civilians without much outcry in
the many of the same countries who are morally outraged at the deaths in Syria
suggests a more complicated narrative.   The UN High Commissioner for
Human Rights estimates that Saudi-led coalition air attacks caused almost
two-thirds of reported civilian deaths, while the Houthis have been accused of causing mass civilian
casualties due to their attack on Yemen’s third-largest city.

This is important to understand the
general cautiousness of investors throughout the capital markets. 
possibility of a large-scale military
confrontation, with the civil war in Yemen being
another front
, is a serious risk.   It is not as if there is a
large broad decline in equities.  It is more a drift lower as potential buyers more to the sidelines.  The
MSCI Asia Pacific Index snapped a three-day advance with nearly a 0.5% decline
today.  India, Malaysia, and
Thailand are bucking the trend and posting
modest gains.  

European equities are mixed, but
the major markets are nursing small losses.
  Consumer staples, real
estate, telecom, and materials are trading heavily, while energy and financials
are firm.  The Dow Jones Stoxx 600 is off for the second consecutive
session.  During which time it has surrendered the gains scored Tuesday,
leaving it slightly higher on the week.  

Several national reports had warned of downside risks to eurozone
aggregate industrial production, but the 0.8% decline was considerably larger
than expected.
  It is only partly
blunted by a revision
to the January data that saw the initial 1.0%
decline revised to -0.6%.  February was the third consecutive monthly
decline, the longest decline since 2009.   We suspect poor weather
weighed on the regional economy in Q1, but we suspect that the economic cycle
has peaked.  The implication is that the economy is likely to strengthen
in Q2 as the weather effect passes, but is unlikely to return to the level of
activity seen in the second half of 2017.  

The euro remains range-bound against the dollar.  It has been in
a two-cent range between $1.22 and $1.24 this month.  It approached $1.24 yesterday but has been pushed back to $1.2330
following the disappointing industrial output figures.  The euro has
entered a range that houses three options
strikes that expire today.  The strikes are $1.23, $1.2325, and $1.2345
and the notional amounts are 535 mln euros, 667 mln euros, and 803 mln euros

The Swedish krona is losing to the euro today.  Sweden reported
softer than expected inflation figures and weaker house prices.  The euro
is making new multiyear highs against the krona today, reaching almost
SEK10.38.  Note that the SEK10.41 area corresponds to a 61.8% retracement
of the euro’s decline from the 2009 high near SEK11.79.  Sweden’s Riksbank
has had negative rates for three years, and it is still not satisfied with its
inflation results.  The headline and
underlying inflation (using fixed interest rates) rose but not as much as
expected.  The headline rate rose 0.3% to 1.9% year-over-year, rather than
2.0%-2.1% that economists expected.  The underlying
rate also rose 0.3%, with the year-over-year rate rising to 2.0% from

Although the Norwegian krone and Swedish krona are typically highly
correlated, Norway has been outperforming Sweden significantly this year. 

The krona is the weakest major currency this year, losing 2.7% against the
dollar, while the krone has gained 5.3%.  News that Norway’s airline may
the target of an acquisition by the UK’s IAG may be helping to underpin the
krone today, which is stronger than the euro even if weaker than the

Higher oil prices may also be a factor. 
Oil prices hit a three-year high yesterday and are broadly steady today. 
Geopolitical tensions dominate.  A strike on Syria could disrupt
supplies.  Venezuela’s output seems nearly in free-fall, and Iran could
see renewed sanctions.  Last month, the IEA noted that as of late January
oil inventories were 53 mln barrels above
the five-year average compared with 302 mln barrels a year before.   That
said, the US reported that its inventories rose 3.3 mln barrels last week,
while the market had expected a little more than a million barrel drawdown.  

The dollar is steady against the yen, holding near JPY107.  Good
bids were found yesterday near JPY106.65, where a shelf has been carved in recent sessions.   The
upside has been stymied near
JPY107.50.  There are a couple of chunky
options near current levels that will be cut
today.  At JPY107 there are options with a notional value of $813 mln, and at JPY107.20 another $513 mln is

The US data is of secondary if not tertiary importance today. 
Weekly initial jobless claims and import/export prices are on tap.  They
are not typically market movers in the best of times
when there are no other
distractions.  Canada reports new house prices.  The greenback is trading within yesterday’s
range against the Canadian dollar to consolidate its recent losses that brought it down from CAD1.29 at the end of
March to CAD1.2545 yesterday.  The measuring objective of the topping
pattern that was traced in March is near


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