Markets Struggle to Find Footing while News Stream Improves

It had looked to many investors that world
was headed for a trade war and an escalating risk war in Syria.
  But now it seems less clear. 
US President Trump’s rhetoric on trade took a more constructive tone, and a
divided Administration leaves Syria in a bit of a limbo.  
US equities rallied
yesterday, and Asia and European bourses are advancing today, but the
conviction may not be particularly strong. 
 The MSCI Asia Pacific Index rose
0.2% for a 1.3% weekly gain.  Near midday in Europe, the Dow Jones Stoxx
600 is up 0.15% and 1.2% for the week, making it the third weekly
advance.  The German DAX and French CAC are at six-week highs.  
The US dollar is mixed, with
a slightly heavier bias.
The Australian dollar and British pound are leading the advancing
currencies.  A glimmer of hope that trade tensions may de-escalate0 is
helping lift the Australian dollar 0.5% to straddle the $0.7800 for the first
time since mid-March.  The weekly gain of 1.5% is the largest this
Sterling has been bolstered
by ideas that the Bank of England is the next major central bank to lift rates
(next month) and that Brexit may be less extreme. 
 The record from the ECB meeting and
the strong indication this week that Austria’s Nowotny’s rate hike talk was not
representative of the Board, has seen the euro fell below GBP0.8650 for the
first time since May 2017.   
Against the dollar, sterling
moved toward $1.43, its highest level since late January.
  Sterling is rising for the sixth
consecutive session and is up about 1.3% on the week.  It is also the
fifth week in six that sterling has appreciated. 
What appears to be at least
a temporary pullback from the proverbial edge has helped lift the dollar to
nearly JPY107.70, a seven-week high. 
 We have been monitoring a bottoming
chart pattern that projects toward JPY110.  Initial resistance now is seen
near JPY108.  It is the third consecutive weekly advance for the dollar
against the yen.  S&P upgraded Japanese credit outlook to positive
from stable.  
The Swedish krona continues
to trade heavier after yesterday’s somewhat softer than expected CPI.
  We suspect the market is
exaggerating, as price pressures rose but not as much as expected.  The
euro appears to be losing some momentum near SEK10.40.  
Late yesterday, reports
indicate that Trump instructed his top advisers to look into re-joining the
Trans-Pacific Partnership, which he pulled out of last year. 
 He had kept the door open to join at
some point, but there had been no follow-up, which makes this a bit
different.  Still, the remaining Pacific Rim members did sign an agreement
last month.  It is unclear if the members are ready to re-open
negotiations or how serious Trump is, but the signal was timely and is helping
to diffuse some tensions, at least for the moment.  
Trump also indicated that
the NAFTA talks are proceeding and he was optimistic about an agreement. 
 He similarly toned down the rhetoric
with China, suggesting that ultimately neither side may levy new tariffs. 
In some ways, the seeming reversal in the softer rhetoric is just as
off-putting for many investors as was, the harsher, more aggressive rhetoric.  
Almost as if it were
scripted, China had a surprise of its own today.
  It reported an unexpected trade
deficit for March.  The deficit of nearly $5 bln compares with
expectations for a $27.5 bln surplus (median forecast in the Bloomberg
survey).  Expects fell 2.7% and imports rose 14.4%.  The data is
skewed by the distortions around the Lunar New Year.  But the optics help
in the current environment.  One of our concerns is that even if China
adopted all the right measures in a timely fashion, its sheer size would be
disruptive to the world economy and would still come to loggerheads with other
large countries, including the US.  
Separately, China reported
slower money supply growth. 
 Aggregate lending was a little stronger than expected, but
shadow banking activity slowed considerably.   The dollar fell 0.4%
against the yuan this week.  It is the third decline in four weeks. 
The Monetary Authority of
Singapore tightened policy by increasing the slope of the foreign exchange
  It is the
first time in two years, and the Singapore dollar strengthened.  About 2/3
of the economists expected the move.  Indonesia’s credit rating was
upgraded by Moody’s to Baas (=BBB) matching Fitch’s judgment from last
year.  S&P still has it at BBB-, which is the lowest investment grade
Meanwhile, the Hong Kong
Monetary Authority intervened for the second day to prevent the Hong Kong
dollar from falling through the bottom of its band. 
 The HKMA has bought about HKD3.25
bln (~$145 mln) over the past two sessions.  The Hong Kong Interbank
Offered Rate (HIBOR) is edging higher.  It could issue bills next week to
also mop up the extra liquidity. 

The North American session
does not feature much data.
 Canada reports March existing home sales and the US sees the University
of Michigan consumer survey.   It includes 5-10-year inflation
forecast that in the past has been cited by the Fed.  It has been stable at
2.4% to 2.6% range with few exceptions since the middle of 2016. 
 Three Fed officials (Rosengren, Bullard, and Kaplan) speak ahead of the
weekend, and a couple large US banks report earnings.  


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