Overview: The euro and yen remain under pressure, but the dollar-bloc currencies are finding a little better footing today as equities and bonds look for fresh direction. Oil has not sustained yesterday's surge and has come back offered, as it sheds a dollar a barrel. The prospects, although not imminent, of delisting Chinese companies weighed on local stocks, including Hong Kong. Indian shares also traded heavily, but other advances in the other large markets helped the MSCI Asia Pacific Index snap a four-day decline. The Dow Jones Stoxx 600 has been alternating in a sawtooth pattern between advances and declines for the seventh session. Yesterday saw a small gain, and today is working on a small loss. US shares have stabilized after the S&P 500 lost 0.5% yesterday and the NASDAQ tumbled 2%. The US 10-year yield is firm around 1.62%, while European yields are 1-2 bp softer. The Dollar Index is at its best level since last November and is pushing above the 200-day moving average for the first time since last May. While most emerging market currencies are lower, the large and accessible ones, like Russia, South Africa, and Mexico, are firmer. Note that South Africa's central bank rate decision is expected shortly. With soft inflation, the SARB is expected to keep the repo at 3.5%. The JP Morgan Emerging Market Currency Index has fallen by nearly 2% over the past three sessions and is steady today. Gold neared $1740 and found new sellers. Support is closer to $1725. May WTI is straddling the $60-area after recovering to close above $61 yesterday.
Asia Pacific
It will take some time, but the Biden administration is going forward with enforcing rules that require publicly listed companies to submit audits to the Public Company Accounting Oversight Board (PCAOB). Congress requires that non-compliance for three-years is subject to suspension. China has refused on what it claims are national security grounds. Companies are also required to disclose whether they are under government control. The PCAOB is seeking public comment on the types of disclosures and documents that may be required. Reports suggest that this may have weighed on Chinese shares today, like Tencent, Alibaba, and Baidu.
As Japan's fiscal year winds down (March 31), there are the inevitable stories about the impact on the yen. Such claims ought to be taken with a large grain of sand. To paraphrase, it is easy to be fooled by randomness. It is true that the dollar has fallen against the yen in March for the past five years. But, it rose for the preceding seven years. Over the past 20 years, the dollar's performance is evenly divided between gains and losses. So far this month, the dollar has risen by around 2.3% against the yen. If sustained, it would be the largest move and the largest advance since 2010 when the greenback rose by 5% in March. In the past 20-years, the dollar moved in March, the same direction as February for 13 years. That might be a better pattern to bet on, though the null hypothesis (no relationship) still cannot be rejected with high confidence.
After drifting lower since the middle of the month, the dollar has jumped back against the yen today and reached a five-day high above JPY109.15 in the European morning. Some accounts link the pressure on the yen to the first ballistic missile test by North Korea since Biden became the US president. Last week's highs stalled in the JPY109.30-JPY109.35 area. The intraday technicals are stretched, and support may be found in the JPY108.80 area. The Australian dollar approached the lows for the year set in early February near $0.7565. Bids emerged near $0.7580, but the upside has been limited to the $0.7615 area. Yesterday's high was near $0.7635. A move above it, and ideally, $0.7660, would lift the technical tone. The dollar is rising against the Chinese yuan. Today's gain is the third in a row and the fifth in the past six sessions. Around CNY6.5365, the dollar is at its best level since setting the year's high on March 9 around CNY6.5440. The recent decline leaves the yuan about 0.15% lower on the year. Foreign selling of Chinese bonds and stocks has been cited. The PBOC set the dollar's reference rate at CNY6.5282, in line with bank projections.
Europe
The growth of the eurozone's February money supply M3 unexpectedly downshifted to 12.3% from 12.5% in January. Lending to households slowed to 3.2% from 3.3%. While mortgage lending remained strong, extending credit to consumers continued to contract (-2.8% vs. -2.6%). Loans to non-financial businesses remained firm (6.3% vs. 6.2%). It appears short-term (less than a year) borrowing extended for 1-5 years.
As widely expected, the Swiss National Bank kept its policy rate at -0.75%. SNB President Jordan seemed to soften the rhetoric around currency intervention, suggesting it will do so now as necessary. Last December, the SNB committed itself to intervene "more strongly." What has changed? Some observers may point to the US Treasury putting Switzerland on its watchlist for currency manipulation. However, we suspect the fact that the Swiss franc has weakened around 2.2% against the euro and traded at its lowest level against the euro since July 2019 has eased the SNB's angst. The Swiss franc is the weakest of the majors against the dollar so far this year, falling by about 5.5%.
The euro has gotten as close to $1.18 as it can without going through. There may be a bit of a fight over it, as there is a 1.5 bln euro option there that expires today. Initial resistance is found in the $1.1825-$1.1830 area. A move above $1.1850, and especially the $1.1865 area, which houses the 200-day moving average, is needed to lift the tone. Sterling is showing a little more resiliency after it slipped to a marginal new low near $1.3670. The $1.3700-$1.3720 area may offer the first hurdle for the bottom pickers. We had seen potential toward $1.3600 on the break of $1.38.
America
The price of WTI oil for May delivery jumped more than 5% yesterday after shedding nearly 6.2% the previous session. Prices were helped by the Suez Canal blockage, but the weekly EIA data spurred half the gains that carried the contract to almost $61.35 after dipping below $57.50 earlier in the day. Domestic fuel demand is at four-month highs, and refinery demand reached 14.4 mln barrels a day, nearly what it was before last month's freeze. Recall that May crude peaked on March 8 near $67.80. Yesterday's recovery met the first retracement (38.2%) near $61.30 but is better offered today. The first level of support is seen near $59.30 and then $58.80.
The US Treasury sold $60 bln of two-year paper on Tuesday and $61 bln of five-year notes yesterday. Demand was particularly robust for the two-year, but the bid-cover for the five-year was a little better than last month's sale. Primary dealers, who will lose the exemption for Treasuries in the supplemental leverage ratio, were left with about a quarter of the notes, near the six-month average, after the indirect and direct bidders took what they wanted. Today, the Treasury will sell $62 bln seven-year notes. It was the dreadful reception to last month's sale that accelerated the sell-off in US bonds. The bid-cover ratio was the lowest on record, which was still twice the amount being sold. Indirect bidders did not show up last month, taking down the least amount since 2013. Primary dealers were stuck with almost 40% of the notes, the most since 2014.
If there was a question about what Mexico's central bank would do today, yesterday's bi-weekly CPI reading of 4.12% would seem to have answered it. It is above the 2%-4% target range. The monthly figure was at 3.76%, having finished last year at 3.15%. There is some concern that President AMLO's appointments now account for the majority and would ease policy anyway. The Bloomberg survey found 13 economists expecting the central bank to stand pat, while 10 expect a 25 bp cut. Banxico cut rates last month, the 12th cut since August 2019. The swaps market has gone the other direction and appears to be pricing in almost 100 bp in rate hikes this year. Last week Brazil and Turkey hiked rates more than expected, and Russia delivered an unexpected hike.
Canada's Supreme Court is expected to rule today on the federal carbon tax. In hearings late last year, the court seemed sympathetic to the government's arguments that climate change is an existential threat that requires a national response. Several provinces object to the federal government's move and hence the court case. Lower court decisions seemed to generally offer split decisions.
The US reports weekly initial jobless claims, which are expected to have fallen. Early estimates for the March nonfarm payrolls out at the end of next week are for an almost 600k increase. Another look at Q4 20 GDP is not a market mover. The Fed's full-court press since last week's FOMC meeting winds down today with speeches by William, Clarida, Bostic, Evans, and Daly. Don't expect new news from them. The US dollar rose about 2% against the Canadian dollar in the past five sessions but is trading quietly now, a little below CAD1.2600, where an option for $120 mln expires today. A move through CAD1.2550 would begin to suggest the potential that a high is in place. A $500 mln option is struck there that also expires today. The Canadian dollar remains the best performing major currency this month, up about 1.3% against the greenback. The US dollar approached MXN20.97 yesterday, a two-week high. Trading is more cautious today, ahead of the central bank meeting. A consolidative session is the most likely scenario. Support may be found ahead of MXN20.80. Yesterday's low was closer to MXN20.6640. The peso is essentially flat here in March, making it one of the better performing emerging market currencies.
Disclaimer
Reviewed by Marc Chandler
on
March 25, 2021
Rating:
