Today's Capital Market Drivers

The US dollar is mostly firmer today, but the drivers are elsewhere. Greek talks with the EU/ECB/IMF are to beginning, but they look to continue for a couple of weeks. It seems increasingly likely that Greece may have to initiate the backstop facility while these discussions are underway. Sterling has fully recovered the erosion seen in North America yesterday, helped by the better than expected jobs report A most hawkish read of the Reserve Bank of Australia and the Bank of Canada amid a recovery in commodity prices have bolstered the Aussie and Loonie. The dollar is holding its own against the yen, but this is more a function of cross-rate developments. Emerging market currencies were firm earlier and are softening in the face of the new decline in the euro.

Favorable earnings news helped lift Asian equity prices today. The MSCI Asia-Pacific Index rose 1.1%, with technology and commodity sectors doing particularly well. China’s Shanghai Composite rose 1.8%, its best gain this month. Of note Indonesia’s Jakarta Composite rose 0.75% to new record highs. European bourses are not faring as well. The gains in the technology sector and consumer services are not sufficient to offset the pull most of the other sectors, with financials and utilities the biggest drags. The early performance of the US market may be the key to whether they will recovery today.

Most bond markets are fairly quiet, allowing the focus to remain in Europe. Greek 10-year yields again briefly pushed through the 8% level and have since eased a bit. New highs in the 5-year credit-default swaps were reported. The signs of contagion to Portugal are becoming moreclear as Portuguese yields rise above Ireland’s. Portugal did have a successful bill auction and the shorter end of the curve, into the 2-year, is largely steady today. Other peripheral bond markets are also under pressure.