Greece Optimism and Month-End Dominate

Currency in Crisis

The US dollar is surrendering its recent gains against most major and emerging market currencies today amid reports that new substantial Greek savings (24 bln euros) will be sufficient to spur a larger (100-120 bln euro) aid package that could be ready in days. The yen has also suffered in this less anxious environment. Polls suggesting the Tory’s Cameron put in his best showing in last night’s debate may be helping sterling. Month-end considerations are also thought to be helping sterling.

While some the imminent funding for Greece may be at hand, it is far from clear that the euro zone debt crisis is over. The euro has risen through the $1.3325 objective. The next target is near $1.3400. Sterling has neared $1.5400, but the real cap is closer to $1.55. The dollar is trying to establish a beachhead above JPY94.00. Resistance is seen near JPY94.80. While the short-term technical indicators suggest the foreign currencies are over-extended, and the US is likely to report a robust Q1 GDP, the month-end and the uncertainties about the actual details of the Greek funds, may discourage aggressive picking of a dollar bottom today.

Global equity markets are moving higher in the wake of yesterday’s advance in the US, underpinned by higher commodity prices, mostly favorable earnings reports and, of course, an easing in the European debt woes. The MSCI Asia-Pacific Index snapped a 3-day losing streak to rise 1%, even the Shanghai Composite managed to eke out a small gain (less than 0.1%) and finished the month off 7.7%.

Korea’s Kospi rose 0.8% following a strong industrial production report and a strong earnings report from Samsung, which included a seven-fold rise in profits. Taiwan’s market bucked the trend with a 0.6% decline, but the real signal is that foreign demand for Taiwanese shares this month was more than the total in Q1, while foreign purchases of Korean shares amounted to nearly half of this year’s equity inflows. Meanwhile, the small gains the European bourses are posting near midday are masking broad divergence. Utilities, technology, including telecoms, and financials are higher, while basic materials, consumer discretionary and health care are lower. A disappointing earnings report from Barclays weighed on UK financials.

European bond markets reflect the relaxation of tensions as spreads, especially in the shorter coupons, like the 2-year sector, have narrowed. At the same time, German bunds are also firm, suggesting that the safe haven bid may be being replaced with an appreciation that fiscal retrenchment will likely impact growth trajectories. US Treasuries are flat ahead of the first look at Q1 GDP. On the month though, US 2-year yields are off 6 bp, while the 10-year yield is off 12 bp.