Calmer Capital Markets

The US dollar is broadly weaker today as is the Japanese yen as the latest bout of market anxiety eases. News that China indicated that it is not planning on selling its European bond holdings helped the euro recover yesterday’s slide.

A couple of Japanese life insurers made similar supportive comments as did South Korea’s central bank. At the same time, are reports suggesting that North Korea may be looking for a back channel way to step ease tensions and this has also encouraged a more stable tone in capital markets.

Global equity prices are sharply higher today. The MSCI Asia-Pacific Index gained nearly 2% today. Robust exports from Japan, a larger than expected current account surpluses in South Korea, stronger than expected Q1 growth figures from the Philippines and New Zealand’s first twelve month trade surplus since July 2002 all contributed to the better sentiment and performance.

European equities are advancing for their third consecutive session, with many bourses hitting one week highs. Some indication that the Prudential deal with AIA may be off is positively impacting Prudential and Aviva shares. Financials are generally holding their own, matching the market’s performance. There are exceptions. Spanish financials are posting small gains, while the resource sector and industrials carry the day. Greek shares are under some pressure, backing the overall advance, with financials down twice as much as the overall market.

The easing of anxieties is sucking the safe haven bid away from bond markets. Sharp rises in yields are being seen today. The 4 bp increase in the 10-year JGB yield is the largest in several weeks. 10-year German bund yields are 3 bp higher.

Most peripheral European spreads are stable, with Italy the main exception today. The 10-year BTP yield is up 5 bp, the most in Europe today. US Treasury yields are higher with the 10-year yield up 9 bp in European trading and the coupon curve is steepening today after flattening in recent sessions.