Euro in Play, Calmer Markets

The US dollar is mostly little changed today. The main feature is the covering of short euro positions and this has lifted the single currency to new four-day highs against the dollar.

As I have noted in recent days, its downside momentum had faded and the near-term risk was bout of position squaring.

The other notable exceptions today are the Australian and Canadian dollars, with the help of bottom pickers and firmer commodity prices, and the Swedish krona, which has been underpinned by a stronger than expected Q1 GDP and a significant upward revision to the Q4 09 GDP. Lastly, the Israeli shekel, which has been particularly active in recent days amid MSCI re-weighting related adjustments, is giving back yesterday’s late gains and net-net is little changed on the week that saw a 3% range from high to low.

Global equities like the sharp advance in the US yesterday, the higher commodity prices and the calmer news stream. The MSCI Asia-Pacific Index rose 1.5%., its third consecutive increase, though many markets, including Singapore, Indonesia, Malaysia and Thailand were on holiday. The energy sector led the way following yesterday’s more than 4% recovery in oil prices.

European shares are advanced for the third day as well and most bourses are up around 0.5%. Health care and consumer services are the leading sectors. Financials are higher, but under-performing the market, while ironically the oil and gas is the only sector down today.

Bond markets are mixed today. Rising share prices may have sapped the strength in Japanese and Australian government bonds, but European bonds are little changed. So are the peripheral spreads against Germany. That said, Italian bonds are under-performing, which seems largely related to today’s 3, 7, and 10 year supply. US Treasuries are firm with yields off 3-5 bp after yesterday sharp rise (10-year yield rose 17 bp yesterday, the most in a year.