Consolidative Phase

The US dollar is modestly lower against the major and emerging market currencies. The key driver is really the absence of bad news and some position adjusting in the wake of stronger commodity and equity prices.

The dollar-bloc currencies are leading the way higher, while the yen is being undermined by the likelihood that Finance Minister Kan, a vocal yen bear, is tipped to become Japan’s next Prime Minister. The greater appetite for risk is also weighing on the yen.

Global equity markets are posting strong gains in the wake of yesterday’s 2.6% advance in the US S&P 500 yesterday. The MSCI Asia-Pacific Index jumped 2.8%, among its largest gains for the year. The pullback in the yen boosted the Nikkei 3.25%. Strong house sales helped the Hang Seng advance 1.6%.

Foreign buying is returning to South Korea, Taiwan and the Philippines. China bucked the trend, with the Shanghai Composite off almost 0.75% to a new 13-month low. Most sectors fell with only the telecom sector posting gains. European bourses are up 1-2%, with all sectors participating in. Oil/gas and basic materials are leading the way. Healthcare and telecom are laggards, but still advancing more than 1% today.

Sovereign debt markets are under pressure as the safe haven bid disappears. Ten-year Treasuries, bunds and gilt yields are 4-5 bp higher. Most peripheral spreads are little changed, though some pressure is evident in Portugal, where the 10-year yield is 12 bp higher. Indonesia left its key rate stead at 6.5%, as widely expected.