Global Market Overiview, Sterling's the Star

The US dollar is little changed against most of the major foreign currencies, but sterling continues to respond favorably to yesterday’s budget. News that for the first time since Aug 08 a BOE member (Sentence) called for a rate hike helped push sterling extend its gains, bring the week’s high near $1.4940 into view.

The yen remains largely sidelined, with the dollar confined to about a 15 tick range around JPY90.45. Slightly softer than expected euro zone flash PMI failed to inspire the market and the euro has mostly traded in the low half of yesterday’s roughly $1.2250-$1.2350 trading range.

On balance for the North American session today, the dollar looks poised to trade heavier: look for the euro to trade more like sterling than the other way around. The yuan is slightly stronger on the day, bringing its advance this week to 0.18%.

Global equities have extended yesterday’s losses, after the S&P 500 fell 1.6%, mostly late yesterday. The MSCI Asia-Pacific Index fell 1.3%. While many are attributing the decline to the unexpected weakness in US existing home sales, the scaling back of yuan revaluation expectations may also be helping to favor unwinding the some of the euphoria that saw equities in Asia and Europe extend a 7-8 day advancing streak.

European markets opened broadly lower, but have since generally pared the losses in half, perhaps awaiting from directional cues by the US market, which is currently recovering about a 1/3 of yesterday’s drop. The Dow Jones Stoxx 600 is about 0.5% lower near midday in London. The basic materials sector is seeing the biggest decline followed by financials, where news yesterday from a major French bank that it faces $1 bln of new losses from its Greek business is taking a toll on sentiment.

US Treasuries and German bunds appear to be picking up a safe haven bid. Peripheral bonds are weaker, and the 10-year Greek bond yield is up 57 bp, back above 10%. Earlier the yield on Japan’s 10-year benchmark bond slipped to 1.15%, the lowest since December 2008. UK gilts are little changed. The Dec short sterling futures contract is paring yesterday’s gains that had carried it to new contract highs, but is still implying a 3-month rate at the end of the year 7 bp less than it did at the end of last week. As widely anticipated, Czech central bank left rates steady at 0.75%. Norway is expected to do the same, but may revise down growth and signal a more gradual pace of tightening.