Dollar Mixed But Soft Under Belly

The US dollar continues to trade with a heavier bias against the major and emerging market currencies. The yen and Swiss franc’s softer tone appears to be largely a function of the return of risk appetites, though Japan did report much weaker than expected machine orders (-9.1% vs -3% consensus). Sterling is under performing and there the weak data in the form of a drop in Halifax house price index and, while May industrial output data was better than expected there was a dramatic downward revision to the April series (-0.7% from +0,.4%). Strong Australian jobs data (45k vs consensus 15k) has propelled the Aussie sharply higher for the third consecutive session. It hit $0.8317 on Tuesday and is now near $0.8750.

As widely anticipated, the BOE stood pat and the ECB is expected to do the same. ECB’s Trichet press conference is the main event of the session.

Global equity markets are marching higher in the wake of the strong advance in North America yesterday. The MSCI Asia-Pacific Index rose 1.7%, helped by commodity producers and banks. Expectations that the RBA may hike rates again did not deter buying of Australian stocks and the 2.4% rise in the S&P/ASX 200 was among the region’s leaders, second only the Nikkei’s 2.8% advance. Electronics, banks and autos were particularly strong. Of note China’s Shanghai Index was the only major market that lost ground. One weight came from China’s largest chipmaker on the back of a large (1.5 bln) share offering. European bourses are generally higher. Basic materials and financials are among the strongest sectors in the Dow Jones Stoxx 600. However, note that Spain’s IBEX is struggling, losing about 0.25% near midday in London and the banking sector is under performing that.

Global bond markets remain mostly firmer despite the recovery in the equity markets. Benchmark 10-year yields are off 1-3 basis points in Europe and the US. Australian bonds got dumped on the strong employment data and Greek bonds are under a bit of pressure. Reports suggest that China may have been the largest buyer at Spain’s 10-year sale earlier this week, taking 9% of the 6 bln euro offering. Separately, Japanese data supports recent accounts of Chinese interest. In May China appears to have purchased JPY694.8 bln of Japanese bills and JPY40.4 bln of bonds. Elsewhere, Malaysia’s central bank hiked rates for the third time in this year. The 25 bp hike brings the overnight rate to 2.75%.