Global Market Overview

The US dollar remains under pressure today as low US interest rates, speculation that the Fed may be edging toward renewed asset purchases, and generally poor sentiment, continues to take a toll.

There are exceptions, notably within the dollar-bloc, where consolidation is more the rule. Softer than expected retail sales and building permits data and a neutral RBA statement that largely repeat last month’s message has slowed the Australian dollar’s advance. Sterling also remains fairly resilient in the face of the disappointing construction PMI (54.1 vs 58 expected after 58.4 in June), but the market has not given up a test the $1.60 level proper ahead of tomorrow’s more important service sector PMI. The euro is trying to establish a foothold above $1.32, with more talk of a $1.3500 near-term objective, barring a strong US jobs report on Friday.

The yen is keeping pace with the euro today and the greenback was sold to a new low for the year today (JPY85.85).

Equity markets are mixed today. Asia was mostly higher, with the MSCI Asia-Pacific Index gaining 0.5% to its best level in three months. The Nikkei was the strongest regional performer. The hit that many Japanese companies with significant foreign sales may be taking on the exchange rate appears to be, in many cases offset with increased sales, leading to several such companies revising up their profit projections.

China’s Shanghai Composite dropped 1.7%, its largest decline in a couple of weeks amid speculation of another increase in required reserves or an outright rate hike. European bourses are mostly lower, though recovering from initial losses. Consumer goods, health care and utilities are relatively strong today, while telecom and financials are drags.

Sovereign bond yields are mostly lower today. Core European 10-year yields are 3 bp lower. There is little change in the peripheral spreads today, though Spanish bonds are under performing following the news that jobless claims fell for the fourth consecutive month. The 10-year JGB yield slipped 2 bp to hover just above 1%, its lowest yield in seven years. US Treasury yields also are lower amid a media report suggesting the Federal Reserve may decide as early as next week to resume asset purchases.