The US dollar has been largely
confined to yesterday's ranges against the major currencies. China's yuan slipped lower for the first
time in four sessions, while the Shanghai Composite fell 2.3%, the most since
the end of February.
While a few
equity markets in Asia managed to follow suit after US equity market gains
carried the S&P 500 above 2100 since last November, small gains in Tokyo
(0.2%), Australia (0.5%) were sufficient to keep the MSCI Asia-Pacific Index
flat. European
shares are mostly lower, and the Dow Jones Stoxx 600 is consolidating after
rising to three-month highs yesterday. Most sectors in Europe are lower,
with the notable exception of materials.
News that the world's
bigger miner, BHP Billiton, anticipated a 4% decline in Australian mine
output (due to weather and railroad maintenance) helped support prices. Yesterday Rio Tinto made a similar
announcement. Late today, Vale, the world's largest iron ore miner, will
report earnings later today, it is expected to announce record quarterly
output. The rise iron ore prices is helping blunt the impact of
the pullback in oil prices.
News that the
Kuwaiti labor dispute has been resolved, coupled with a larger than expected
estimated build in the US by API (3.1 mln barrels vs. expectations for two mln
barrels) spurred profit-taking, sending oil prices down around 2%. The official DOE estimate is expected to confirm the
API estimate. Support basis the
June light sweet crude futures contract is seen
in the $40.50-$41.00 band.
There have been
two economic reports of interest today. Japan's trade balance and the UK
labor report. Japan's March trade surplus was a little smaller than
expected at JPY755 bln, which is still almost a six-year high. Exports
were fractionally stronger than expected,
falling only 6.8% rather than median forecast
of 7%. In February, exports fell 4%. Imports fell 14.9%. The
median forecast was for a 16.6% decline after a14.2% decline in February.
There is a
strong seasonal pattern in Japanese trade figures. For at least the past dozen years,
Japan's January trade balance has always deteriorated from December, and the
February balance has always improved. March has been a bit more mixed,
but the balance has improved three of the past four years. In the second
quarter, the balance typically deteriorates in April and May before improving
in June.
The UK labor
market report was mostly disappointing, though broadly consistent with other
economic data that points some loss of momentum. The claimant count rose
6.7k rather than fall by 10k as had been
anticipated. Those looking for work increased by 21k to 1.7 mln, the first increase of the year.
Employment rose by 20k, the smallest increase since last June.
Earnings growth was slower. On a year-over-year basis, for the
three months through February average weekly earnings rose 1.8% compared with
2.1% in January. The unexpected decline appears to reflect a sharp drop
in bonuses in the financial sector. Excluding bonuses, average earnings
growth was unchanged at 2.2%.
The dollar rose
to almost JPY109.50 yesterday but has
been unable to extend the recovery off Monday's spike low to JPY107.70. As the North American session is
about to begin, the dollar is straddling the JPY109.00 area. The low has held on three tests. A move above
JPY109.50-JPY109.75 is needed to lift the tone. Otherwise, additional
sideways choppy trading can be expected.
Yesterday, sterling rose to test the trendline drawn off
the early February and mid-March highs that comes in near $1.4430 today. The pullback is quite modest today, and the resilience of sterling in the face of the poor, disappointing labor report is notable.
Three-month implied volatility has pulled back a little, but the premium being paid for puts over calls remains near
record levels. A few recent polls show those that want to remain in the EU are holding on to a small
lead. Many observers are recognizing how vulnerable UK sentiment may be
to geopolitical developments between now and the end of June when the
referendum will be held.
The euro
reached $1.1385 yesterday, a four-day high, but euro has hardly backed off. It reached a low today near $1.1350. It has
been confined to about a quarter cent range today. The market may be
cautious ahead of tomorrow's ECB meeting.
Recall at the
March meeting; the euro was falling as
Draghi announced several measures meant to provide additional monetary support. However, the euro reversed course
and rallied as Draghi suggested there was no more room to cut rates. Subsequently, he and other ECB members tried
walking back from the claim, but will little avail.
The ECB's Mersch's
recent comment noting that the ECB does not have a target for the euro was
politically correct, but not particular helpful is offsetting the tightening of
financial conditions represented by the euro's appreciation. There is some risk that at the press
conference tomorrow following the ECB meeting, Draghi may be more forceful in
resisting premature tightening.
The dollar-bloc
currencies are consolidating in the upper end of yesterday's ranges. The near-term technical condition
suggests the upside has not been exhausted, though appear stretched on a medium
term view.
The US reports March existing
home sales. They are expected to have bounced by almost
4% after the 7.1% slide in February. The
report typically is not a market moved.
The S&P 500 reached the longstanding technical objective of 2100
yesterday, which is the measuring target
of the double (or “W”) bottom formed in January and February. US shares are trading lower in Europe, and the S&P 500 are called about 0.25% lower. Initial support is seen near 2085.
Lower oil and heavier stocks
are lending support to the bond market, where US Treasury yields are slightly softer as are most core bond yields. Peripheral
yields in Europe have a firmer bias.
Disclaimer
Bulls' Charge Stalls, while Greenback Consolidates Losses
Reviewed by Marc Chandler
on
April 20, 2016
Rating: