Markets Limp into Weekend
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An eerie calm, after yesterday's dramatic swings, has settled over the capital markets. The US dollar itself is little changed against the major and most emerging market currencies, consolidating yesterday's losses. The selling pressure that took the S&P 500 down 1.4% yesterday eased in Asia where the MSCI Asia Pacific Index was off about 0.4%. Of note the Shanghai Composite jumped nearly 6% at the open, inexplicably (some derivative expiries and exchange platform problems cited), before trending lower to finish off 0.65%, cutting the week's minor advance almost in half.
The pressures are even more diluted in Europe, where the major bourses are mixed and the Dow Jones Stoxx 600 is little changed. Similarly, in the bond markets, yield sin Asia were mostly higher, reflecting the sell-off in US Treasuries yesterday, but benchmark yields are a little lower today.
Despite the intra-week moves, the dollar is finishing the week mostly higher, by less than 1%. The main exception is the British pound, which has been the strongest currency, gaining 0.9% against the greenback, on the back of strong economic data that underscore the market's emphasis on the conditionality provided for the forward guidance. Sterling is trading at 2-month highs.
The other exception is the New Zealand dollar. Strong data has encouraged the market to price in a rate hike by March and as much as 85 bp over the next 12-months. The New Zealand dollar was initially knocked by earlier today on news of a 6.6 earthquake and strong aftershocks. The Kiwi, however, continues to show amazing resiliency, as it did following the recent tainted milk story. It was trading at 2-month highs before the earthquake and, as the North American session is about to begin, it is little changed on the day.
The euro area confirmed the preliminary July CPI, which fell 0.5% for a 1.6% year-over-year increase (unchanged from June). The core rate was also unchanged at 1.1%. Separately, the euro area recorded a 16.9 bln current account surplus in June, down from the 19.5 bln surplus in May. The financial account is more interesting. An 18 bln euro surplus was recorded. This reflected a new inflow of portfolio capital of 23 bln euros and a new outflow of 5 bln in direct investment.
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