After being shellacked last week, the US dollar is trading with a firmer bias against all the major currencies, except the euro and New Zealand dollar. To be sure, it is not that a new development has emerged to take investors’ minds from intensifying political uncertainty in the US.
Rather it seems to be simply the absence of more negative developments that is allowing the greenback to post corrective gains. The deals with Saudi Arabia announced were very much seen as the strength of the transactional orientation of the Trump Administration. However, impact on US employment or the US trade balance may not be particularly significant.
There also seem to be a sense that the markets may have gone too far too fast last week. Asian shares got the ball rolling today. The MSCI Asia-Pacific Index gapped higher today, and the 0.7% gain was the most in two weeks. The Nikkei had gapped lower last Thursday and left a potential island top in its wake. Today’s 0.5% gain saw the index enter but not close the gap. The Hong Kong Enterprise Index (H-shares) snapped a four-day slide to close a little more than 1% higher, while mainland shares (A-shares) in Shanghai and Shenzhen fell. Korea’s Kospi rose almost 0.7% and set a record closing high.
European equities are mixed, but the Dow Jones Stoxx 600 is up marginally in late morning turnover. Real estate and telecoms are leading the advance. Utilities, information technology, and utilities are providing drags. Recall; that week’s little more than 1% decline was the worst performance since last November and ended a three-week rally. Spain and Italian share are trading lower
Some are linking Spain’s losses to the Sanchez re-capturing the Socialist Party’s leadership post from the party establishment. Spanish bonds are also underperforming in the periphery. The 10-year yield is up a little more than two basis points, while Italy’s 10-year yield is off two basis points as is a similar yield in Portugal.Core yields in Germany, the Netherlands, and France are up 1-2 bp.