The Reserve Bank of Australia hinted that it was getting closer to a rate hike. The Australian dollar was bid to its best level since the middle of last year. Australian stocks advanced in a mixed regional session while China and Hong Kong markets were closed for the local holiday.
BOJ Kuroda called the yen's recent moves "rapid." The yen was sidelined today as the dollar weakened against other major currencies, led by the Antipodean. In addition to the yen, the Swiss franc and euro were also among the laggards.
European equites edged higher and the Stoxx 600 was at its best level since mid-February. US futures turned lower in the European morning. The US 10-year yield was around five basis points higher at 2.45%. European yields were mostly 5-10 bp firmer.
Gold was quiet in a $1925-$1934 range. May WTI extended yesterday's 4% advance to add more than 1% to probe the $105 a barrel level. It finished last week near $99.25. US natgas was up almost 2.7% and was approaching the $6 level. It had only fallen in one week since the Russian invasion of Ukraine. Europe's benchmark was almost 3% lower (-0.3% yesterday) after jumping almost 12% last week.
Iron ore was higher for a third sessions, while copper was up almost 1% after yesterday's 2% advance to trade at a new four-week highs. May wheat was up 3.2% on top of yesterday's 2.6% gain. It fell near 10.7% last week.
Asia Pacific
The Reserve Bank of Australia dropped its reference to being patient and this was all the encouragement the market needed. The Australian dollar rallied, and local rates jumped. The cash rate futures now fully imply a hike in June. Yesterday, there was only an 80% chance discounted. The upcoming inflation and next month's wages are still important pieces of the policy puzzle.
A move in June would come after the election which must be held by late May. Separately, the preliminary services and composite PMI were revised lower and now show a decline from February. The services PMI was revised to 55.1 from 57.1 and 57.4 in February. The final composite PMI was at 55.6, down from 57.9 flash reading and 56.6 in February.
While the pandemic and earthquake hobbled the Japanese economy in Q1, the groundwork for a recovery was becoming clearer. Labor cash earnings were twice as strong as the median forecast in Bloomberg's survey projected, rising 1.2% in February and the January series was revised higher (1.1% from 0;9%). Rising inflation meant that in real terms there were unchanged. The median forecast looked for a 0.7% drop. The preliminary March services PMI was revised higher from 48.7 to 49.4, while the final composite reading edged above the 50 boom/bust level (to 50.3 from 49.3 and 45.8 in February.
Last week, Japan's Minister of Finance suggested that impact of the yen's weakness should be reviewed. We suggested that it was a small first step on the intervention escalation ladder. Earlier today, BOJ Governor Kuroda took another small step and characterized the recent moves as "rapid." This reinforced our sense that the JPY125 area marked the upper end of a new range for the dollar. Our first stab at the lower end of the range was around JPY121.00 but it might extend into the JPY119.50-JPY120 area.
The dollar was trading quietly against the yen today, mostly within yesterday’s JPY122.25-JPY123.00 range. We were more inclined to see the greenback trading lower in North America and re-test the lows.
The consolidative phase in Australian dollar ended with the surge to almost $0.7640 today. It surpassed the $0.7610 area, which represented the (61.8%) retracement of the decline since the February 2021 high slightly above $0.8000 to the late January low near $0.6980. The next important chart area was in the $0.7675-$0.7700 range.
With China's mainland market still closed, the offshore yuan continued to trade quietly. It was largely confined to yesterday's range and virtually unchanged since the weekend.
Europe
The final eurozone PMI readings were mixed. There was something for everyone. The German readings were revised higher. The March service PMI stood at 56.1, up from the 55.0 flash reading, and an improvement for the 55.8 February report. The composite was at 55.1 rather than 54.6, but still a little softer than the 55.6 in the prior month.
French readings were little changed. Services were unchanged at 57.4, but the composite was revised to 56.3 from 56.2 after 55.5 in February. Italy's services PMI was stronger than expected at 52.1 compared with 52.8 in February. The composite was spot on with expectations at 52.1 (down from 53.6).
Spain disappointed. The service PMI fell to 53.4 from 56.6 and the composite stood at 53.1 vs. 56.5 previously. The net result was that the aggregate services PMI stood at 55.6, up from the 54.8 flash reading and a touch better than the 55.5 February report. The composite was revised to 54.9 from 54.5 but still a little softer than February's 55.5.
The UK PMI was revised higher from the preliminary estimates. The services PMI stood at a lofty 62.6. The flash report showed improvement to 61.0 from 60.5 in February. The composite stood at 60.9 compared the 59.7 preliminary estimate and 59.9 in February. It was the strongest since last June. The details were a little disconcerting. While output prices rose to a new record high, business optimism at a 17-month low. Next week, the UK reports inflation and employment figures.
The euro posted a key reversal last Thursday, turning back from a four-week high near $1.1185 and settled below the previous day's low. Follow-through selling saw it test support near $1.0960 yesterday. It was consolidating today in a narrow quarter-cent range below $1.0990. It would take a move above $1.1015 to stabilize the tone but regaining the $1.1050 area was important to lift the outlook.
Sterling appeared to be going nowhere quickly. It continued to trade in the range set last Wednesday (~$1.3085-$1.3185). It was trading with a firmer bias today, but was holding below $1.3150, near where it peaked before the weekend.
Elsewhere, we note that the euro was consolidating at four-week lows against the Swiss franc. It needed to regain a foothold above CHF1.02 to stabilize the tone. A double top may have been carved that projected toward parity. The rise in sight deposits reported yesterday was consistent with SNB intervention.
Lastly, with Orban securing a fourth term in Hungary, the confrontation with the EU will likely heat-up. Orban opposed EU sanctions on Russia but has not vetoed any of them. Still, there were outstanding issues. The euro carved a base last week against the forint and appeared set to appreciate against it. We suspect there was scope of a 3%-5% advance.
America
The US took another step in weaponizing the dollar to squeeze Moscow. Russian government accounts will no longer make dollar payments through US financial institutions. The chokehold gets tighter. Moscow was forced to draw down their central bank dollar holdings, spending its income revenue, which was estimated to be around $1 bln a day, or default on its obligations.
The US reports the February trade balance. A small improvement from February should not hide the significant deterioration that was taking place. The combined Jan-Feb deficit last year was about $132.7 bln. If the median (Bloomberg survey) projection of a $88.5 bln shortfall was accurate, the Jan-Feb shortfall this year would be a little more than $178 bln, a 34% deterioration.
Canada reports its February goods trade balance. If the median (Bloomberg survey) is fairly accurate, Canada's Jan-Feb surplus will be a little more than 50% greater than the year ago period.
The final service and composite PMI and the ISM services are also on tap. Recall that the flash reports showed unexpected gains. The services PMI improved to 58.9 from 56.5 and the composite rose to 58.5 from 55.9. The ISM services were expected to have improved to 58.5 from 56.5. Fed Governor Brainard will speak about inflation today (~10 am ET). San Francisco Fed President Daly (who seems to favor a 50 bp hike) and NY Fed President Williams also speak later today. Recall that the NY Fed President has a permanent vote on the FOMC, and Williams seemed inclined to hike by 50 bp too.
The US dollar was trading at a four-day low against the Canadian dollar near CAD1.2460. Last week's low, which was also the low since last November, was around CAD1.2430. A break targeted the CAD1.2380-CAD1.2400 area. That said, we were looking for a bounce in early North American activity that could see the CAD1.2480-CAD1.2500 area.
Mexico reinstated gasoline subsidies at states bordering the US after closing them because US drivers were taking advantage of the cheap gas to fill-up. The peso needed consolidation. Consider that coming into today, the dollar had fallen for six consecutive sessions against the peso. Last Monday's greenback gain halted an 11-day slide, the longest in half a century. The dollar fell in every session but last Monday's, beginning on Mar. 11. The momentum indicators were stretched, and the greenback's downside momentum was slowing.