Calmer Markets, but Fragile

The US dollar is narrowly mixed in calmer foreign exchange markets today. Sterling and the Japanese yen are trading around levels seen in late NY yesterday, while the euro is slipping back toward the session lows near midday in London.

The Swiss franc and Australian dollars are modestly firmer. The news stream is light and the market almost appears to be waiting for new developments. Perhaps it is the gain in equity markets that is encouraging the more stable tone in the foreign exchange market. Most emerging market currencies are slightly firmer today as well.

Global equity markets are higher. The MSCI Asia-Pacific Index advanced 0.5% off of 10-month lows recorded yesterday. Advancers led decliners by 2:1. Rising commodity prices helped lift the related sectors and helped lead the markets higher. Copper and oil, for example are up more than 1% and the Baltic Dry Index is up over 6% to a new six month high.

European bourses are 2-3% higher, led by basic materials and industrials. Financials are fully participating in today’s advance too. The Dow Jones Stoxx 600 is recovering from eight month lows. The US S&P 500 traded at seven month lows yesterday but reversed to close near the session highs yesterday and the indications point follow through gains, at least in the early going.

Global bond markets are taking it on the chin today, with 10-year yields 5-7 bp higher as the safe haven bid is taken back. Peripheral European bond markets are also under pressure, but the spreads against Germany are fairly stable today. The German 5-year bond auction was poorly received as yields were near record lows. The 1.1 times bid-cover was the poorest in more than 2-years. Meanwhile, market talk suggests that there has been strong demand for the UK index-linked gilt that is expected to be priced later today.