Capital Markets Overview on Monday

The US dollar is narrowly mixed to start the new week. It is hanged against most of the major currencies as the market waits for fresh trading incentives.

The euro was turned back on the initial test of the $1.24 area, Initial support is near $1.2320, but only a break of $1.22 would signal a break of the recent range. The dollar has been confined to a little more than a 10 tick range on either side of JPY89.35. Sterling is little changed and has held above the $1.50 level. The Swiss franc is showing independent strength as it is bid to new record highs against the euro and is at its highest level against the dollar since the start of May. Emerging market currencies are generally firmer.

Asian equities were mixed, with the MSCI Asia-Pacific Index essentially unchanged, while European bourses are moving higher. The large equity markets in Asia, like Japan, China, and Australia all slipped 0.5%-0.6% today, most of the other markets closed higher. India and Thailand gained over 1%. European equities are snapping a four day decline, with most bourses up over 1%, thought the FTSE is lagging. Auto, basic materials, oil and gas were among the strongest sectors and of note financials were fully participating in today’s advance.

There are two key developments in the debt market today. First, European bond spreads are widening against Germany. The premium Italy, Spain and Greece has widened by 10 bp or more today. The market has absorbed supply in Italy, (3- year and 10 year) Slovakia (16 year), Belgian bonds (18 year) and German bills. ECB money market operations will be closely scrutinized this week with the 12-month long-term refinancing operation set to roll off Thurs and ECB three-month refi operation on Wed followed by a special 6-day operation on Thur are expected to be heavily drawn upon. Second, US 10-year Treasuries continue to drift toward the 3.0% yield level. This is seen as a key area for foreign appetite, especially Japanese interest. Note that the recent Federal Reserve custody holdings showed new interest in agency paper, ostensibly for better yields than Treasuries.
Capital Markets Overview on Monday Capital Markets Overview on Monday Reviewed by Marc Chandler on June 28, 2010 Rating: 5
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