Friday Overview

The US dollar is consolidating this week’s gains in choppy activity. Stronger than expected euro zone GDP (1.0% quarter-over-quarter) failed to lift the euro as much as one might have expected. It appears the market quickly realizes this is as good as it gets. Heightened tensions remain evident in the European debt markets and this may also be helping to limit euro upticks. Heightened concern that Japanese officials are getting closer to intervention helped lift the dollar to almost JPY86.20 in Asia, but Europe has been less sanguine and sold it back off. Short-term participants may still be reluctant to go into the weekend with the dollar too close to JPY85.00.

Asian equities staged a bit of a rally, with the MSCI Asia-Pacific Index posting its first rise of the week (~0.8%). Commodity producers left the way. Of note Korea’s Kospi may have been helped by news that household income is rising at its fastest pace in seven years. The 1.4% rise came despite the fact that foreign investors appeared to be net sellers today.

The oil sector and telecoms helped lift the Nikkei rise 0.45%, but was still 4% lower on the week, which could be the worst performance in the G7 this week. European bourses began better, but here too, like with the euro, strong GDP figures have been unable to sustain the gains. Utilities, consumer services and financials are among the weakest sectors and while telecoms are doing slightly better. US shares are also slipping and the opening call as swung from slightly higher to slightly lower.

Tensions are elevated in the European bond markets. The Greek-German spread has widened back out to 800 bp, the widest in several weeks. Spain, Portugal and Italian spreads are wider too. Irish 10-year bond yields have risen 42 bp this week are up a single basis point today. German bonds recovered from initial losses sparked by the best GDP in 20-years (2.2% quarter-over-quarter) with stocks coming off, tensions rising and the euro reversal. US Treasuries remain well bid, including the 30-year bond, with yields 2-3 bp lower.