Dollar Recovers from Lower Opening

The US dollar opened broadly lower in Asia but trended higher through the first half of the European morning.  The euro peaked just above $1.0880 and fell a little more than a cent (~$1.0770) before finding a reasonable bid.  Sterling approached $1.50, could not sustain the upward momentum, and by late morning in London slipped below $1.4850.  The dollar has been sidelined against the yen; trading in a 20-tick range on either side of JPY120.   Choppy consolidative activity may continue. 

The Antipodean currencies are little changed while the drop in oil prices (~2%) took a toll on the Canadian dollar.   Emerging market currencies are mostly lower though the Asian currencies have held on to their early gains, led by the Malaysian ringgit which rose 1%.   

The MSCI Asia-Pacific Index rose about 0.6%, extending last week's 2.7% rise, to reach new six-month highs.    European bourses are mostly lower, with Spain as the main exception.   The Dow Jones Stoxx 600 is off 0.4%, led by consumer discretionary and energy sectors. 

Bond markets are mixed, with core bonds yields slightly lower.  Of note, the Japan's 10 year benchmark yield slipped below 30 bp to reach its lowest level since late January.  European peripheral bond yields are 1-2 bp higher.  Greek bonds remain under pressure as no new initiative is expected to come from today's meeting between Merkel and Tsipras, which is expected to be followed by a press conference.  

The news stream is light to start the week.   Regional elections in France over the weekend resulted in strong showing for the center-right UMP (~30%) and the far-right National Front (~25%).  Run-ff will be held in a couple weeks.  In Andalusia's regional election saw the Socialists ahead in their stronghold, followed by the ruling PP.  Podemos and Ciudadanos both won seats in the regional parliament (15 and 9 respectively).

Given the dramatic response to last week's FOMC meeting, official comments will be closely monitored.  Over the weekend, Fed Presidents Lockhart and Evans spoke.  Lockhart kept with the June-Sept window for lift-off while Evans, one of the two doves not wanting to raise rates until 2016, emphasized the risks of a strong dollar.  Cleveland’s Fed Mester spoke earlier today.  She emphasized the move to a more normal policy framework  and a positive view of the US economy.  She indicated the Fed was concerned about creating new financial bubbles and opined that” so far they have been minimal.” Later today, Vice Chairman Fischer speaks at the Economic Club in NYC.   

European developments could still drive the markets today.  There are three events to note.  First, the ECB will report the results for the first full week of its new asset purchase program.  Roughly 11-13 bln euros of securities, including ABS and covered bonds are expected to have been bought. 

Second,  Greece’s Tsipras is meeting with Merkel in Berlin today.  The meeting will be followed by a press conference.  The German paper FAZ claimed over the weekend that Greece has enough money until April 9.  Tsipras is claiming sufficient funds to either pay its official creditors or local salaries and pensions that are estimated to be 1.5 bln euros this week.   Greek stocks are slightly higher while the debt market is under modest pressure (10-year yield up 14 bp to 11.15%). 

Third,  ECB President Draghi speaks before the European Parliament.   Draghi has sounded cautiously optimistic recently, suggest downside risks have diminished.  He is likely to continue to press for structural reforms, without which monetary stimulus will be not be as effective.