The US dollar is broadly lower, following a successful Spanish bond auctions and indications that the Swiss National Bank is not prepared to continue the heavy intervention that was reported last month. After a slow start the euro extended its recent gains, and although over-extended on a short-term basis, still appears on track for $1.25 and possibly even $1.2750 as the correction of past couple of month downdraft continues. Sterling, which dipped below $1.4650 in late Asia, has rebounded smartly to test the $1.4800 area, on the back of stronger than expected retail sales and looks poised to challenge yesterday’s high near $1.4850, the high since 13 May. The dollar is largely sidelined against the yen. For the last eight sessions, it has finished the North American session in a JPY91.30-JPY91.65 range.
Asian equities were lower and the MSCI Asia-Pacific Index slipped 0.3% from the 4 week high set yesterday. Weakness in the various metals, including copper, which was off more than 2%, weighed on prices. China, which returned from a holiday was unable to catch-up with the almost 3% gain made in the MSCI benchmark when its markets were closed. The Shanghai Composite eased 0.4%. Tighter money market conditions as investors begin to build cash holdings to participate in the Agriculture Bank of China’s IPO may have weighed on sentiment. Good foreign demand for Korean and Taiwanese shares continues to be reported.
Meanwhile, European bourses are posting healthy 0.8%-1.0% gains, helped by the successful bond auctions in Spain (and France). The oil and gas sector, helped by a bounce in BP, and financials are the leading sectors today. Health care and utilities are laggards.
The sale of 10 and 30-year bonds in Spain had posed event risk, but the higher yields brought in buyers and markets responded accordingly. Spain’s 10-year bond yield has fallen 12 bp, paring back some of yesterday’s increase. Although the French bond auction was also well received, French and German bonds are weaker as some of the safe haven bid has been removed, at least for the moment. UK gilts are outperforming, despite the better retail sales report. The market is looking ahead to next week’s budget. The easing of the safe haven bid is also weighing on US Treasuries, where yields are 2-3 bp higher through the coupon curve.