Category Archive: 4.) Marc to Market

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Dollar Comes Back Bid, as First Republic Taken Over (Mostly) by JP Morgan

2023-05-01

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2023-05-01

Overview: Most markets are closed for the May Day holiday. News that JP Morgan will acquire most of First Republic assets will be a relief for the markets. US equity futures are slightly firmer, and the 10-year Treasury yield is around three basis points higher, slightly above 3.45%. Recall that before the weekend, it has fallen from almost 3.55% to 3.42%. The market has more than a 90% chance of a quarter-point hike discounted for Wednesday. The...

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May 2023 Monthly

2023-04-29

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2023-04-29

May will feature likely rate hikes by the Federal Reserve, the European Central Bank, and the Bank of England. The banking stress that erupted in March appears contained, though one regional bank's dramatic loss of deposits saw it rekindle at the end of April. What makes the May rate hikes important is that the derivatives markets are confident (again) this is the last hike for the Fed. The swaps market anticipates two more hikes from the BOE and...

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Yen Slumps on Cautious BOJ

2023-04-28

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2023-04-28

Overview:  The market took a dovish message away from the Bank of Japan and sent the dollar above JPY136, its best level since March 10 and spurred a sharp rally in JGBs. Japanese equities led the rally among the Asia Pacific markets. Europe has not been able to follow suit. It disappointed with Q1 GDP (0.1% rather than 0.2%). The Stoxx 600 is of about 0.3%, leaving it off about 1.3% this week, its first weekly loss since the middle of March. US...

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Markets Becalmed Ahead of Key Data and BOJ Meeting Outcome

2023-04-27

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2023-04-27

Overview: Some regional bank earnings were weighing on investor sentiment but reports that the FDIC is running out of patience with First Republic Bank to strike a private deal and could decide to downgrade its assessment. This could lead to limits on its ability to use the Fed's emergency facilities. Other reports said that the bank's advisers are securing commitments to buy a new stock as part of a broader restructuring. Still, while the KBW bank...

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Bank Stress Hobbles the Dollar, while Dissents Make the 50 bp Hike by Sweden less than Hawkish

2023-04-26

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2023-04-26

Overview: The re-emergence of bank stress reverberated through the US markets yesterday, downgrading the perceived chances of a Fed hike next week and sending the US 2-year yield sharply lower. The yield settled 13 bp lower, the largest drop in three weeks. The risk-off sent the US dollar higher against most of the major and emerging market currencies. Follow-through US dollar gains today has been mostly limited to the Australian dollar, where...

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Risk-Off Mood Dominates

2023-04-25

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2023-04-25

Overview:  Perhaps it was the extent of First Republic Bank's loss of deposits that were reported with earnings yesterday, but risk appetites dried up today. Asia Pacific equities were trounced outside Japan today. Hong Kong and mainland shares that trade there set the tone today falling 1.7%-1.9%. China's CSI 300 fell for the fifth consecutive session. Taiwan and South Korean markets fell more 1.4%-1.6%. Europe's Stoxx 600 is off almost 0.5%,...

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Yen: Short Overview

2023-04-24

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2023-04-24

The yen is off about 1% this month to bring the year-to-date decline to about 2.4%. It fell by 12.2% in 2022 and 10.3% in 2021. The yen rallied against the dollar for the five preceding years. Over that five-year period the dollar fell from around JPY124 to JPY99, but it was all done in H1 16, and after a rally at the end of 2016 and very early 2017 (to about JPY118.65), the dollar ground down around JPY101. This year’s dollar low was set in...

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The Dollar Begins New Week mostly Softer

2023-04-24

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2023-04-24

Overview:  The dollar is mostly lower, led by the Swiss franc and euro. However, despite softer US rates and a victory for the LDP in local Japanese elections, the yen is trading with a softer bias. Japanese stocks recovered from the pre-weekend profit-taking seen after the Nikkei make new highs for the year. Most other large bourses in the region except Taiwan and India also moved lower. Note that China's CSI 300 fell for the fourth consecutive...

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Ueda Chairs First BOJ Meeting, and US and EMU Provide First Estimate of Q1 GDP: The Week Ahead

2023-04-22

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2023-04-22

As April draws to a close, the systemic stress in the banking sector continues to subside, and the market is turning its attention to likely rate hikes by Federal Reserve and European Central Bank in early May. Although, as in March, the market sees the May hike to 5.25% to be the last Fed hike. Before the bank stress, the swap market had been leaning to a 5.75% terminal rate. It is still early to fully appreciate the magnitude and duration of the...

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Equities Retreat while the Dollar is Confined to Narrow Ranges

2023-04-20

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2023-04-20

Overview: Equities are mostly lower, while bonds have risen. The dollar is trading in narrow ranges and mixed against the G10 currencies and emerging markets. Most Asian bourses were lower. The Nikkei (though not the Topix) and Hong Kong were the chief exceptions. Europe's Stoxx 600 is off for the second consecutive day, in what looks like the first back-to-back loss since early this month. US equity futures are lower, with the NASDAQ, which eked...

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The Dollar Comes Back Bid

2023-04-19

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2023-04-19

Overview: It has taken some time, but the dollar has found better traction. It traded above JPY135 for the first time since mid-March and yesterday's setback has been mostly recouped against the other G10 currencies. Sterling is the most resilient after higher-than-expected inflation. Equities are lower. Japan's Nikkei snapped an eight-day advance and most of the other large bourses in the region (except Australia and South Korea) fell. Europe's...

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Dollar Pares Gains but is Poised to Recover in North America

2023-04-18

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2023-04-18

Overview:  A rise in US yields, with the two-year Treasury closing yesterday at its best level in more than three weeks help fuel follow-through dollar buying yesterday after an upside reversal at the end of last week. Key levels were approached, like $1.09 in the euro, $1.2345 in sterling, and JPY135 held, and the dollar has consolidated in Asia and Europe. The euro and sterling recouped around half of the losses seen from the Friday's high to...

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Firm US Dollar as Market is Feeling More Comfortable with May Hike

2023-04-17

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2023-04-17

Overview: The dollar fell most of last week but reversed higher before the weekend. It has seen some follow-through gains, albeit limited against most of the G10 currencies today. Despite some seemingly dovish comments by a few Fed officials last week, the Fed funds futures is pricing in the greatest chance for a hike at the early May meeting since the banking stress erupted last month. The greenback is also trading with a firmer bias against most...

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The Dollar Bounces but is it Sustainable? The Week Ahead

2023-04-15

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2023-04-15

Investors and businesses are wrestling with conflicting impulses. On the one hand, economic growth seems sufficiently strong to allow the Federal Reserve, European Central Bank, and the Bank of England to continue to counter elevated price pressures. They are set to hike rates next month. On the other hand, last month's banking stress is seen translating to a lower and sooner peak in policy rates. Before the bank stress emerged, the market had...

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Hawkish ECB Comments Boost Risk of a 50 bp Hike Next Month

2023-04-14

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2023-04-14

Overview: The 0.5% decline in US March producer prices pushed on the door opened by the softer-than-expected CPI on Wednesday. The Fed funds futures market sees the year end rate to a 4.33%, while still pricing in a nearly 70% chance of a hike on May 3 to 5.25%. The dollar tumbled to new lows for the year against the euro, sterling, and Swiss franc. The Dollar Index made a new low for the year today, a few hundredths of an index point below the low...

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US Dollar Slumps and China Surprises with Twice the Expected Trade Surplus

2023-04-13

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2023-04-13

Overview:  The market took US short-term rates and the dollar lower after the CPI data, which was largely in line with expectations. On the one hand, the odds of a quarter-point hike next month increased slightly (73.6% vs. 71.6%) to 5.25%, but it reinforced that sense that it is last hike and that the Fed will unwind this hike and more before the end of the year. The year-end implied policy rate fell by about six basis points to 4.33%. The dollar...

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US CPI is Unlikely to Tell Us Anything We Don’t Already Know

2023-04-12

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2023-04-12

Overview:  Today's highlight is the March US CPI, and while everyone is talking about it, it is unlikely to tell us anything we do not already know. Headline price pressures are easing but the core rate is sticky, and despite comments from the Chicago Fed president about the need for patience, the odds of a hike next month have crept up. Understanding the Fed's reaction function, it seems clear that for most officials, inflation is remains too high...

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Greenback Pares Yesterday’s Gains

2023-04-11

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2023-04-11

Overview: As the long-holiday ends, risk appetites have returned. Equities and yields are mostly higher. The dollar is seeing yesterday's gains pared. Yesterday's setback in the yen helped lift Japanese stocks, with the Nikkei advancing 1%. Several other markets in the region also gained more than 1%, including Australia and South Korea. China's CSI was an exception. It slipped fractionally. Europe's Stoxx 600 is up nearly 0.6% through the European...

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The Extended Holiday Makes for Subdued Price Action

2023-04-10

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2023-04-10

Overview: The holiday continues. In the Asia Pacific region, Hong Kong, Australia, and New Zealand, and the Philippines markets were closed. The regional bourses advanced but China.  European markets remain closed. US equity futures are narrowly mixed. The 10-year US Treasury yield is off nearly three basis points to about 3.36%. The dollar is trading quietly mostly within ranges seen before the weekend. It is slightly softer against most of the...

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US and Chinese Inflation Highlight the Week Ahead, While the Bank of Canada Stands Pat

2023-04-08

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2023-04-08

Bank shares rose in Japan and Europe for the second consecutive week, but the KBW US bank index fell nearly 2% after increasing 4.6% in the last week of March. Emergency borrowing from the Fed remains elevated ($149 bln vs. $153 bln). Bank lending has fallen sharply (~$105 bln) in the two weeks through March 29. This appears to be a record two-week decline. Commercial and industrial loans had fallen a little in the first two months of the year...

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