The dollar broke into positive territory for the year on Tuesday and bond yields were creeping higher again, as rising oil prices fuelled bets that the Federal Reserve will flag more U.S. rate hikes this week.
May Day holidays in many centres across Asia and Europe meant trading was sparser than usual, though there was more than enough news flow to keep those that were open occupied.
The mood at the margins was upbeat after U.S. President Donald Trump extended steel and aluminium tariff exemptions for Europe, Canada and Mexico for another month.
There were nerves too. Disappointing British manufacturing and consumer lending figures added to the recent run of European data, worries about Iran’s nuclear deal were keeping oil up, while Apple’s results were due later following recent whispers of weak iPhone demand.
It was the dollar though making the running as it turned positive for the year before a two-day Fed meeting expected to pave the way for another two or even three U.S. rate hikes this year.
London’s greenback bulls took advantage of the reduced trader presence in the rest of Europe to push it to almost $1.20 per euro and make good ground against the Swiss franc and the data-damaged pound.
“Provided the Fed conveys a steady-as-she-goes approach and it isn’t seen to be back tracking - and there is no reason from the data why it should - the dollar should be consolidating and pushing on from this level,” said Bank of New York Mellon senior currency strategist Neil Mellor.
He added that the key change has been the move of the U.S. Treasury bond yield to 3 per cent last week.
It was nudging up at 2.96 per cent on Tuesday, which also left the gap between U.S. and German 10-year benchmark bond yields just off its widest level in nearly three decades.
“It has been a bit like a dam bursting,” Mellor said of the Treasury move.
For Europe’s stocks followers, only London’s FTSE and Denmark’s bourse were open.
They were both higher, thanks to the boost to exporters of lower domestic currencies and relief that Trump had postponed steel and aluminium tariffs on the EU, Canada and Mexico and given permanent exemptions to several other allies.
U.S. stock futures were steady and in Asia, Japan’s Nikkei closed up 0.2 per cent while Australian shares hit seven-week highs as its monster metals sector breathed easier.
Apple’s quarterly results are due after Wall Street closes and will be a big focus after several weeks of speculation about ebbing smartphone demand based on selective reports from companies in its supply chain.
Technology sector results so far – at least from the likes of Amazon, Alphabet, Microsoft, Samsung and SAP – have broadly beaten forecasts for Q1 and the overall aggregate U.S. earnings growth is tracking seven-year highs of almost 25 per cent.
“Earnings have been really strong so far. Microsoft and Amazon had a bumper quarter. The only concern has been Apple,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
SUBMERGING MARKETS
The stronger dollar was felt widely across commodity markets and the emerging economies that are now borrowing record amounts of debt in the U.S. currency, data from the Bank for International Settlements revealed this week.
MSCI’s emerging market index fell 0.4 per cent with Russian dollar-denominated stocks chalking up some of the biggest losses and currencies and bonds staying under pressure too.
Brent oil prices eased off four-month highs of just over $75 a barrel set on Monday on worries that U.S. President Donald Trump may pull out of the 2015 Iran nuclear deal and thereby bring back sanctions on its oil output.
The White House said on Monday that information provided by Israel on Iran’s nuclear programme had provided “new and compelling details”.
A high-level U.S. trade delegation will be in Beijing for meetings later this week, amid lingering worries about a possible trade war between the world’s top two economies.
Copper, which is highly attuned to China’s economy, hit its lowest in three weeks at $6,752 a tonne, accelerating downwards after it broke below its 200-day moving average at $6,800.
Reuters