Macro Factors Impacting Currencies & Equities This Week
Global Equities
Equities are predominantly lower, with bonds experiencing a rise and the dollar trading in narrow ranges and displaying mixed performance against G10 currencies and emerging markets.
Most Asian markets were down, with the Nikkei and Hong Kong being the primary exceptions. Europe’s STOXX 600 is down for the second consecutive day, marking the first back-to-back loss since the beginning of the month.
US equity futures are also lower, with the NASDAQ, which had a small gain yesterday, falling by over 1% to lead indices lower. European benchmark 10-year yields are mostly down by 1-3 basis points, and the 10-year US Treasury yield has decreased by a couple of basis points to nearly 3.56%. The US 2-year yield has dropped almost 4 bp to 4.20%.
USD Pairs
The dollar is trading quietly, mostly within yesterday’s ranges. Softer-than-expected New Zealand Q1 CPI has contributed to a 0.5% decline in the Kiwi, leading today’s decliners. The Swiss franc has risen by around 0.2%, reinforcing its top-ranking performance among G10 currencies this year (~3.25%).
Weak March export orders have kept the Taiwanese dollar under pressure, but most emerging market currencies are stronger. The JP Morgan Emerging Market Currency Index is attempting to break a four-day drop.
Gold
Gold recovered yesterday from an intrasession low near $1970 and is now straddling the $2000 area. June WTI is extending its sell-off, falling by around 1.9% today after a slightly more than 2% drop yesterday. Today’s low is about $77.50, with the lower end of the gap created in the reaction to OPEC+ cuts at the start of the month extending to $73.90.
Asia Pacific Economies
In Asia-Pacific news, Japan’s trade deficit increased in March due to stronger imports and weaker exports. Year-over-year, Japanese exports slowed to 4.3%, which was better than the Bloomberg economist survey’s median forecast of 2.5%. In March 2022, exports had risen by 14.7% over the previous 12 months.
Imports slowed to 7.3% from a year ago, after slowing to 8.3% in February. In March 2022, Japanese imports had risen by almost 32% year-over-year. The combination of stronger exports and weaker imports than expected resulted in a smaller trade deficit of JPY758 billion, which is slightly more than half of the median forecast.
This places the Q1 ’23 deficit at JPY5.16 trillion (~$38.5 billion). The Q1 ’22 deficit was JPY3.39 trillion, and there was a trade surplus of around JPY400 billion in Q1 ’21.
EU Economies
In Europe, after reporting the February current account surplus yesterday, the eurozone February trade balance today is less interesting. The current account balance improved for the sixth consecutive month in February to stand at 24.3 billion euros, marking the largest surplus since September 2021.
February’s trade was almost in balance, but a small deficit (-0.1 billion euros) was reported, and it has been in deficit since October 2021.
Today, the eurozone’s preliminary April PMI will be reported, with economists expecting a small improvement in the manufacturing PMI, but it likely remained below the 50 boom/bust level.
A minor pullback in the service PMI is expected. The two are seen offsetting each other and leaving the composite unchanged at 53.7. Next week’s highlight is the first estimate of the eurozone’s Q1 GDP.
Economists in Bloomberg’s monthly survey see the second consecutive stagnating quarter, but a small expansion might have been recorded.
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