Markets Tread Water; Powell Is Awaited

The capital markets seem unusually subdued. The US dollar is mostly slightly firmer, except against the euro and Swiss franc among the majors. The MSCI Asia Pacific Index managed to eke out a small gain (0.2%), for a third advancing session, without the help of China, Taiwan, Korea or India.  

It was really a Japanese story. The Nikkei rallied 1.1% while excluding Japan the MSCI benchmark was off 0.25%. This is also borne out by the heavier tone in the MSCI Emerging Market Index (-0.2%). European bourses are nursing small losses, and the Dow Jones Stoxx 600 is off 0.12% in late morning turnover. Telecom, real estate, and healthcare are drags, but being offset by consumer discretionary, financials and information technology.  US shares are trading with a heavier bias as well.  

Bond market is quiet, with 10-year benchmark yields edging higher.  Italy is unexpectedly resilient ahead of this weekend’s election. Over the past week, the yield has slipped 5.5 bp compared with a three-basis point increase in Spain. The US 10-year yield slipped below 2.83% yesterday for the first time in nearly two weeks and is consolidating the pullback after approaching 2.96% a week ago. 

The market has responded as expected to the disappointing New Zealand trade figures. The December surplus was revised lower (NZD596 mln vs NZD640 mln), but the real disappointment was in the January figures. Rather than reporting an actual balance as expected, New Zealand reports a NZD566 mln deficit. The New Zealand dollar is testing the small shelf near $0.7270 carved in recent days. A break could open the door to another cent decline.  

The euro has shown little reaction to the economic data. Money supply growth was steady at 4.6%, and the series of confidence surveys were either as good or better than expected. Of note, bank lending to non-financial businesses was strong but uneven (strong showing in Germany, weak in Italy).  Loan growth to households was flat, mostly due to slightly weaker house-related activity.