Global stocks and US equity futures are in the green, despite the dollar rebounding to session highs overnight, putting already nervous emerging markets on edge, while oil rising to a 3 year high above $70 is set to pressure corporate margins even more.
In the otherwise quiet overnight session which saw yet another disappointing European datapoint as German industrial orders dropped -0.9% from 0.3%, and below the expected 0.5%, all eyes remained on the dollar which once again defied bears, and reversed an early drop rising sharply to session highs following the Tokyo fix, even though volumes remained low with London closed for a U.K. bank holiday.
This follows what Bloomberg notes was the best week for the dollar since Trump took office.
Of course, the reason why every dollar move is being scrutinized is because as we noted last week, some of the key emerging markets have been getting crushed as a result of dollar strength, with EM assets – especially bonds – tumbling last week, with markets in Turkey and Argentina especially volatile. So far today, developing-nation stocks rebounded modestly even as currencies were slightly weaker. Overnight it was Indonesia's turn to join the fallout, as the Rupiah tumbled after Indonesia's economy expanded slower than expected last quarter, a setback for the government after eight interest rate cuts in the past two years. Meanwhile, in the country many say is ground zero for the next EM crisis, both Turkey's lira and its equities retreated.
Another day, another EM FX bloodbath:
Elsewhere, in developed markets, the euro reversed gains from the Asian session as a pickup in dollar demand following the Tokyo fix and the abovementioned miss in German factory orders kept the euro under pressure. Australia's dollar fell on speculation foreign funds were selling after asset managers placed the most short positions on the currency since 2015 amid waning bets the central bank will raise interest rates this year. USD/JPY halted three days of declines and rebounded from a loss to rise as much as 0.2% to 109.33; According to Bloomberg, Japanese banks had sold dollar-yen over benchmark fixing for corporate clients and Japan-domiciled funds as they returned from two-day public holiday, according to a trader. Going back to Europe, the Franc led losses in G-10 after Swiss inflation missed estimates and printed lower on a month-on-month basis.
Back to stocks, where the quiet session saw Europe's Stoxx Europe 600 Index extend Friday's gains as most regional indices advanced. Trading volumes were lighter than usual thanks to a holiday in the U.K. Focus today has been more on stock specific stories. SMI heavyweight Nestle (+0.6%) has formed a partnership with Starbucks of which Nestle will pay USD 7.15bln in closing consideration. German insurer Allianz (+0.1%) sold an 8.4% shareholding in Banco BPI (+21.2%) to Caixabank (+0.1%). Elsewhere, Air France (-13.4%) shares fell following the CEO offering his resignation after a pay deal rejection. Furthermore, a French finance minister expressed his concerns regarding the company's survival.
In Asia, shares climbed in Australia and jumped in Shanghai. The ASX 200 (+0.4%) was lifted by commodity names following recent upside in the complex and with big 4 bank, Westpac underpinned after reporting a 6% increase in H1 cash earnings, while Nikkei 225 (-0.1%) underperformed on return from last week's holiday closures amid a firmer JPY. The Shanghai Comp. (+1.2%) and Hang Seng (+0.5%) shrugged off PBoC liquidity inaction to trade in the green and although a lack of progress was made during the US delegation visit, the consensus to keep on talking provided hope that an escalation to a full-blown trade war will likely be avoided.
