Less Dovish Fed Sends Yields, Dollar Higher
The ECB will also be aware of the backing up of European interest rates. Part of the increase was driven by the rise of U.S. yields, dragging other bond markets with it, but part of the increase is also the resurfacing of pressures in the periphery. Not only has the Greek PSI not brought closure, but the EC Commissioner Olli Rhen acknowledged the European Union may need to provide a "bridge" to help Portugal return to the market.
Pressure continues to build on Spain, where the first bond sale since it released its budget was a notable disappointment and Spanish equities continued to be trounced. The ECB has halted its sovereign bond and covered bond purchases. Under what conditions will they resume?
In contrast, the UK completed its trifecta with its third stronger-than-expected PMI report today. The better-than-expected PMIs this week are consistent with an expansion of around 0.5% in Q1, after a 0.3% contraction in the fourth quarter of 2011. The data reinforces our sense that the doves are unlikely to find more support for additional asset purchases at Thursday's MPC meeting.
We expect the BOE to move to a wait-and-see mode after the current asset purchase program is completed next month.On the other hand, Australia reported an unexpected trade deficit of A$480 million (the consensus called for a bit more than A$1 billion surplus) and the January deficit was revised to A$917 million from A$673 million. Following other soft data this week and the dovish official comments, the sense that a May cut is a done deal is increasing. Most emerging markets currencies weakened against the dollar and several local yield curves steeped in line with the sharp increase in U.S. Treasury yields following the FOMC minutes Tuesday. As expected, the more risk-sensitive currencies were hardest hit by the broad USD appreciation, notably ZAR, INR, RUB and KRW. The moves reinforce out our view that being long high-beta currencies no longer offer a good risk-reward at this juncture. Perhaps more interestingly, the reaction in debt instruments may serve as a wakeup call for investors who are already concerned about recent negative headlines from budgets in several EM countries. In India, for example, 10-year yields saw another leg up, rising as much as 20 basis points. Swap yields were up 12 basis points in South Africa and 5 basis points in Mexico. U.S. Treasuries are paring back some losses Wednesday, but global fixed income investors will certainly remain cautions of the rising volatility in local markets.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV