Global Briefing: Dollar Corrects and Stocks Fail to Hold Early Gains

The buck appears overextended on a technical basis.
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Profit-taking is today's watch word. Weak longs are getting shaken out of the dollar. Most major global bourses have failed to be pulled higher by the preweekend surge in U.S. equities. At the same time, global bond markets are trading heavier after U.S. Treasuries could not sustain their best levels after surging on the heels of the February jobs report, which once again suggested that job growth in the U.S. has not been coupled with increased price pressures.

Even though fundamental considerations continue to underpin the dollar, the greenback has appeared a bit overextended on a technical basis, as this space has cautioned. With the dollar appearing in recent sessions as a one-way bet, many of the late longs were in weak hands. As these positions were stopped out, the dollar's losses accelerated. Near midday in London, the dollar was off by almost a full percentage point. The risk is for additional near-term losses.

Initially, look for the greenback to slip toward the 1.78-mark level and the 1.45-Swiss franc area.

This will roughly correspond to a move toward $1.0980-$1.1000 for the euro. Comments from




indicating that the


opposes continued weakening of the euro does not really go beyond what he has already indicated. Rather than a cause of today's bounce in the euro, Tietmeyer's comments are more coincidental. The dollar has also moved lower against the yen amid continued talk of exporter selling and corporate repatriation ahead of the end of Japan's fiscal year on March 31. Support for the dollar is seen ahead of the 120-yen level.

Global bond markets have not been able to sustain their preweekend advance, fueled in part by the short-covering rally that lifted U.S. Treasury prices. The yield on Japan's benchmark bond rose 7 basis points to 1.63%. The

Bank of Japan

allowed the surplus in the banking system to fall to 1.2 trillion yen from 1.4 trillion at the end of last week and 1.8 trillion in the early-middle part of last week.

This suggests that rather than keep the pedal to the metal, the BOJ's move may be a one-off adjustment and not the continual easing that some observers have suggested.

In addition, there is a suspicion in some quarters that the BOJ's extreme accommodation is meant to ease fiscal year-end pressures and will not be maintained in full force next month. European bonds are also heavier, giving back part of their preweekend rally. The yield on 10-year German bunds, which are the benchmark for Europe, rose 4 basis points to 4.04% after falling 18 basis points in the wake of the U.S. Treasury rally last Friday.

Major equity markets opened higher but were largely unable to sustain the early gains.



traded above 15,000 for the first time in three months, but reversed course to finish 115 points lower. European bourses opened higher amid optimism that the U.S. rally would lift all boats. Near midday in London, most European equity indices were off 0.5%-1%. The weak economic outlook is curbing buying interest and the strong advance of the past three sessions left several markets overextended.

Concern that oil prices will not sustain their recent gains reportedly is weighing on oil issues. Rumors of mergers in the auto, chemical, financial services and technology are helping to underpin individual issues. There is scope for the German and French bourses to slip another 75-100 points over the near term. Such a decline would put the


near 4720 and the


near 4100. The


in London is struggling to buck the trend but has slipped into negative territory. The first rise in manufacturing output in half a year is helping matters. Ideas that U.K. rates may not have bottomed could have also provided incentives to buy U.K. equities. The


indicated that there was scope for additional U.K. rate cuts and that the pound was "somewhat overvalued."

While overall industrial production fell 0.5% in January, the U.K. reported manufacturing output rose 0.1%, the first rise since last July. On a year-over-year basis, U.K. manufacturing is off 0.9%, but recent indications give hope that the much beleaguered sector is bottoming out, in the same way the U.S. manufacturing sector also looks to be on the mend. Separately, the U.K. reported input prices at the producer level fell 0.1% to bring the year-over-year decline to 6.3%. Output prices rose 0.2% on both the month and on a year-over-year basis. The market is looking forward to tomorrow's presentation of the budget by the Chancellor of the Exchequer


. Look for the Labor government to propose new ways to spend their budget surplus.

Tomorrow Germany will report its February labor statistics.

January saw an unexpected fall in the unemployment queues, which is unlikely to be repeated in February. According to a


survey, the consensus calls for a 20,000 rise German unemployment when adjusted for seasonal factors. In the wake of the

I.G. Metall

wage settlement and the German government's push to shift some of the tax burden from individuals and households to the corporate sector is prompting fears of a capital strike in Germany, where businesses threaten to move an increasing part of their activities offshore.

There is some talk that Germany's controversial Finance Minister


may be nominated as a candidate for

European Union

president, for the term beginning in the summer of 2000. (The Finance Ministry has denied that report.) Some think that moving Lafontaine out of Berlin will give the Social Democrat government a fresh start with businesses.

Marc Chandler is an independent global markets strategist who writes daily for At the time of publication, he was long U.S. bonds and some mutual funds that have investments in Europe, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at