The global capital markets have responded in fairly predictable ways to yesterday's slide on Wall Street. Stocks are generally lower, though the Nikkei managed to eke out a gain of 0.1%. Bond prices are mostly higher. The dollar has proven quite resilient to the equity market developments and is posting modest gains against the yen, with the euro sitting on its recent lows. There tends not to be a statistically significant or stable relationship between the performance of equity and foreign-exchange prices.

The performance of U.S. stocks will dominate trading today.

Many market participants are concerned that as bloody as yesterday's price action was, it does not yet present the kind of climactic selloff that precedes a recovery. Sharp declines in equity prices tend to make investments in fixed-income instruments more attractive.

These developments will overshadow the release of the U.S. February trade balance. Economists expect little improvement from the $17 billion deficit posted in January. Exports have fallen for three consecutive months and signs that the U.S. manufacturing sector is on the mend may see them bounce back. Imports, on the other hand, are likely to remain strong, as the domestic economy is strong relative to most U.S. trading partners and the rally in oil prices. Most of the U.S. trade deficit can be traced to two sectors, oil and auto/auto parts.

The explicit threat of intervention to cap the yen's rise encouraged foreign-exchange players to reduce long yen positions.

Yet the dollar's rise has been quite modest. It will take a move above the 118.40-118.60 yen area to encourage more dollar shorts to be covered. A large Asian player is rumored to be defending an exotic options position struck near there. At the same time, the fear of intervention may discourage U.S. foreign-exchange traders from driving the dollar much below the 117.60-yen area.

Japan's technology shares tumbled in sympathy with Nasdaq.


, for example, a major investor in Internet companies (including

), fell sharply to bring its four-day loss to a whopping 27%.



announcement that it will produce fuel-efficient cars with

General Motors

(GM) - Get Report

helped offset the decline in the high-tech sector. Most the East Asian equity markets were lower, with technology shares leading the way. The notable exception was Korean stocks, which rose almost 1%, apparently on restructuring stories.

Japanese government bonds rose ahead of tomorrow's monthly 10-year bond auction. The benchmark 10-year bond yield fell 8.5 basis points to 1.495%, the lowest yield in four months. This means that there will be a low coupon on the 1.4 trillion bonds that will be sold tomorrow. Ideas that the

Bank of Japan

will continue to be accommodative apparently helped offset concern that the low coupon would discourage a warm reception at the auction.

European bond prices have been supported by weaker-than-expected German data

, the drop in share prices and yesterday's rally in U.S. Treasuries. Most European bourses are off around 2% by late morning in London, largely in line with the

S&P 500's

loss yesterday in the U.S. In addition to technology shares, pharmaceutical and insurance shares are reportedly particularly weak. The move out of high tech and into cyclical issues is partly being obscured today by the lopsided breath in favor of decliners.

The IFO survey of German business confidence rose less than expected.

The survey rose to 90.2 from 89.7, compared to expectations for 90.5-91. The report suggests the German economy has entered the second quarter without much momentum. As the largest economy in the Europe, its poor performance will likely weigh on other Continental economies. However, given that the

European Central Bank

cut rates earlier this month, first-quarter activity has largely been written off. The market is more interested in seeing how the eurozone economies respond in the second quarter.

The same tax hikes that boosted the U.K.'s producer prices, reported yesterday, are responsible for the rise in retail prices reported earlier today. Excluding mortgage interest payments, retail prices rose 0.6% in March for a year-over-year rise of 2.7%, the highest since last June and above the government's 2.5% target. Tax increases on gasoline and tobacco were the main culprits, but the prices of household goods and clothing rose more than expected as well (1.9% and 1.8%, respectively). Yet falling share prices and the belief that the tax-induced rise will not prevent another 25-basis-point rate cut in the summer has helped underpin U.K. bonds. The yields on British bonds, or gilts, are off 2-4 basis points, in line with other European bonds.

The euro slipped to new lows against the dollar yesterday and is hovering just above those lows now.

Comments from ECB President

Wim Duisenberg

gave participants little reason to reduce short euro positions. Duisenberg acknowledged that the ECB does not have an exchange rate policy -- that it is neither benign nor malign neglect, it is simply neglect. He indicated little concern with the euro's 9% decline against the dollar this year and has no intention of intervening to support it. Look for the euro to consolidate between $1.06 and $1.0720 before it registers its next leg down.

There are two developments in the emerging markets to note. First, China reported 8.3% growth in the first quarter, which is stronger than expected and compares to 7.2% growth in the year-ago quarter and 9% growth in the latest fourth quarter. A sharp increase in state spending offset the 14.6% decline in foreign investment and a 7.9% decline in exports. Retail sales rose 7.4%. This report cuts both ways. Some will cite it as evidence that Asian economies are recovering. Chinese imports rose, for example, 11.6%. On the other hand, those who believe the Asian recovery is largely being led by government spending rather than private demand may find support for their views in today's report.

Second, later today Mexico will report its February retail sales.

With the help of lower interest rates, many expect the rise in retail sales to outstrip the 0.7% increase recorded in January. The Mexican peso and bolsa have been among the best performers in dollar terms thus far this year. In fact, the strength of the Mexican peso and to a somewhat lesser extent the Canadian dollar helps offset the dollar's strength against other currencies, which is helping limit the dollar's appreciation on a trade-weighted basis.

Marc Chandler is an independent global markets strategist who writes daily for At the time of publication, he held no positions in the currencies or instruments discussed in this column, though positions may change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at