Following the U.S. lead, global equity markets are higher, though European bourses have given back their early gains. Most bond markets are lower. Yesterday, U.S. Treasuries suffered one of their largest losses in nearly six weeks. The Nasdaq's advance yesterday capped the biggest three-day rally since November 1987. The dollar is little changed as foreign-exchange participants try to digest recent developments.
There are two issues that appear to be generating confusion today. First, some reports indicate that the Japanese government will propose new stimulative measures when Prime Minister
in Washington on May 3. Yet other reports suggest a consensus has not been reached on the need for a new spending program. Apparently, the government's initiatives will be focused on two areas: employment and targeted tax breaks that would, for example, help corporations dispose of unused facilities and excess capacity. This is a somewhat different tack than previous supplemental budgets, which committed vast resources to public-works spending and general tax cuts. Therein may lie the source of the confusion.
Second, developments in the Balkans are attracting more market attention.
Reports that Yugoslav President
offered to accept a
withdraws seemed to help the euro and Swiss franc recover yesterday. However, the U.S. and the U.K. have rejected the offer. Follow-through buying initially extended the euro and Swiss franc's gains, but as it is becoming more evident that peace is not at hand, both currencies have pulled back.
NATO is poised to embargo oil exports to Yugoslavia starting Monday, although there do not appear to be plans to enforce the embargo through a naval blockade. Serbia and Montenegro import about 35,000 barrels of oil a day, mostly from NATO members Greece and the Netherlands, but also from Russia and Iraq. Reports suggest that much of Yugoslavia's oil-refining capacity has been destroyed.
Both the euro and the Swiss franc staged what technicians call a key reversal yesterday.
Both currencies fell below Wednesday's low to record new lows for the move and then proceeded to rally and settle above Wednesday's high. The inability to sustain the upside momentum suggests both currencies are vulnerable to additional selling pressure. The dollar essentially help key support near the 119.15-119.20 level against the yen. If this level gives way, the dollar could quickly drop toward 118.50. On the upside, look for the greenback to be capped near the 120.30 area, pending a clearer official signals.
Japanese government bonds fell for the first time this week. The yield on the new benchmark 10-year bond rose 5 basis points to 1.535%. The
rose 1.5% to post its highest close since the end of March 1998. Technology shares were among the leading sectors and foreign interest remains strong.
, Japan's largest computer and chipmaker, posted strong gains. The U.S. accounts for 10% of each of their sales.
, the Internet investment company that is a shareholder of
, also continued to advance. In the three sessions through today Softbank shares have rallied 24% after falling 27% in the previous four sessions through Tuesday.
European equities opened higher but have not managed to sustain the early gains.
Story stocks in telecommunications and banking have limited the losses of the overall indices. Oil prices near 16-month highs may be lending support to that industry. With optimism over an Asian recovery and the prospect that several Latin American countries may not experience as deep a recession as previously feared, Europe is seen as the laggard -- and for good reason. Growth prospects for the region have been already been revised lower and the risk is that further downward revisions will be forthcoming.
Yesterday Germany's new finance minister, Hans Eichel, warned that growth in his country is unlikely to meet the government's 2% forecast. German states have begun reporting their April cost of living (consumer inflation) figures. Bavaria reported a 0.3% increase on the month, which brings the year-over-year rate to 0.7%. Saxony reported a 0.4% rise in April for a 0.6% year-over year rise. Higher energy prices and new taxes seem to be the main culprits.
The U.K's preliminary first-quarter GDP growth was reported at 0.1%, the same as in the fourth quarter.
Year-over-year growth slowed to 0.7% from 1.1% in the fourth quarter. Prior to the release there had been whispers of a 0.3% rise in the quarterly figure and this had weighed on U.K. debt instruments, which then recovered briefly on the actual report. Nevertheless, first-quarter GDP does not appear to have altered expectations for the next monetary policy committee meeting on May 5-6. On balance, and based on current information, the MPC is likely to sit tight.
The continued rally in oil prices, a slowing economy and a strong currency prompted Norway to reduce key rates by 50 basis points earlier today. The deposit rate now stands at 6.5% and the lending rate at 8.5%. Norwegian money market rates trade in the corridor between deposit and lending rates.
Dollar-bloc currencies continue to outperform.
The Australian dollar rose to its best level in a year earlier today, but has since retreated. Foreign buying of Australian equities, especially resource companies, on ideas of an Asian recovery, appear to be a driving force behind the Australian dollar's 4% rally in the past two weeks.
The Canadian dollar also remains firm. This week Canada reported softer-than-expected retail sales for February after a 2% rise in January as consumer inflation backed into the central bank's 1%-3% target range. The net effect has been to reduce, on the margins, expectations for near-term rate cut. Still, the implied yield on the June BA futures suggests the market remains biased toward a rate cut later this spring. The U.S. dollar can slip toward the C$1.4730 area against the Canadian dollar over the next few days.
The Mexican peso is near eight-month highs against the U.S. dollar.
Its 6% rally thus far this year puts it among the strongest currencies in the world. Yesterday's news was supportive and further peso gains are likely. Interest rates can also trend lower. Mexico's trade deficit was smaller than expected, inflation in the first half of April was less than expected, and retail sales were stronger than forecast.
Brazil successfully re-entered the global capital markets by doubling the initial size of its five year global bond yesterday. The anticipated influx of capital will underpin the Brazilian real. Also, some participants' attention is already turning to next month's maturing debt, some of which leads to capital outflows unless it is rolled over. Industry estimates suggest some $582 million of corporate debt matures in May, compared with the $1.85 billion that is maturing this month -- most of which is already behind us.
Marc Chandler is an independent global markets strategist who writes daily for TheStreet.com. At the time of publication, he held no positions in the currencies or instruments discussed in this column, although holdings can change at any time. While he cannot provide investment advice or recommendations, he invites you to comment on his column at