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Global Briefing: Stocks Rally as Dollar Slips

The greenback is posting losses against the big European currencies.

Today's features include a strong rally in the major equity markets and an extension of the dollar's recent losses, chiefly but not exclusively against European currencies including the euro, sterling and the Swiss franc.

In its first trading session since the Golden Week holiday, the


surged 3.6% to its best level since October 1997. After trying several times in vain last month, the Nikkei managed to close above the 17,000 barrier for the first time since March 1998. Advances were broad-based. Of particular note, exporters like




Shin-Etsu Chemical

helped lead the charge.

News yesterday that Japanese hot rolled steel exports to the U.S. rose 38% in March after a string of monthly declines helped the

Topix Iron & Steel

subindex rise 7.2%. Bank shares also rallied, led by

Sumitomo Bank

, which owned a 4.9% stake in Goldman Sachs. Press reports suggest Sumitomo may have sold as much as 9 million Goldman shares Monday when the stock surged following its initial public offering.

Other Asian bourses were also generally higher.

Of note the


, the Korean index, rose 5.1% to cap a 45% rise since March and posted its first close above the 800 level since October 1996. The Malaysian index rose 1.9% to its highest level in 14 months.

Japanese government bonds continued to rally, ostensibly because Prime Minister Keizo Obuchi didn't unveil new spending plans in his meeting earlier this week with

President Clinton

. Nevertheless, with the Japanese government forecasting 0.5% growth this year and the


forecasting a 1.4% contraction, a new spending scheme seems to be just a matter of time -- in time for the second half of the fiscal year, which starts Oct. 1.


Economic Planning Agency's

Taichi Sakaiya said even if there is a new spending program, Japan is committed to keeping yields low. This coupled with the

Ministry of Finance's

rinban (coupon pass) operation helped push the yield of the government's benchmark 10-year bond down 7.5 basis points to 1.33%, the lowest yield of the year, almost 100 basis points below the high water mark of 2.305% seen in early February.

Major European bourses are up over 1% near in morning activity

, helped by yesterday's late recovery in the U.S. shares. Gains are widespread. Among the interesting features is a news report suggesting that


, one of Europe's largest electronic and engineering firms, may form a joint venture with


, Japan's biggest computer maker, to challenge



lead in European sales. Other technology shares are also higher after the


recovery yesterday.

Meanwhile, European bonds are little changed ahead of nonevent policymaking meetings at the

European Central Bank

and the

Bank of England

. The latter confirmed this morning it will leave rates where they are. Yet this is likely not the end of the U.K. easing cycle, and there is still scope for cuts of another 25-50 basis points later this year.

A recent string of data pointing to some underlying economic strength should encourage the stand-pat policy.



reported a rise in its service purchasing managers' diffusion index rose to 56.3 in April, its highest level since last June, from 53 in March. Recent data also showed the manufacturing sector may have bottomed. Nevertheless, sterling's strength threatens to renew the anguish of British industry, and as pointed out in this space

yesterday, negates a good part of this year's monetary easing.

The foreign-exchange market has strung together the largest bounce in the beleaguered euro since it was introduced. The two most often-cited factors are the threat of intervention and a possible negotiated settlement in Yugoslavia. I find the first an unreasonable stretch of the imagination. The second has been fanned by a

Market News Service

report quoting Clinton as suggesting that Serbian leader

SlobOdan Milosevic

was getting closer to meeting


demands. As recently as yesterday, Clinton suggested NATO was prepared to continue its assault through the winter.

If truth is indeed the first casualty of war, then it still difficult to decipher what is posturing and what is real. Even the policy wonks, who sell the information given to them by government officials to the investment community, claim that at most the


foreign ministers meeting today will draw up a framework for such negotiations. NATO has been very careful not to label Milosevic a war criminal because a negotiated settlement is likely to leave him in charge of Yugoslavia. In addition, because the euro was falling before the war began and because the pace of its decline did not accelerate after the start of hostilities, it is difficult to attribute much of the euro's weakness to the conflict.

Nevertheless, what began as a healthy bout of profit-taking is turning into a full-fledged short squeeze, bolstering the euro.

The next key level is near last month's high around $1.0870. I suspect the bulk of the euro's advance, based on what is currently publicly available information, is behind us. Tomorrow's employment reports from the U.S. and Germany, the eurozone's largest economy, will be a useful reminder of the macroeconomic forces at work that are the main weight on the euro. The dollar has tested a technical retracement objective against the Swiss franc seen near the 1.4820 level.

The greenback initially fell to the 119.85 level against the yen in early Tokyo activity, but has since rebounded. Some of the leveraged players that had previously switched from yen carry trades to Swiss franc carry trades may be switching back, helping underpin the dollar against the yen. The dollar encounters resistance in the 121.40-yen area, the high seen earlier this week.

The Australian dollar surged after the Reserve Bank of Australia issued its semiannual report

, which suggested that the three-year interest rate cycle has bottomed. It noted that the economy is in better shape than the bank had expected and that inflation was moving back toward the government's 2%-3% target.

Separately the government reported a 2.3% rise in March retail sales. The Australian dollar is trading at its best level in 13 months, up over 1% today. A retest of last year's high, set near $0.6870, may come sooner rather than later. Earlier this week I suggested such a target over the next couple of months.

Lastly, Brazil reported a lower-than-expected inflation rate in April

and this will likely pave the way for additional rate cuts. Prices rose 0.47% in April after a 0.56% rise in March. Inflation in Brazil is running well below what many private economists and the IMF thought likely after Brazil let its currency float in January.

If inflation is running below expectations, so is Brazil's trade surplus. In April Brazil posted a $30 million trade surplus after a $217 million deficit the month before. The improvement came from a 9% drop in imports and a 3.1% decline in exports. For the first third of the year, Brazil has posted a trade deficit of $785 million. It has already lowered this year's forecast from $11 billion to $7 billion, which is also looking to be too optimistic. Last year Brazil posted a $6.4 billion deficit. The central bank meets again on May 19 and another rate cut is highly probable.

Marc Chandler is an independent global markets strategist who writes daily for At the time of publication, he held no positions in the stocks, 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