Helped by the surge in the Dow Jones industrials yesterday and hopes that the global economy is on the mend, stocks around the world are higher. This is leaving bond markets largely sidelined and little changed. The dollar is trading at new three-week highs against the yen, but is flattish against the European currencies, keeping the euro a hair above its record lows.
The dollar firmed against the yen as it became clear the Japan's Prime Minister Keizo Obuchi did not come to the U.S. with a stimulative plan in hand. The U.S. argues that Japan should use every tool possible to ensure that its economy returns to a path of sustained growth. The Obuchi administration argues that adequate measures are already in place.
Foreign investors have fueled a 20% rally in the Nikkei this year, the largest advance of the major bourses, on ideas that the Japanese economy has begun recovering. Yet many seem disappointed that additional stimulative measures were not forthcoming, especially because in recent days several officials and the policy wonks indicated package was being put together. For the record, since 1992, the Japanese government has spent 120 trillion yen ($1.02 trillion) trying to boost the economy and strengthen the financial sector, and the economy nonetheless has spent the past five quarters contracting.
The dollar encounters resistance in the 121-121.20-yen area and then near the 122-yen level seen in early April.
The most likely scenario seems to be additional near-term dollar upticks before profit-taking and position-squaring tomorrow ahead of the reopening of Japan's markets on Thursday.
Ideas that emerging Asia is on the road to recovery helped regional bourses extend this year's impressive gains. Thailand's equity index rose 8.6% to a 13-month high on news that
upgraded the country's credit outlook to positive from stable. Indonesian shares rallied 5.1% after the country reported that the economy unexpectedly grew by 1.34% in the first quarter. The government expects the economy to contract a little more than 1% this year after collapsing more than 13% last year.
The Singapore government has also become more optimistic its economy, revising its growth forecast this year to 2% from 1%. The Singapore stock index rose 3% and is now above levels seen in July 1997, just before Thailand devalued. Korean equity markets rose almost 2%. Korean markets are closed tomorrow for a national holiday and the market awaits the government's interest rate outlook to be delivered Thursday.
Note that Thailand is refusing to capitulate to U.S. demands
that it withdraw the candidacy of its deputy prime minister, Supachai Panitchpakdi, as a candidate to replace Renato Ruggiero as head of the
World Trade Organization
. Ruggiero's term ended last week. The U.S. is supporting the candidacy of New Zealand's Mike Moore. Moore appears to have the support of most of the industrialized countries and Latin America. Asian nations seem to support Panitchpakdi.
European bourses were mostly posting modest gains near midday. The U.K.'s
was playing a bit of catch up after yesterday's holiday and was up nearly 1.25% in the early going. Strong U.S. auto sales in April helped lift
share prices. DaimlerChrysler reported U.S. car sales rose 1.8% in April, while Volkswagen sales surged almost 30%.
, one of the leading producers of steel electrodes, moved higher after settling price-fixing charges in the U.S. Also among the highlights was news that Netherland's
is going to acquire
, the computer services company.
European bond markets are little changed, with yields on 10-year bonds near four-week highs. The spread between the German and U.S. 10-year bonds stands near 155 basis points, the widest in a decade. The widening spread reflects mostly the rise in U.S. yields. The yield on the German 10-year bond has moved within a 3.80% and 3.91% range, while the yield on the U.S. 10-year has risen almost 25 basis points over the past month.
The U.K. purchasing managers survey rose to 48.2 in April from 47.2 in March.
It is the 12th consecutive month that the reading was below the 50 boom-bust line. However, the pace of contraction is moderating. Forward-looking indicators, like new orders, also rose and now stands at its best level in a year. Domestic activity appears to be slowly picking up the slack created by the drop-off in exports. The data helps support expectations that the
Bank of England's
monetary policy committee will keep rates on hold when it meets tomorrow and Thursday.
Look for the Canadian dollar to consolidate today
after its four-day run carried it to its best levels against the U.S. dollar in almost a year. The unexpected decline in the U.S. NAPM yesterday helped ease fears that the
will tighten and this helped give the Canadian dollar its last oomph, with the U.S. dollar falling through the C$1.45 level. Some market participants are beginning to talk about the likelihood that the
Bank of Canada
could take advantage of the strength of the Canadian dollar to cut interest rates.
Tomorrow's speech by Bank of Canada Governor Gordon Thiessen will be closely watched for insight into policy. During the consolidative/corrective phase I anticipate, the U.S. dollar can rise toward the C$1.4560-1.4580 level. For the record, however, I remain bullish the Canadian dollar over the longer-term and look for the U.S. dollar to slide toward C$1.43 over the next couple of months and below C$1.40 toward the end of this year or early next year.
The Australian dollar is also pulling back today
after its sharp advance over the past five days. Over the next couple of months, the Aussie has potential to retest least year's high, which was set near 0.6870 against the U.S. dollar. Currently it's hugging the 0.6600 area.
The U.S. economic calendar is light today.
Leading economic indicators, the calculation of which the government has outsourced, and housing completions are not the stuff that moves the capital markets. However, after yesterday's Treasury recovery after the weaker than expected NAPM, additional technical buying or short covering is possible. Initial resistance is pegged near yesterday's high of 120-16 basis the June bond contract. Penetration would allow another half-point gain, but stronger gains seem unlikely.
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 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