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Reopening and recovery the keywords

(ATF) US stocks rose on Thursday anticipating a Trump reopening speech. The president delivered and Asia, Europe, and US futures followed suite on Friday. The MSCI Asia Pacific Index was up by as much as 2.3%, just a point away from entering a technical bull market.

So, why, somewhat counterintuitively on those moves, did the US dollar rise, gaining 0.2% to 100.2260?

The greenback anticipates expected rises in the US 10-year Treasury yield as the second keyword, recovery, kicked in.

While China’s Q1 GDP looked awful, down 6.8% year-on-year- March industrial production was down just 1.1% and beat all expectations. China is getting back to work faster than anticipated and that will help the global economy and trade… and underpins the Treasury yield rise story.

As for the Chinese currency, it stayed glued in place throughout the Asian trading day. CNY parity was set at 7.7018 by the People’s Bank of China (PBoC) Friday morning. It traded at 7.0743 at 6:30pm HK time.

Such inaction was not due to lack of actionable economic and financial intelligence. But the scary China GDP print was offset in part by higher factory output for March and possible upside to the yuan was capped by expectations of near-term added central bank liquidity.

So, stability prevailed and who’s to complain? Notably for foreign investors in local Chinese bonds, the more stable the yuan, the less the hedging costs for the investor.

Some currency investors may nonetheless want to be active on the yen front and use some of their dollar and yuan stashes to buy a strengthening yen as Japanese repatriate funds from abroad and Fed and PBoC liquidity will keep dollar and yuan on the weak side.


AF China Bond