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Capital Markets Experience Fragile Calm

Fragile calm prevails in capital markets today, influenced by poor US economic data, ahead of the long holiday weekend.


Today's capital markets are experiencing a fragile calm ahead of the long holiday weekend. Poor US economic data and the third consecutive decline in the KBW Bank index have weighed on risk sentiment. Most large bourses in the Asia Pacific region fell, with Hong Kong and India as notable exceptions.

Japanese Topix Bank Index Falls

In Japan, the Topix bank index fell 1.1% after a 1.9% decline yesterday, now lower on the week. Europe's Stoxx 600 is trying to snap a three-day fall, up around 0.25% in late-morning turnover. The Stoxx 600 bank index is up 1%, recouping yesterday's loss (~0.6%) in full.

US Dollar and Treasury Yields

Benchmark 10-year yields are softer, 1-3 bp in Europe and around two in the US, leaving the 10-year Treasury below 3.30%. The US Dollar is mostly firmer but is consolidating for the most part in narrow ranges. The New Zealand dollar is the weakest of the G10 currencies today, at around 0.55%. The Australian dollar is next, off about a third of one percent.

Asia Pacific Economic Updates

China's Caixin service and composite PMI confirm the service sector is recovering faster than the manufacturing sector. Infrastructure projects are a key impetus behind the recovery, fueled by significant credit growth. Australia's February trade surplus was larger than expected at A$13.87 bln, but exports and imports fell (-3% and -9%, respectively).

BASF factory in Germany
BASF factory in Germany

European Economic Developments

Germany's February industrial production jumped 2.0% after surging a revised 3.7% in January. Manufacturing and mining rose 2.4% after a 2.0% gain in January. Construction rose by 1.5% after a 13.6% jump in January. However, consumption remains soft, and the labor market is softening.

Disappointing US Economic Data

US economic data has continued to disappoint, with the PMI revised lower, weaker ISM readings, a wider trade deficit, and a decline in job openings. The soft data and a three-day decline in the KBW bank index have made the market less confident of a Fed hike next month.

Canadian Trade Balance and Job Report

Canada reported a much smaller than expected February trade balance (C$0.4 bln rather than the C$1.7 bln median forecast). The focus turns to today's jobs report, with the latest responses in Bloomberg's survey lowering the median forecast to 7.5k net new jobs.