Dollar Begins Important Week On Softer Note

The US dollar, which finished last week on a firm note, is under pressure to start the new week that features Bank of Japan and Federal Reserve meetings. The slighter stronger August CPI reading helped lift the greenback ahead of the weekend, but investors continue to see a low probability of a Fed hike this week.  

Global equities are moving higher, shrugging off the decline in the US markets at the end of last week. With Japanese markets closed for holiday, the MSCI Asia-Pacific Index, excluding Japan advanced 1.2%, its biggest gain in two weeks, and the third consecutive gain. Taiwan’s bourse, which had been closed since last Wednesday, rallied 2.8%, in a catch-up and as investors played the Apple suppliers’ card.   

European equities are higher, with the Dow Jones Stoxx 600 up one percent in late-morning turnover. All sectors are advancing, but the energy, utilities, and materials are leading the way. Financials are matching the market. Disruption in Libya is helping lift oil prices, and there is some lingering hope of an agreement between producers. Brent is up about 1.25%, recouping most of its pre-weekend decline. WTI is up about 1.5%. Meanwhile, benchmark 10-year sovereign yields are mostly slightly firmer, though Spain and Italy are a touch softer.  

Bombs found in New York City and two New Jersey cities understandably has raised anxiety. Authorities have claimed that there is no evidence of international linkages. The market impact looks minimal.  

There were two other developments over the weekend. First, Merkel’s CDU may have seen its support sufficient erode in Berlin that it may not longer be part of a coalition government with the SPD. Both of these two main parties saw their vote share drop about five percentage points from the previous election in 2011. However, with 23% of the vote, the SPD is still the single largest party. There is talk that the SPD may chose to form a coalition with the Greens and Left Party, both of whom got about 16.5% of the vote. Until now the SPD has been reluctant to invite the Left into a coalition.