Stocks Up, Bonds Down, Dollar And Yen Are Heavy

Investors favor risk assets today. Global stocks are moving higher in the wake of the pre-weekend US rally that saw the S&P 500 close at record levels.  Bond yields are mostly firmer, again with US move in response to the robust employment report setting the tone in Asia. European bonds participated in most of the pre-weekend move and are consolidating today with a slightly heavier tone. UK Gilts are outperforming, with a new record low of 64 bp on the benchmark 10-year issue.  

The Nikkei’s 2.4% rally was the biggest in nearly a month. It gapped sharply higher, leaving a three-day island in its wake, and closed on its highs.   All the Asian equity markets advanced. The MSCI Asia-Pacific Index rose 1.3%, its three consecutive advance and the largest since July 11.  

Japan reported its June current account. There is a strong seasonal pattern that the balance typically deteriorates in June from May. The pattern held. The surplus was nearly halved to JPY974.4 bln from JPY1.809 trillion in May. This comes despite the jump in the trade surplus (to JPY763.3 bln from JPY39.9 bln). 

Four other markets may be particularly interesting. The first is South Korea. S&P lifted its rating to AA from AA- before the weekend and left the outlook stable. The Kospi advanced 0.6%, and the Korean won was the strongest of the Asian currencies, rising 0.2% against the dollar. In Thailand, voters backed the military-sponsored constitution, which will pave the way for elections. The Thai equity market advanced 1.5%, while the baht slipped almost 0.5%. Taiwan, which has seen strong capital inflows, reported exports rose in July for the first time in 18 months. The Taiwanese equity market rose 0.6%, while the local currency was the second strongest in Asia, rising almost 0.15%. 

China reported July reserves in line with expectations and little changed from June at just above $3.2 trillion. It also reported a larger than expected July trade surplus. In dollar terms, the surplus rose to $52.3 bln from $48.1 bln. The driver was not so much stronger exports as weaker imports.