Overview: The US dollar is firmer against most of the major and emerging market currencies. The yen and sterling are resisting the pressure, while the South African rand and Russian rouble are paring some of this week’s declines. US equity losses yesterday weighed on Asian and European trading today. The MSCI Asia Pacific Index fell every day this week to post its worst week in seven months, losing more than 3.5%. This warns of the risk of a steep sell-off in China when its markets re-open on October 8. The index of H-shares that trade in Hong Kong fell 3.75% this week. The technology sector has been hit particularly hard, and the MSCI Asia Pacific technology index is at the lowest level since July. European stocks are also under pressure today, but the smaller technology representation has helped it hold upper better than Asian markets. The 0.6% decline of the Dow Jones Stoxx 600 in the European morning brings this weeks loss to about 1.5%. Core benchmark yields are up two-three basis points, and most of the European peripheral bond yields are up a little less. Italian bonds are weak, and the yield is up about five basis points, bringing the increase on the week to eight basis points, and keeping the pressure on Italian bank shares, where the index is off about 4% this week following last week’s 8.3% plunge. The US 10-year yield is at 3.20% ahead of the US jobs data.
Japan: The dollar is higher against the yen for the fourth consecutive week but this week’s gains are marginal after finishing last week around JPY113.70. And even these upticks are vulnerable to the volatility after the US employment data. There is a nearly $550 mln option at JPY114 that expires today and $1.2 bln at JPY113.50, which is just below the week’s low. Contrary to some expectations, the BOJ did not reduce the amount of super-long bonds was buying, but judging from its inaction, it is hesitant about resisting the upward pull on yields coming from the US. Although August cash earnings were disappointing (0.9% year-over-year after 1.5% in July, household spending jumped 2.8% (from 0.1% in July). It is the strongest in three years.
