The U.S. dollar is mixed to start the week, though market conditions remain thin due to the holiday. The constructive employment report before the weekend has kept the greenback bid against the euro and Swiss franc. Opinion polls in the U.K. suggest the Tory Party may be pulling ahead, with an election announcement expected as early as Tuesday.
The dollar has been confined to less than half a yen range against the Japanese currency. Some export-related dollar sales helped cap it near JPY94.80, but the market does not appear done probing the upside. The Australian dollar remains firm ahead of the Reserve Bank of Australia meeting Tuesday when another rate hike seems likely in a close call.
Many markets remain closed for the long Easter holiday, but those markets that were open in Asia saw equity prices move higher. The MSCI Asia-Pacific Index rose 0.3%. The Nikkei gained 0.4% to reach its highest level since September 2008, encouraged by the weaker yen and ideas that the Bank of Japan may upgrade its assessment of the economy late this week.
With European debt markets closed Monday, the focus is squarely on central bank meetings this week and the U.S. Treasury auctions. Treasury will sell $82 billion worth of paper this week and after the tepid response to the recent sales the reception will be closely watched. The U.S. 10-year note yield reached its highest level since last June and is edging close to the 4% threshold, which given the still subdued inflation measures may attract buyers. Also note that the Federal Open Market Committee meets for a regularly scheduled discount rate meeting. Another discount rate hike, as part of the effort to normalize the spread between the discount rate and fed funds rate, is possible and if one is delivered expect only a very short-term market response as officials will underscore its function as a liquidity tool, not a change in monetary policy.
The world economy appears to be re-accelerating after an arguably weather-induced slowdown at the turn of the year. This is the key take-away from last week's purchasing managers' surveys. China posted its best PMI since July 2004. Japan's Tankan survey was the strongest since 2008. In Europe, new cyclical highs were recorded. German readings were the highest in nearly 14 years. Swiss readings were the highest in three years. Some suggest the PMI readings are consistent with 2.5% growth in the euro zone. Consumption is the laggard, but exports, capex and slowing of inventory destocking are fueling the better growth prospects.
