The U.S. dollar remains firm after Monday's recovery. New concerns about the funding needs of European banks have been sufficient to offset the stronger-than-expected German IFO survey. Euro support is seen in the $1.2230-40 area. Sterling remains on the defensive ahead of what promises to be an austere budget.
China fixed the yuan higher, validating Monday's spot advance, but the yuan slipped about 0.25% against the dollar Tuesday. Asian currencies as a whole saw some of Monday's sharp gains pared back, with the Korean won, the big winner Monday, leading the way lower Tuesday with a 0.85% decline. The yen is the strongest of the majors, despite a lukewarm reception to the government's broad fiscal and growth strategy, encouraged arguably by a waning of the risk appetite. Dollar support is seen in the 90.40 yen area.
Global equities were lower after the reversal in North America Monday. The MSCI Asia-Pacific Index and the Dow Jones Stoxx 600 were snapping a nearly two-week advancing streak with Tuesday's losses. Both are off around 1% Tuesday. In Asia, we note that the Shanghai Composite was the only major market that managed to close higher Tuesday. Domestic industries, like health care, industrials and utilities fared best, while telecom, basic materials and financials were drags.
Following the downgrade of one of the largest French banks Monday, it is not surprising that the financial sector in Europe is among the weakest sectors Tuesday. It joins basic materials and oil and gas as the weakest sectors, but all 10 major sectors represented in the Dow Jones Stoxx 600 are lower.
Risk aversion is seeing a safe-haven bid return to U.S. Treasuries and German bunds Tuesday. Peripheral European bonds are under pressure with 10-year spreads widening out 23 basis points in Greece, 13 basis points in Spain and 12 basis points in Italy. Spain's T-bill auction was well received, though the cost is higher yields. The three-month yield rose to 91 basis points from 64.5 last month and the six-month bill yield rose to 1.57% from 1.26% in May. This week's U.S. coupon sales begin with $40 billion two-year notes Tuesday.
