Dollar testing lows

Relative bond yields moving against the USD

Chart of the Day

Another 0.5% fall yesterday took the dollar index down to 89.8, its lowest since it briefly touched 89.6 (intraday) in February. The dollar has been losing ground against most other currencies, partially because further rises in inflation expectations, but basically unchanged nominal yields, have caused US real yields to turn more negative. And with yields elsewhere generally rising lately, especially in Europe, real yield differentials have moved against the USD.

Macro

US housing starts fell to 1,569,000 annualized in April. That was weaker than expected, although building permits held up better.

The eurozone goods trade balance fell to 1.3% of GDP in March, as imports rose by more than exports.

Of the major economies, the Citi economic surprise index for China is currently highest, while that for US lowest.

Markets

Crypto traders are closely watching Bitcoin, which at the time of writing was dropping below $42,000, thought by many to be a key level of support.

The Dow Jones Transportation Average underperformed to the S&P 500 yesterday, with a fall of 1.2%, potentially a concerning sign given the cyclical nature of transportation firms.

The cyclical financials sector nonetheless continues to rise relative to the market.

Traders are buying relatively more downside protection, with the put/call ratio trending up slightly in the past few weeks.

The main emerging market indices have all gained ground against the S&P 500 in the past month, with Brazil's Bovespa moving by the most.

Improved optimism for EMs is also evident in FX markets, with most currencies appreciating against the USD in the past month, with the notable exception of the Turkish lira.

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