- Russia may switch share of US Treasuries to IMF-issued bonds
- Weber: Central banks need tools to avoid asset bubbles
- US trade deficit rises to $29.2 bln, meets expectations
- Canada posts rare trade deficit; home prices drop
- Goldman Sachs CEO: Recession likely to be protracted
- Fed’s Lacker: Fed shouldn’t wait too long to hike, Yield curve suggests Fed does not need to buy additional Treasuries
- Chrysler-Fiat deal closes
- Fed lost $5.3 bln in Q1 on Bear Stearn, AIG assets; reveals balance sheet details
- Brazil to buy $10 bln in IMF bonds
- Fed’s Beige Book: Some improvement but anecdotes largely negative.
- ECB’s Hurley: Monetary policy to remain accommodative
- US posts record May budget deficit of $189.7 bln
- US auctions 10-year notes at 3.99% yield
- Oil closes strong at $ 71.30, metals soft; Gold at $953
- US equities very choppy; close down 0.3% with over 2% intraday range.
US bonds were in focus today. Worries that central banks are preparing to dump dollars and find alternatives were whipped up by news that first, Russia and then Brazil would steer $10 bln each to IMF-issued bonds (where the funds will safely be lent to Latvia, Zimbabwe and Iceland!). Despite these concerns, the dollar strengthened for much of the session as risk aversion was rekindled by a slide in US equities. Early strength ( gain of more than 1%) gave way to losses of more than 1% after the tepid 10-year note auction. Prices recovered into the close, and so did EUR/USD.
Prices reached 1.4144 on the Russian news first thing in NY, fell to 1.3.992 on hawkish comments from the Fed’s Lacker before rebounding to 1.4015 on the Brazilian IMF announcement. The poor US Treasury auction and soggy stocks saw a final downdraft to 1.3914 unfold before rebounding to 1.3985 late.
EUR bulls who reenter longs on yesterday’s firm price action were pulling out their hair today. Many may head to the sidelines or limit position sizes in the near-future, keeping markets thin and choppy.
Commodity currencies followed in lockstep with the euro today as the reflation trade was trimmed uniformly except for the oil component which saw independent strength. Lots of dentists and accountants are in the oil trade via ETFs so it may not be long before that one succumbs as well.
