Stocks Taking Over Where Currencies Left Off
earlier this morning, ECB's Draghi said "I think the term currency wars is way, way over done. We are not witnessing anything like that." That may be true, or it may be a matter of defining the word "war."
Clearly, global interconnectedness between currencies and markets is an increasingly hot topic for several years. This has been even more pronounced since the onset of the most recent phase of the EU Crisis beginning in late 2011. For instance, The long term low in the Euro in July coincided with the all-time low 10yr Treasury yield. Early February highs in TSY yields coincided with 14 month highs in the Euro.
The connectivity isn't omnipresent, and it's not rocket science considering the "risk-on / risk-off" trading patterns include the EU as well as the domestic economic and FOMC policy situations in the US. But central bankers--simply in addressing the term "currency war," give it more credence.
Euros surged in the early AM, and really set the tone for the day. Japanese officials commented on the Yen just before 9am creating a big swing lower in JPY/USD (stronger Yen) and there was a palpable response in bond markets (albeit on a much smaller scale).
Equities took over as the directional guidance giver of choice after the cash open, but the recent spat of Euro strength (on Draghi comments) helped stocks find their footing after 10:40am. Yields were following stocks lower until then and have gone sideways while the "risk-on" mini-bounce took place.
Scheduled Fed Treasury purchases just came through and this looks to be doing more good than harm at the moment with 10's down to 1.975. MBS, however, remain at their session lows with Fannie 3.0s down 3 ticks at 103-00, putting them more in line with the preexisting weakness in Treasuries that they'd, thus far been able to outperform. A caveat to this comment on Treasury stability: it's tenuous, and looks predisposed to keep a wary eye on equities and--though Draghi might be cranky about it--even currency gyrations.