Yen May Rebound as US Banks Report First-Quarter Results

TALKING POINTS – US DOLLAR, YEN, EURO, STOCKS, US BANKS, EARNINGS

• US Dollar retracing lower in APAC trade, Powell a possible trigger

• Yen down as Nikkei gains, may rebound on US bank earnings reports

• Euro broadly higher vs G10 FX, newswires citing one-off catalysts

The US Dollar fell in Asia Pacific trade, with prices seemingly retracing after yesterdays spirited advance. Worried comments attributed to Fed Chair Powell may have helped. Bloomberg cited unnamed sources claiming he told Democratic lawmakers at their annual retreat that softer growth in China is having an impact on US performance while the slowdown in Europe has turned out to be more severe than expected.

The Yen declined as Japan‘s benchmark Nikkei 225 stock index traded higher, sapping the anti-risk currency’s appeal. Fast Retailing – the parent company of Uniqlo and Theory – led the charge upward after second-quarter operating profit of ¥68.3 billion topped the ¥62.9 billion forecast. Rising bond yields punished the go-to funding unit yesterday as higher lending rates spurred carry trade demand.

Meanwhile, the Euro powered higher, scoring gains against all its G10 FX counterparts. A discrete catalyst for the move was not apparent. The newswires attributed gains to heavy EUR/JPY buying at the Tokyo currency fix. Bloomberg cited unnamed regional traders as saying that this activated a wave of stop-loss activation on short positions.

YEN MAY REBOUND AS US BANKS REPORT FIRST-QUARTER RESULTS

The spotlight now turns first-quarter earnings reports from US bank giants JPMorgan and Wells Fargo. The former is expected to see earnings per share (EPS) of $2.35, a rebound from the one-year low of $1.98 in the fourth quarter. The latter is projected to see deceleration, with EPS ticking down to $1.09 in the first three months of the year compared with $1.11 previously.

Traders are likely to be at least as interested in the lenders forward guidance – looking for that to inform global business cycle expectations amid broad-based signs of slowdown – as they are in headline statistics. Downbeat rhetoric may cool risk appetite, renewing haven demand for the Greenback and putting the Yen back on the offensive while commodity bloc FX bears the brunt of selling pressure.

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CHART OF THE DAY – MANUFACTURING SLUMP DRIVING GLOBAL SLOWDOWN

A slump in manufacturing looks to be driving the broad downturn in economic growth since the beginning of last year. JPMorgan global PMI data shows that factory-sector activity growth has slowed precipitously while performance in the services has held up.

It is tempting to take heart in this divergence. After all, services contribute over 60 percent of global GDP (accoring to data from the CIA). Such optimism may be premature. Manufacturing is more cycle-sensitive than services. The slump in the former may thus be a leading indicator of whats to come for the latter.