It could have been a disaster. US faltered yesterday, with the S&P 500 again struggling in the 1945-1950 area, and China’s PMIs were weaker than expected. However, after initial weakness Asian shares turned higher. The nearly 0.9% rise allowed the MSCI Asia Pacific Index to close at its best level in five sessions. 

European bourses are firmer, led by the 1.2% rise in the German DAX. The Dow Jones Stoxx 600 is up 0.6% near midway through the session.  Consumer discretionary, information technology and materials are leading the advance. Financials are lagging.  It is the only sector that flat to slightly heavier. The S&P 500 is set to recoup about 2/3 of yesterday’s losses at the open. 

Core bond yields are slightly firmer in Europe and the US. Of note, Japan sold its first 10-year bond with a negative yield (minus 2.4 bp). The bid-cover edged higher to 3.2 from 3.1.  

The US dollar itself is little changed, for the most part. There are two exceptions. The first is the yen. The slightly firm US yields and rising equity prices have lifted the dollar against the yen after Asia initially extend yesterday’s decline to almost JPY112.15. The greenback is flirting with the JPY113.20 area. The JPY114.00 area is important.  It is the high for the past two sessions and corresponds to the 20-day moving average. The dollar has not traded above this moving average since February 3.  

The second exception is sterling. It is the strongest of the majors today, gaining about 0.5%. Sterling’s recovery began in the US afternoon yesterday and has continued today, despite the disappointing fall in the manufacturing PMI to nearly a three and a half year low. We note bullish divergence in both the RSI and MACDs, which did not make new lows even though sterling did. We look for sterling to move through the high from the second half of last week found$1.4030-$1.4045 area. 

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