Marketmind: As yields and the yen go, so goes the dollar

A look at the day ahead in European and global markets from Tom Westbrook

A day of calm after last week’s clear-out in the bond market and investors are back to trading near-term rate expectations.

Traders in Asia nudged both yields and the dollar a whisker lower on Tuesday, with an eye on Wednesday’s U.S. inflation data.

Two-year and ten-year Treasury yields are back below 5% and 4%, respectively.

News aided stocks, with Alibaba (NYSE:) extending gains on hopes that a $984 million fine for Ant Group signalled the end of a years-long crackdown that has hammered the Chinese tech sector.

U.S. Treasury Secretary Janet Yellen’s visit to Beijing seemed also to meet low expectations, with few signs that testy relations are getting better but also little suggestion they’re getting worse.

The yen is in the driver’s seat in foreign exchange markets, as investors pull back on high-yielding bets in emerging markets that have been funded by cheaply borrowed yen.

Such trades are placed by selling yen for dollars and then dollars for emerging-market currencies such as the peso or the real, so reversing them requires selling dollars for yen. The yen has risen to the strong side of 141 per dollar for the first time in three weeks.

Elsewhere in Asia the extension of a support package for China’s property sector helped Hong Kong developers. The rose 1.5%.

The events calendar is relatively bare until U.S. CPI data on Wednesday and U.S. earnings later in the week, although final German inflation figures and British jobs data are due later on Tuesday.

Economists expect UK unemployment to hold at 3.8%, which is likely to add upward pressure on wages and interest rates.

That seems to be lending speculative support to the British currency, with sterling longs near their highest in five years and the spot price touching a 15-month top in the Asia session.

Key developments that could influence markets on Tuesday:

British jobs data

Final German CPI

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