Markets
Asian and European (equity) markets still felt the fall-out this morning from yesterday’s setback on WS. Investors still saw the glass half empty as some parts of big tech corporations’ earnings reports were seen as a reason to reduce exposure even as the results as such weren’t that bad. Rising equity volatility due to a retail driven squeeze in heavily shorted stocks probably also added to global uncertainty. The VIX volatility index jumped to ‘stress levels’ last seen in November. Uncertainty on the vaccination rollout probably also still played in the background. Several European indices lost up to 2%+ after the open. However, just as there was no unequivocal driver for yesterday’s sell-off, tensions again gradually eased, suggesting that this might be mainly an overdue correction after a protracted rally. European equities currently returned into green. US indices opened gains up to 1%. The eco data released were interesting, but for now only remain a side-story in guiding market price action. Among the data published today, we retain that EC economic confidence held up well Also interesting, but for now without significant market reaction, German HICP inflation jumped a spectacular 1.4% M/M and 1.6% Y/Y, while only a modest 0.3% M/M and 0.5% Y/Y was expected. Changes in indirect taxes and a series of technical factors made it difficult to assess the (underlying) inflationary dynamics. Even so, it is something worth keeping an eye on further out this year. At least for now, the report was almost completely ignored in European bond markets. In the US, the first estimate of Q4 annualized growth printed at 4.0%. The performance of Q4 consumption was slightly disappointing (2.5% Q/Qa). However, given the high degree of uncertainty in the data currently, markets considered the report as rather close to expectations. The US economy in 2020 contracted 3.5%. A more timely indicator, US weekly jobless claims, printed better than expected at 847k from 900k (875k expected) and also supported the intraday turnaround in sentiment. US yields are rebounding with the 2-y up 0.2 bps and the 30-y rising 3.2 bps. Today’s rebound also leaves the uptrend channel for the US 10-y yield intact (bottom near 0.98). Germain yields are little changed (2-y) to less than 1 bp higher for longer maturities.
On the FX markets, there was no follow-through buying on yesterday’s (risk-off driven) jump of the dollar. EUR/USD initially held at tight range in the 1.21 area and trended higher after US jobless claims further improved global sentiment. EUR/USD currently trades in the 1.2125. The 1.2054/1.2011 zone still survives as key support area. After a remarkable gain yesterday, sterling this time couldn’t profit from a gradually improved sentiment. EUR/GBP again returned to the pivotal level near 0.8865.
News Headlines
The Turkish central bank left its end-of-year inflation forecast unchanged at 9.4% for 2021 with price growth afterwards slowing to 7% by the end of 2022 and reaching the 5% inflation target by the end of 2023. Turkish inflation is currently still running at 14.60% Y/Y, making the forecasts perhaps somewhat optimistic. CBRT governor Agbal sent a clear hawkish signa lto markets though, expressing his intentions to keep policy tight over the forecasting horizon. Since his entrance in November, the Turkish central bank rapidly hiked rates from 10.75% to 17%. Agbal added willingness to deliver front-loaded tightening if inflationary risks might warrant such action. The Turkish currency remains near the recovery highs around EUR/TRY 8.90.
The German Standing Vaccine Commission at the Robert Koch Institute issued an advisory statement to the German government today, saying there is “insufficient data currently available to ascertain how effective the (AstraZeneca) vaccination is above 65 years”. They recommend to only use it for the 18-64 age group. The European Medicines Agency is expected to give approval to the AstraZeneca vaccine tomorrow, after already doing so for the ones from BioNTech/Pfizer and Moderna.
