Markets
US and European equities on Friday fell prey to further profit taking. Uncertainty on the short-term impact of the latest rise in corona infections and on potential stumbling blocks in the roll-out of the vaccines were a good reason for some investors to take profit on last month’s rally. Rising volatility due to the retail driven squeeze in some equities/assets probably also inspired some investor caution going into the weekend. US and European equites closed with losses of about 2%. Positiveeco data (better than expected Q4 GDP in several EMU countries, good US income and spending data & Chicago PMI) or other news (results from J&J vaccine) only had a limited/temporary impact on trading. US interest rates showed a diffuse picture. The Treasury curve steepened despite the risk-off with yields changing -0.8bps (2 & 5 y) and +2.5bps (30-y). The rise in LT yields was mainly driven by a rise in real yields as inflation expectations reversed an earlier rise. German yields also ignored the risk-off with yields rising between 0.2bps (2-y) and 2.4bps (30-y) as recent comments on an ECB rate cut worried considered as not being that likely. USD trading was confined to relatively tight ranges. The US currency hardly profited from the risk-off or from the intraday rise in US real yields. EUR/USD even closed the day marginally higher at 1.2136. EUR/GBP finished the week at 0.8855, slightly below the 0.8865 range bottom. Sterling apparently still holds the benefit of the doubt as the UK is making better progress on vaccinations compared the likes of the EU.
Asian equities are rebounding this morning after a soft start, with gains currently ranging between 0.84% (Australia) and 2.5%+ (Korea). The Chinese PMI’s (55.1 from 52.8 composite) as released this weekend remained in positive territory, but printed weaker than expected. The China services sector (52.4 from 55.7) in particular is losing momentum. However, The Caixin, manufacturing PMI showed an erosion in export orders too. This morning, the PBOC again added liquidity to the market to address recent sharp rise in short-term interest rates. The PMI’s also suggest that the economy still might need some support going forward. The yuan weakened to USD/CNY 6.46. USD/JPY is little changed at 104.65 and so is the trade-weighted USD index (90.52).
Final EMU manufacturing PMI’s, EMU labour data and the US manufacturing ISM will be published. The ISM is expected to hold at a strong 60 level (from 60.5) as manufacturing is seen as resisting the negative impact from current corona wave. However, for markets, data from the services sector (ISM Wednesday) and from the labour market (ADP Wednesday; payrolls Friday) probably are more important. After last week’s rejected test of 1%, the gradual uptrend channel for the US 10-y yield remains intact. The German 10-y yield tries to move higher in the -0.57%/0.46 consolidation pattern even as ECB members continue to stress the need for continued policy support. EUR/USD also holds a ST consolidation pattern between 1.2050 and 1.2190. For now, the dollar profited only modestly from brief upticks in risk aversion. EUR/GBP this morning is extending its trip below the 0.8865 support, improving the short-term picture for the UK currency.
News Headlines
Rating agency Moody’s affirmed Germany’s top-notch Aaa rating with a stable outlook. Moody’s laudes the country’s high ability to apply effective countercylical fiscal policies, its large fiscal buffers to limit the impact from Covid-19, its exceptional debt affordability and its very strong institutions. Germany enjoys a similar status at rating agencies Fitch and S&P. Within the eurozone, only Luxembourg and the Netherlands have best-in -class ratings.
Wall Street’s retail army is at it again. After last week’s targeted buying frenzy in GameStop shares, they now target silver. The commodity’s price rose from around $25/Oz on Thursday morning to $29/Oz this morning, the highest level since August, with activity being traced back to Reddit’s Wall Street Bets forum. A repeat of last week’s trick – a huge short squeeze – seems less likely. The Commodity Futures Trading Commission reveals a net-long position since mid-2019 and the market is much deeper.
