Markets
Yesterday’s risk rally that brought the Nasdaq and the S&P to record levels simply continued in Asia and Europe this morning even as there were few eco data. Corporate earnings mostly were positive. The hope for a big additional US fiscal package is also becoming ever more realistic as the US Senate overnight approved budget legislation that will allow the Biden administration to execute its stimulus package without support of the GOP. Some details/parts of the new package are still subject to political debate, but the core will likely be approved. European equities gained 0.5% to 1.0%. After a limited early session setback, core yields also turned north again. This afternoon, a below expectations US payrolls report to some extent dampened the euphoric narrative. The US economy in January added only 49 000 jobs (105k was expected) and the December figure was sharply downwardly revised (-227k from -140k initially reported). The unemployment rate unexpectedly declined from 6.7% to 6.3%, but some reporting issues might be in play for this series. It took some time for investors to make up their mind on which way to go after the payrolls report. Equity investors didn’t see a reason to change tactics. They probably concluded that a soft labour market only reinforced the case for additional fiscal support. European equities are holding to the morning gains. US indices opened about 0.4% higher. Core bond markets hesitated and are making nervous swings. US and, to a lesser extend German yields, temporarily declined after the payrolls release, but the setback was short-lived. Reflationary spirits apparently survived. The steepening trend on core bond markets (temporarily) resumed. The US 10-y yield tested the cycle top at 1.185%. The 30-y yield neared the 2.0% barrier, but both are currently off those peak levels (little changed in volatile market). The German yield curve also returned an earlier spike higher (currently little changed, also in a volatile market). Still, the German 10-y yield tries to close north of the -0.45% intermediate resistance. 10-y intra-EMU spreads versus Germany traded mixed with Greece underperforming (+10bp) and Italy still slightly outperforming (-2bp).
The reaction on the FX market to the payrolls was the most logical. After a strong performance earlier this week, the payrolls provide the perfect ‘excuse’ for some end of week profit taking on the dollar. EUR/USD currently again trades near the 1.2011 previous support. The correction in USD/JPY remains modest (105.50 area). The trade-weighted USD index is changing hands near 91.25. The sterling rally also took a break after yesterday’s BoE-jump higher. EUR/GBP filled bids in the 0.8740 area this morning but currently trades in the 0.8970 area. Still, the post-BoE repositioning in the UK interest rate markets continued with a further curve steepening (30y +4.5 bp), however with limited direct impact on sterling, at least for now.
News Headlines
In his first interview since installed as the new Turkish central bank governor, Agbal said he doesn’t consider any rate cuts from the current 17% until much later this year. He added that the central bank intends to move ahead of the market with rate hikes still a possibility if inflation risks drifting higher than expected. The Turkish lira gains against both the dollar and the euro. EUR/TRY (8.48) extends the February losing streak and is testing 8.50 support.
Canadian employment growth disappointed in January. Some 213 000 jobs were shed while markets braced for a 40 000 job loss. All losses concentrated in the part-time sector (-225 400) whereas full time employment rose with a meagre 12 600. The Canadian unemployment rate shot up from 8.8% to 9.4% against the backdrop of a declining participation rate (from 65% to 64.7%). USD/CAD is testing support at 1.28 but this is on broad dollar weakness following disappointing US payrolls.
