Markets
In the absence of relevant economic data, sentiment and technical considerations drove yesterday’s markets at the start of the new trading week. A positive Asian risk mood gently spilled over into an otherwise uneventful European dealings. EMU stocks rose about half of a percent with Italy the regional outperformer. Core bond yields drifted a few bps higher with the US 10-yr yield trying to form a new recovery high and the 30-yr variant touching 2% before paring some of the gains in what probably was a technical move. The yield retracement accelerated as the US joined. Investors might be eying this week’s auctions before deciding on the next relevant move on bond markets. US yields eventually rose less than 1 bp at the short end but shed up to 1.8 bps at the 30-yr tenor. German yields retreated from intraday highs in lockstep to end flat. Peripheral yield spreads were unchanged with the exception of Italy (-3 bps). The dollar initially tried to recoup some of Friday’s payroll-induced losses. The trade-weighted dollar touched 91.2 (up from 91) but the recovery move lacked strong momentum (US intraday yield reversal?), resulting in an eventual close of sub 91. EUR/USD touched 1.202 before rebounding and closing at 1.205, thus eking out a small gain on a daily basis. USD/JPY slipped to the 105.2 area even as sentiment was rather constructive. Sterling reversed losses that sent EUR/GBP towards 0.879 to close unchanged at 0.877, even as UK post BoE yield’s surge eased.
Overnight news flow isn’t very exciting. Most Asian stock markets trade in light green in the wake of new record highs on all major US indices. China outperforms as the PBOC downplayed the significance of its latest liquidity draining operations saying they do not represent changes in the central bank’s policy stance. The central bank does warn for excessive debt taking by consumers (cf. infra). Core bonds trade with an upward bias. The dollar loses against G10 peers. EUR/USD extends yesterday’s last ditch gain to 1.2075. USD/JPY gives up the 105 barrier.
The economic calendar again won’t be driving markets today although the US 3-yr bond auction might give some flavor of what’s to come tomorrow (USD41 bln 10-yr bond sale) and Thursday (USD27 bln 30-yr). European data is of secondary importance. Core bonds might have the downside rather well protected as the equity (futures) rally seems to be losing some steam today. The USD looks more sensitive to yield moves than risk sentiment lately. This could result in continued though modest dollar weakness, having also the technical implications of the break below USD/JPY 105 and DXY 91 in mind. EUR/USD is currently testing intermediate resistance around 1.208 (neckline in the Dec 2020-Jan 2021 head-and-shoulders formation).Failing to take it out, would bring back focus on key support at EUR/USD 1.2011 fairly quickly. EUR/GBP trading is rather muted. The technical picture remains sterling constructive as long EUR/GBP remains below 0.88.
News Headlines
The People’s Bank of China in its latest report warned that further growth in consumer spending shouldn’t rely on consumer finance. The PBOC advocated demand-side reforms that should be ‘promoting employment, improving social security and optimizing income distribution’. The PBOC warned that some consumers take on debt irrationally which bring risk to the corporate sector as production is expanded to meet demand from consumers that might become insolvent. The PBOC also said it aims to keep prices for land and housing stable as the property sector should be seen as a ST stimulus for the broader economy.
New-Zealand authorities are taking steps to cool the housing market. The Reserve Bank of New Zealand will restore loan-to-value restrictions from March as the national median house price set new records and as new mortgage lending continue to rise strongly. The LTV restrictions on mortgage lending to investors were lifted in April last year. Deputy Governor Bascand said the RBNZ is “concerned about the risk a sharp correction in the housing market poses for financial stability”.
