Markets
US investors caught a late reflation fever on Friday, triggering a fresh bout of US Treasury selling. German Bunds followed the move south. The German yield curve bear steepened with yields rising by 0.9 bps (2-yr) to 5.2 bps (30-yr). The US yield curve moved in similar fashion with yields adding 0.1 bp (2-yr) to 6 bps (20-yr). The US 10-yr yield closed above 1.2% for the first time since February, with the March liquidity squeeze (intraday) top (1.27%) becoming the next high profile resistance on the charts. The US 30-yr yield managed a 2%+ close. Next big resistance levels are 2.08% and 2.41%, respectively 50% and 62% retracement of the 2018-2020 yield decline. Both the US 10-yr and 30-yr yields are also bumping into the upper bounds of their rising trend channels. The sell-off in US Note futures continues this morning. Underlying details show an equal contribution of inflation expectations and real yields in Friday’s move. The difference between the both remains huge though with the former setting multi-year highs north of 2.25% while the latter is still stuck below -1%. Friday’s relative move between the two partly helps explain why the US dollar managed to limit losses to returning gains made during European trading. The trade-weighted dollar closed near unchanged around 90.50. EUR/USD did the same around 1.2125. The greenback continues to struggle this morning in Asian trading. Another compelling factor for USD is the continuing rally on commodity markets. Brent crude for example rose from a $60.35/b intraday low on Friday to $63.5/b currently. Extremely cold winter weather and the prospect of mass vaccination (& increased demand) keep the commodity going. US and European stock markets closed with 0.5% gains and new recovery/all time highs.
Japanese Q4 GDP data beat consensus this morning, extending the Q3 rebound with a 3% Q/Q gain. Details showed positive contributions from consumption, investment and net exports. The 2020 hit to the economy was a smaller-than-feared -4.8%. The Nikkei gains nearly 2%, taking out 30k for the first time since 1990. USD/JPY treads water near 105. Friday’s reflation vibes remain thus omni presenton Asian markets with China still closed for Lunar NY. Today’s eco calendar is empty apart from outdated EMU production data (December). US retail sales and FOMC Minutes (both on Wednesday) are this week’s first eyecatchers. Sterling trumps other majors this morning with the political debate shifting towards reopening pockets of society/economy as the vaccination process runs very smoothly. EUR/GBP sets a minor new low around EUR/GBP 0.8730. High profile support stands at 0.8671.
News Headlines
During regional parliament elections in Catalonia, the Socialists (PSOE) won more votes than any other single party, resulting in 33 seats of the 135 in total. Salvador Illa already said he would put himself forward to lead the regional government. However, separatist parties ERC (33 seats) and Together for Catalonia (32 seats) managed to even strengthen their absolute majority with other secessionist parties. Pro-independence parties have signed a manifesto during the campaign ruling out working with the socialists.
Former US president Trump’s second impeachment trial stranded in the Senate. With a 57-43 outcome, the vote lacked the required two-third majority even as 7 Republicans sided with the Democrats in an attempt of convicting Trump of inciting an insurrection on January 6. The acquittal means Trump could rerun for president in 2024,something he has not ruled out.
Australia’s leader of the second most populous Victoria state said it was too early to say whether the snap five-day lockdown would end as planned this Wednesday after reporting just one new Covid infection. Australia (and New-Zealand) have switched over to short-term lockdowns when registering new cases. The news doesn’t dampen risk mood however, with Australian equities rising and (long) bond yields surging to the highest level since March.
