Markets
Yesterday’s stellar US retail sales, higher than expected producer price inflation and consensus-beating production numbers provided the perfect excuse to extend the ruling reflation trend. US Treasuries started with the kneejerk reaction lower, but the move stalled near recent sell-off lows instead causing return action higher. The US Note future and German Bunds shrugged off some of the oversold conditions. The jury remains out as the countermove lacked dash as well, but yesterday’s price action suggests that at least in the short term the downside might become better protected. The US yield curve bull flattened with yields shedding 1.5 bps (2-yr) to 5.4 bps (30-yr). The US 10-yr yield set a minor new recovery high before falling back to the March liquidity squeeze top at 1.27. The German yield curve bull flattened as well with yields ending 0.8 bps (2-yr) to 2.6 bps (30-yr) lower. The German 10-yr yield bumped into -0.34% resistance (62% retracement of March/November decline). 10-yr yield spreads vs Germanywidened slightly with Italy (+3 bps) and Greece (+6 bps) underperforming. Other markets kept recent momentum flowing. US stocks erased opening losses to end the session near Tuesday’s close. The US dollar recently showed willingness to gain on better US eco data and somewhat higher US real rates. EUR/USD closed the session down at 1.2038 from an 1.2106 open. The traded-weighted greenback rose from 90.72 to 90.95.
Asian risk sentiment deteriorates as the session develops with major indices losing around 1%. Chinese stocks opened strong on their return from lunar NY holidays, but can’t escape the decline. Core bond futures performed well at the start but are now slipping in lockstep with stocks. There’s some fuzz about generally dovish FOMC Minutes. Fed staff members internally labelled risks to financial stability as “notable” while Fed Chair Powell reached out to reporters calling them “moderate”. Powell probably tried to slightly downplay them as his main aim was to restore faith that the Fed won’t reduce the pace of its asset purchase programme any time soon (and definitely not in 2021). Adding financial stability risks to inflation risks suggests that Fed policy normalization could nevertheless come sooner than anticipated, pushing real yields away from record low levels reached at the start of the year. This is what’s helping the dollar at the moment. In a separate move, the commodity rally remains ongoing. The US artic weather obviously plays a role for oil and gas, but others keep momentum going as well. Today’s eco calendar contains US housing data, weekly jobless claims and Philly Fed Business Outlook. It will be interesting to see market behavior in case of more upward surprises (as outlined above?). EMU consumer confidence will be released as well.
News Headlines
Australian job gains in January amounted to a decent 29.1k (vs. 30k expected), following a solid 50k the month before. Employment rose amid a shift from part time (-29.8k) to full time employment (59k).The unemployment rate declined from 6.6% to 6.4% but comes with a small decrease in participation rate (66.1%). The data comes after the FT reported Australia decided to scrap the A$80bn job subsidy scheme next month as the economy is recovering faster than expected.
In the final three quarters of 2020, there was a record $1.2tn in newly originated mortgage debt as Americans are locking in historically low interest rates, data from the NY Fed showed. This increased the total US household mortgage balance with $182bn to surpass the $10tn mark. Car loan originations also climbed with $162bn (second highest on record after 2020Q3) to push the balance up by $14bn. Taken all together, the quarterly household debt balance advanced with $206bn to bring the total outstanding amount to a record $14.56tn.
The US Securities and Exchange Commission (SEC) is weighing whether to require more transparency of short-selling and the stock-lending network that facilitates it,the WSJ reported. That comes in the wake of the GameStop retail frenzy that triggered a short squeeze and generated substantial losses for several asset managers.
