Markets
The sell-off on bond market continues. US yields add 2.8 bps (2-yr) to 8.1 bps (7-yr). The belly of the curve underperforms after a long bear steepening move. It suggests that markets more and more start discounting that the Fed will sooner rather than later have to address risks related to inflation and/or financial stability stemming from huge fiscal stimulus accompanied by ZIRP & quantitative easing. This is at odds with the soothing promise from Fed Chair Powell earlier this week before US Congress to keep monetary policy very accommodative for quite some time ahead. The US 5-yr this week broke above the upper bound of the gently upwardly sloping trend channel since August. It currently trades at 0.70%, the highest level since March. The US 10-yr yield for a second session straight tests key resistance at 1.43% (2019 bottom & 38% retracement of 2018-2020 decline). A sustained break above that level brings 2% on the radar. The US 30-yr yield is already rushing to 62% retracement of that decline (2.41% resistance). The German yield curve moves in a more or less similar way than the US one. German yields increase by 2.8 bps (2-yr) to 6.1 bps (10-yr). The German 10-yr yield moved above the -0.26% May top which was the final hurdle before the -0.14% 2020 high. Since early February, markets even started pulling forward bets on an ECB rate hike with a 25 bps hike currently discounted in H2 2024. 10-yr yield spreads vs Germany widen by 3 bps for Italy and 5 bps for Greece. Stock markets are relatively calm today with main European indices gaining around 0.4% and US benchmarks opening with small losses. Brent crude stabilizes near the recovery high just below $67/b. Other commodities, apart from some metals, correct slightly lower.
The single currency outperforms amongst FX majors. EUR/JPY in two sessions moved from 128 to near 130, the strongest level since the end of 2018. EUR/USD broke above 1.2197 resistance, which is the final technical hurdle before a return to the recovery high of 1.2349. The dollar’s performance remains disappointing despite the higher US real yields. We wonder whether the expected explosion in US twin deficits is finally becoming a trading theme. The trade-weighted greenback (DXY) lost the 90 big figure to trade at the weakest levels since early January. Better than expected US eco data only triggered a kneejerk reaction higher which won’t last. EUR/GBP currently changes hands near 0.8630 compared to an open near 0.86. Another notable underperformer the past sessions is the Swiss franc. EUR/CHF rose from 1.08 mid-February to the high 1.10 zone currently, the highest level since mid-2019.
News Headlines
According to data of the UK Treasury, the number of jobs furloughed has risen from 3.9 mln at the end of November to 4.7 mln at the end of January. The cost the furlough scheme has reached £ 53.8 mln. For now, the scheme is planned to end by April 30. However, as the lockdown in the UK probably will persist for some time, it is expected that UK finance minister Sunak will extend the scheme when he presents a new budget on March 03.
Data of the US commerce department today showed that orders for US durable goods (goods that are expected to last at least three years) grew by 3.4% in January. January orders rose at the fastest pace in six months. Core capital goods orders, excluding aircraft and military hardware, rose by 0.5% after an upwardly revised rise of 1.5% on December. Core capital goods orders currently are already more than 9% above the level of a year ago. Capital goods shipments non-defense ex aircraft also rose at a bigger than expected 2.1%, with the December figure also upwardly revised to 1.0%. The series is used to calculate investment in the quarterly GDP report and suggests further growth in this component. On a monthly basis, a rise of 8.7% orders for computers and related and of 4.2% for electrical equipment and appliances catch the eye.
