Markets
Tensions on core bond markets eased further yesterday. US Treasuries outperformed German Bunds. Changes on the US yield curve ranged between -3.6 bps (5-yr) and +0.2 bps (2-yr). German yield changes varied between +0.3 bps (30-yr) and -1.8 bps (10-yr). The EMU/US eco calendars were empty apart from February EMU inflation data which printed par on consensus (0.9% Y/Y for headline and 1.1% Y/Y for core). Fed speakers held close to the recent rhetoric with San Francisco Fed Daly pointing out that steeper curve reflects a brighter economic future. Washington Fed-based governor Brainard said that it will take some time to meet conditions to slow the current pace of asset purchases, but she did admit that some of the moves of last week, and especially their speed ,caught her attention.She would be concerned in case of future disorderly conditions or persistent tightening in financial conditions. Regarding inflation, Brainard thinks that a burst of transitory inflation seems more probable than a durable shift above target in the inflation trend and an unmooring of inflation expectations to the upside. Fed Chair Powell will discuss the economic outlook tomorrow. Tonight, the Fed Beige Book could get more coverage than usual. Regional anecdotic evidence could give more evidence of building producer price pressure.
UK Gilts outperformed both Bunds and Treasuries yesterday. Unlike the latter, Gilts on Friday and on Monday only managed a lukewarm rebound. The UK yield curve bull flattened in a catch-up move with yields shedding 5 bps (2-yr) to 9.3 bps (30-yr). Sterling didn’t blink despitethe narrowing yield differential,holding near EUR/GBP 0.8650 the whole day. UK Chancellor Sunak will today release the next budget, but most of the content is already known. Sunak expressed the need for some fiscal tightening through higher (mainly corporate) taxes in a shift from easy policies in the rest of the world. Scrapping some of the fiscal largesse suppresses the potential need for faster policy normalization by the Bank of England if necessary.
Asian stock markets ignore a late WS faint (Nasdaq -1.7%) this morning,trading positive but with quite some regional differences (between +0.5% and +2%). Australian GDP (see below) beat consensus with the China Caixin Services PMI in line with forecast. Today’s eco calendar contains US ADP employment change and non-manufacturing ISM. We continue to believe that the market reaction will be asymmetric with better data awakening reflation spirits and softer prints being largely ignored. The direction on bond markets is clear-cut, but dollar dynamics remain mysterious. The greenback suffered a setback yesterday after failing to take out EUR/USD 1.20. The trade-weighted dollar stumbled back below the 91 big figure.
News Headlines
Australian Q4 GDP data beat consensus.Activity grew by 3.1% Q/Q after an upwardly revised rebound of 3.4% Q/Q in Q3. Fourth quarter activity was only 1.1% below the level of Q4 2019. Households spending (consumption 2.3% & dwelling investment 0.2%) was an important factor behind the strong growth performance. Gross capital formation added 0.7 ppt. The reaction on the Australian bond market was muted. The Australian 10-y yield reversed an initial tentative intraday rise (currently -4.5 bps). The Australian dollar held on to yesterday’s rebound (AUD/USD 0.7815). In an interview with the FT, Australian Treasurer Frydenberg warned on the risks of ample global stimulus. Amongst others, recent economic improvement allows Australia to halt its JobKeeper support program.
In an interview with the FT, Axel Voss, one of the architects of the GDPR data protection regulation,advocates that the framework is already outdated and that it needs substantial revisions. Voss assessed that, amongst others GDPR needs to be more adapted to widespread home working,but also to the emergence of plenty of new technologies.
