Markets
Markets this morning were looking for some kind of ST equilibrium in the wake of yesterday’s ‘Powell inspired’ sell-off of both bonds and equities. The Fed chair took notice of the recent rise in yields, but for now it looks that he doesn’t consider the rise as being disruptive in such a way that the Fed has to step in. European equities opened with losses of more than 1% but as the bond sell-off slowed this also helped European equities to regain part of the initial losses. Key question for markets this afternoon was whether the US payrolls would allow this relative calm to persist going into the weekend. Contrary to this week ADP labour market report the official payrolls were really strong showing February net job growth of 378k (VS 200k expected). Last month’s figure was also upwardly revised from 49k to 166k. The jobless rate declined from 6.3% to 6.2% even as employment is still 8.5 mln below last year’s level. The report still doesn’t contradict the Fed view that policy will have to stay accommodative to support the healing of the labour market, but at the same time it doesn’t reinforce the case for further action to ease monetary conditions. In a first reaction the US 10-y yield jumped another 5 bp higher, but for now selling remained moderate and the move even gradually eased. 5-y yield is rising 2.5bp. The 30-y even declines slightly (1.3bp). The jury is still out, but maybe this rather guarded bond market reaction is a first indication that the sharp steepening trend might (at least temporary) shift into a lower gear. The spill-over to European bond markets also remains modest with yields rising between unchanged (2-y) and 1.5 bp (10 & 30-y). 10-y intra-EMU spreads hardly moved today. Of late, good economic news was often mixed or sometimes even bad news for equities. This wasn’t really the case today. The combination of a better economic outlook and a modest bond market reaction further helped European equities to reverse the earlier loss. US indices opened about 0.5%-0.75 higher, but the market is still looking for direction. Oil also sets a new recovery top (Brent $ 68.50 p/b).
On the FX market, the dollar remained in the driver’s seat. Asian and European investors still had some further repositioning to do on yesterday’s late session USD rebound. USD/JPY jumped north of the 108 big figure and EUR/USD soon after the open broke below the 1.1952 support (recent correction low). Dollar buying temporarily accelerated after the payrolls. EUR/USD tested the 1.19 area, but the subsequent risk-on capped further USD gains. Even so, DXY (currently 91.90) and EUR/USD (currently 1.1925) closing above 91.60 and below 1.1952 respectively, would strengthen the ST technical picture of the US currency. Dollar strength this morning temporarily hurt sterling, also against the euro. EUR/GBP rebounded to the 0.8650 area, but later returned to the 0.8610 area. Soft comments on the economy form BOE Haskel didn’t have a meaningful negative impact on the UK currency.
News Headlines
UK’s Financial Conduct Authority, which oversees global Libor benchmarks, said the publication of Libor would cease at the end of 2021 for sterling, euro, Swiss franc and the Japanese yen as well as for one-week and two-month US dollar contracts, effectively retiring the unsecured interbank rate. The 1-, 3-, 6- and 12-month dollar rates will continue through June 2023 as will the overnight setting.
National Bank of Poland governor Glapinski struck an extremely dovish tone during a press conference today. Inflation could rise to 3% in the second quarter this year he said, but the rise is stoked fully by external and statistical (base) effects. He nipped any expectation about rate hikes in the bud, saying the “market is wrong”. The NBP aligns itself with the ECB, Glapinski added. On the zloty, he repeated that a stronger currency would hurt the economy and that the central bank is ready to intervene again if needed. In a broader CE selloff, the zloty weakens further today to EUR/PLN 4.58, testing the December 2020 closing low in the wake of the NBP interventions.
