Markets
German Chancellor Merkel’s overnight press conference set the tone for today. By extending the national lockdown until April 18 with a hard 5-day shutdown over Easter, the government hopes to reverse the corona trends. The radical decision highlights the bumpy road towards economic normality as the EU continues to struggle to deploy a successful vaccination strategy. The divergence with Anglo-Saxon countries is large and growing. European stocks lost <1% in early trading while recovering as the session evolved. Most indices now trade marginally in the red or even eke out small gains (0.17% in Germany). Wall Street trades 0.2% down. Oil prices slumped more than 3% shortly after the European open (see below). Unlike equities they fail to recuperate any losses so far. Core bonds profit in a typical risk-off driven trading day. Both US Treasuries and German Bunds advanced before topping at lunchtime as equity sentiment turned less sour. The US yield curve bull flattens with yields still down 2.7 bps (5-yr) to 4.4 bps (10-yr). Fixed income’s focus will later shift to Fed’s Powell and US Treasury Secretary Yellen’s testimony before the House of Representatives. German yields decline 1 bps (2-yr) over 3.1 bps (10-yr, finding support near -0.34%) to 3.6 bps (30-yr). Peripheral yield changes were limited to a -1/+1 bp range. The EU pulled in over 81bn euros of orders in its SURE bond offering of €8 bn 5-year (books >41 bn euros) and €5bn 25-year (>40bn euros). Final terms were set at MS-14 (vs. MS-12 guidance) and MS+1 (vs. MS+3) respectively. Demand was lower than in previous sales yet still solid. The bloc has now funded about 75% of its €100bn big jobs protection programme.
The dollar and the Japanese yen welcome investors looking for shelter. On trade-weighted basis, the greenback rises from 91.81 to close to intermediate resistance at around 92.2. EUR/USD dipped below 1.1886 support (61.8% ST retracement) to change hands in the 1.187 area. Against today’s other stronghold, EUR/JPY tanks almost a full big figure from 129.88 to 128.95 currently. Pitted against each other, the USD loses marginally vs. the yen (108.66 vs. 108.85 at open). EUR/GBP took some comfort from escaping the downward trend channel yesterday but that didn’t last very long. After touching an intraday high at 0.864, the couple forfeited all earlier gains. Hovering near the 0.86 pivot, EUR/GBP is still within the technical danger zone.
News Headlines
The Brazilian central bank hiked its policy rate unexpectedly by 75 bps last week. Minutes of that meeting today show that the policy committee prepares another 75 bps increase in May. They warned that extending stimulus measures could weaken the country’s fiscal outlook and add to already asymmetric upward inflation risks. They also fear that higher inflation this year risks de-anchoring inflation expectations in 2022. USD/BRL steadies near 5.50.
The oil market (Brent) is back in contango with future prices exceeding spot levels. Since December last year, the oil market started shifting towards the opposite phenomenon (backwardation). The setback in spot oil prices is related to the new Covid-wave and resulting lockdown measures. They dampen near term (oil) demand prospects. Brent crude declines from >$64/b to $61.4/b technical support, dropping out of the upward trend channel since early November (start of vaccination/reflation narrative).
US eco data printed mixed. February new home sales disappointed, declining by 18.2% on a monthly basis (775k). Severe winter weather is one of the reasons for the setback. The Richmond Fed manufacturing index rose slightly more than forecast, from 14 to 17. Details showed an improvement in shipments (22 from 12) with companies reducing the order backlog (11 from 18). New orders stabilized (10) as did the employment component (22). The outlook in general is more rosy with most components increasing. Price data point to ever more (input) inflation with output prices also gaining upward momentum.
