Markets
The impact of data in the corona age often isn’t that straightforward, as illustrated by the EMU PMI’s yesterday. They beat expectations by a wide margin. The composite PMI jumped to 52.5 from 48.8, the first 50+ reading since September. Manufacturing activity jumped to 62.4, driven by a record performance in Germany. Activity in the services sector contracted less than expected (48.8). An improvement in activity sub-indicators was complemented with an ongoing rise of prices both for companies’ input and output. Such a message from one of the most important monthly data releases at least deserved a market reaction. However, if any, it was limited an short-lived. Even this ‘timely’ barometer was labeled outdated, as several EMU countries are stepping up measures to address the latest revival of the virus. US eco data were mixed with solid PMI’s (composite 59.1) but weaker than expected durable orders. The oil price was source of uncertainty throughout the session. A container ship blocking the Suez Canal and US data indicating a sharp rebound in demand, propelled the Brent oil price from $60.50 p/b to $64.40. Once again the impact on broader markets was limited. Both the Bund curve and the US Treasury curve flattened with yields respectively declining between 0.3 bp (2-y) and 2.1 bp (30-y) and between flat (2-y) and -2.7 bp (30-y). The US 5-y auction was OK and didn’t disturb the intraday dynamics. US equities this time didn’t profit from the milder interest rate environment with the Dow little changed and the Nasdaq losing 2%. The better EMU PMI’s initially slowed the decline of the euro, but in the end USD supremacy persisted. EUR/USD closed at 1.1813, below the 1.1836 2021 low. USD/JPY also closed marginally higher (108.74). Sterling momentum is ebbing with EUR/GBP extending minor gains north of 0.86 (close 0.8632). Soft UK CPI was a mild sterling negative.
Asian equity markets show an indecisive picture after overnight loss on WS, with Japan outperforming. US yields show tentative signs of bottoming after the (albeit) modest correction earlier this week. The dollar remains well bid. USD/JPY is again nearing the 109 barrier. EUR/USD struggles not to fall below the 1.18 big figure (1.1815). The yuan continues its correction (USD/CNY 6.5350).
Today’s EMU eco data are second tier. The Swiss National bank (SNB) will hold a regular policy meeting. In the US, weekly jobless claims are expected to reverse last week’s unexpected uptick (from 770k to 730k). The US 2 & 5-y auctions earlier this week didn’t disrupt markets. Treasury concludes this week’s series with a 7-y $62 bln sale today. Assuming that recent correction in core US yields shouldn’t go really far, the sale is still worth looking at. The correction in yields also brought the German 10-y yield to the key -0.34%/-0.38% support area. In the FX market, the picture for the dollar improves further with the DXY index surpassing the 92.50 resistance and EUR/USD holding below 1.1836. Even so, for now those technical breaks didn’t trigger acceleration in the US uptrend.
News Headlines
Rating agency S&P lowered Chile’s credit rating by one notch from A+ to A with stable outlook. S&P argues that Chile’s public finances are likely to stabilize at a structurally weaker level after the impact of the pandemic recedes. The economy will grow at its trend level, with fiscal deficits moderately higher than expected and persisting over the next two to three years because of spending pressures. Net government debt is likely to exceed 25% of GDP this year, from 13% in 2018. Despite the rating downgrade, Chile still has the best credit rating across Latin America.
Bank of England Chief economist Haldane believes that the UK economy’s recovery could be “rip roaring” after economic restrictions are removed even if UK citizens spent only a fraction of about £150bn saved over the past year. “When it comes, it will come fast, and it will be large.” Haldane doubles down on the UK central bank’s rather bullish February inflation report as the country’s vaccination campaign steams ahead. Meanwhile, UK PM Johnson Warned to impose tougher border rules very soon to prevent Covid-variants from continental Europe to interfere with the UK immunization campaign.
