Markets
Markets overcame initial caution related to the Archegos Capital multi-billion block equity sales. Wall Street also got help from president Biden saying that 90% of US adults will be eligible for a vaccine shot by April 19 already. Europe finished about 0.5% in the green. In the US only the DJI managed to erase losses completely (+0.3%) as an impressive US (real) yield comeback weighed on tech. The curve bear steepened with yields higher 0.2 bps (2-yr) over 2.8 bps (7-yr) to 3.2 bps (10-yr, after being down about 4 bps). German rates roared back in lockstep, bear steepening the curve with yields up 3.2 bps at the very long end (30-yr). The 10-y yield rose 2.8 bps, leaving further behind the -0.34/-0.38% support area. The US dollar remained bid throughout the session; first amid lingering equity uncertainty then by rising US yields and vaccination optimism. EUR/USD retreated from 1.179 to 1.176. The trade-weighted DXY neared the next 93 big figure. Sterling on the first day of easing coronavirus measures strengthened towards the EUR/GBP 0.85 area and back into the downward trend channel, yet temporarily. The pair finished flat near 0.855.
Asian stocks trade mixed in a quiet session. Japanese stocks and currency underperform even as economic data were better than expected (cf. infra). India leads peers. Bonds are being sold across the globe. Aussie and kiwi yields surge 8 to 9 bps, launching the respective currencies to the top of the G10 scoreboard. US bond yields jump a little less than 4 bps at long tenors as attention shifts to the rapid vaccine progress. The greenback is consolidating near yesterday’s closing levels. Oil swung from gains to losses and vice versa yesterday as headlines about the Ever Given floating again rolled in. Prices marginally decline this morning even as sources told news agency Reuters that Saudi Arabia is prepared to accept an extension of output curbs through June at the OPEC+ meeting on Thursday. The kingdom would also keep its unilateral cuts in place.
US March Conference Board consumer confidence is expected to bounce from 91.3 to 96 today. We think that bar is beatable having had a weather-influenced reading in February and seeing the successful vaccination progress. Also, consumer confidence still needs to catch up with producer gauges (eg. ISMs). German March HICP could jump to the 2% ECB target today, maybe even higher as suggested by an early regional CPI release. However, the ECB stressed multiple times it considers the current inflation spike as temporary and will act accordingly. Assuming markets take the ECB’s word for it, the data today could cause UST underperformance and support the dollar over the euro. The technical picture in EUR/USD is very precarious, risking a break below the ST downward trend channel. That would pave the way for a return to the 1.16 area. Although yesterday’s move in EUR/GBP was only temporary, it does suggest there are still quite some sterling bulls out there. If the downward channel in EUR/USD were to break, we might see knock-on effects in EUR/GBP as well.
News headlines
Japanese eco data indicate that domestic demand remains relatively resilient even as containment measures are still in place. Japan February retail sales rose 3.1% from the previous month, the fastest pace since June. Sales were still 1.5% below the level of the same period last year. The jobless rate remained at a low 2.9% versus 3.0% expected. The shadow unemployment rate (including people who are employed but didn’t work) declined from 6.2% to 6.1%. A better performance of the domestic sector might lead to a smaller Q1 economic contraction, if any. In an interview, governor Kuroda clarified that BoJ will continue buy EFT’s as needed and has absolutely no plan to end ETF buying. At the policy meeting earlier this month, the BoJ removed a pledge to buy ETF’s at a set pace.
After replacing governor Agbal as head of the Turkish central bank by Sahap Kavcioglu last week, President Erdogan also removed Deputy governor, Murat Cetinkaya via an presidential decree. He is replaced by Mustafa Duman who served at Morgan Stanley’s Turkish unit. The Turkish lira is losing further ground this morning as markets fear a return to a less orthodox monetary policy. EUR/TRY is trading in the 9.75 area.
