Markets
Returning from the long Easter weekend, European investors started the week navigating through several sets of (exceptionally) strong US data published late last week and yesterday. However, as was the case for US trading yesterday, European markets also didn’t find an unequivocal script to follow. Strong US ISM’s and payrolls due to an accelerated reopening of the economy and supported by a strong and persistent commitment of US monetary and fiscal authorities in theory points to a further (gradual) rise in yields and equities. The dollar in that context should elaborate on its ‘normalization frontrunner status’. However, only European equities followed this version of the reflationary narrative. The German Dax extended its journey into record territory. The EuroStoxx 50 touched the highest level since January 2008. With no eco data on the agenda, US equities are taking a breather. China warning on the risks of excessive lending/financial stability and the US Treasury secretary Yellen activating the debate on higher taxes maybe slowed the ST equity momentum. Whatever, US indices opened little changed. Bond markets on both sides of the Atlantic showed a mixed picture with no clear direction trend. European yields are rising between 0.8 bp (2-y) and 2.0 bp (10-y). Given the decline in yields on Thursday, today’s market positioning might be labelled as neutral. At -0.31%, the German 10-y yield perfectly holds in middle of its the post ECB consolidation pattern between -0.39% and -0.25%. US yields are easing between 0.2 bp (2-y) and 3.0 bp (5-y) as a strong non-manufacturing ISM yesterday failed to trigger a retest of cycle peak levels. Despite the calm in core yields, 10 -y intra-EMU spreads versus Germany widened marginally, with Italy underperforming (5 bp).
On the FX market, the dollar remains in a soft correction modus after it failed to profit from the strong US eco data. The DXY index (92.50)is drifting further south off the 93+ levels reached mid last week. EUR/USD tries to extend its rebound north of 1.18. The move in the first place should be considered a correction on recent dollar strength. However headlines that the European vaccination campaign might be getting more traction in coming months (cf infra) might be a mildly supportive for the single currency, which suffered from a slow vaccination start over the previous two months. EUR/USD is trading in the 1.1835 area, compared to a correction low just north of 1.17 touched last week. 1.1836 also marks a first minor resistance (previous correction low). As is the case for the dollar, sterling also fails to profit from the ever more concrete perspectives of economic reopening. EUR/GBP yesterday temporarily slipped below the 0.85 big figure, but currently again trades in the 0.8545 area. On the commodity markets, the downside in the oil price still looks solid despite the OPEC+ decision to raise production from last week and speculation on a return to the market from Iran. Brent hovers near $63.75 b/p.
News Headlines
The European Commission told governments that the vaccine campaign could hit a milestone earlier than expected. Under the key assumption people keep accepting AstraZeneca’s shot, most member states including Germany, France, Italy, Spain and the Netherlands will have enough vaccine supplies by the end of June to immunize the majority of their population. That compares to the previous “end of the summer” estimation.
Israeli president Rivlin has invited incumbent prime minister Netanyahu to form a new government in the wake of yet again inconclusive elections end March. Rivlin casted doubts Netanyahu, or any other candidate, could complete the task. Only 52 of the parliament’s 120 members support the outgoing PM. Trying to break the deadlock, Netanyahu reached out to two right-wing rivals. But Bennett (of the Yamina party, 7 seats) sounded hesitant while Saar’s New Horizon Faction (6 seats) publicly ruled out serving under Netanyahu.
