Markets
Two events marked trading so far today: a statement from the US Centers for Disease Control and Prevention and the Food and Drug Administration regarding the roll-out of the Johnson & Johnson vaccine and US March CPI inflation numbers. The CDC & FDA recommend to temporary pause J&J vaccinations as they investigate incidents of blood clots. More than 6.8 million doses of the one shot J&J inoculations have already been administered in the US with the European roll-out expected to start this week. It’s a setback in the vaccination roll-out even though the Pfizer-BioNTech and Moderna jabs remain pivotal for the US. In a knee-jerk reaction, core bonds yields and stock indices spiked lower, reversing small gains eked out during the first half of uninspiring European trading. FX markets remained stoic.
March US CPI inflation data triggered a more pronounced reaction, especially in FX this time. Both headline and core inflation rose slightly more than expected, to respectively 2.6% Y/Y and 1.6% Y/Y. While base effects are at play, details show rising costs for both goods and services last month. The 0.6% M/M monthly CPI increase was the strongest since 2012, with gasoline costs accounting for half of that increase. The market reaction after the CPI was telling. They took the numbers into their stride. Rather than reigniting the reflation flame, they served as an excuse to extend the correction in some market spaces. Especially the dollar disappoints with the trade-weighted greenback for the third time testing 92 support (38% retracement of February/March rally). EUR/USD spiked from an intraday low around 1.1880 to 1.1930. Meaningful resistance stands at 1.1950/90, but euro-strength is currently missing to amplify USD-weakness. USD/JPY is drifting to the low 109-zone. US yields just recovered from the J&J dip by the time of the release, but soon returned to the intraday lows. First support in for example the US 10-yr yield (1.6%) remains somewhat away. Perhaps, investors first don’t want to get wrong-footed by tonight’s 30y US bond auction before embarking on a proper test. US yields slide by up to 1.3 bps today with the belly of the curve outperforming the wings. Changes on the German yield curve are limited to -1 bp. 10-yr yield spreads vs Germany barely move with Italy (+2 bps) and Greece (+4 bps) underperforming.
News Headlines
Spanish PM Sanchez said that the EU recovery funds will boost economic growth by two percentage points annually in the coming years. Spain is due to receive some 140bn euros, more or less evenly split between grants and loans. It has earmarked the funds to finance 110 major investment projects, of which 3.2bn in renewable energy.
Czech inflation accelerated from 2.1% y/y (0.2% m/m) to 2.3% in March. The increase was to a large extent driven by rising fuel costs (5.8% m/m) and, related to that, transport (1.6% m/m). Recreation and culture (-2.1% m/m) prices dropped firmly amid tightening of restrictions to control the pandemic’s spread. At 2.3%, inflation is slightly above the CNB’s 2% target but still comfortably within the +1/-1 ppt tolerance zone. While inflation was 0.3 ppt above the CNB’s own forecasts, the central bank still expects inflation to fluctuate around target for the remainder of the year. The Czech koruna strengthened below EUR/CZK 26 in the wake of the release.
Investors in Russian bonds fear the US might impose sanctions on Russia’s sovereign bond market, sending yields on ruble bonds again higher today after jumping to the highest level in more than a year last week. Markets consider this often dubbed “nuclear” option ever more likely after Russian troops have been building up on the border with Ukraine over the conflict in the Donbas region. This has soured relations between Moscow and Washington. The Russian ruble remains close to the weakest level in months.
