Markets
Trading for the week took a slow, hesitant start, calming after last week’s hefty inflation-driven gyrations. Equities weren’t able to build on Friday’s rebound. Investors still pondered the meaning of recent sharp rise in inflation (expectations). Should it be considered a sign of a protracted rebound or will side-effects gradually create more uncertainly both on the path of the recovery and on central bankers’ reaction function? US data (New York Fed survey and NAHB housing index) confirmed the recovery narrative but with little impact. Fed comments illustrated the established positions within the FOMC with vice-chair Clarida defending a high degree of Fed accommodation, including the current pace of bond buying. Fed Kaplan repeated its more hawkish assessment, including risks to financial stability. Tomorrow’s Minutes of the April Fed meeting might bring some insights on the balance within the FOMC. However, for now, Kaplan’s assessment only represents a minority view. At the end of the day, global markets showed a diffuse picture. (US) equities lost modest ground (Dow -0.16%, Nasdaq -0.38%). US yields recouped an early dip with yields rising 2/2.5 bp+ for maturities between 5y to 30y. The rise was again mainly driven by inflation expectations (10-y break even at 2.56%). The move coincided with a bottoming in commodities after last week’s correction. Brent oil is again nearing the $70p/b level. The rise in German yields was modest (up 1.4 bp). Still, the 10-y yield extended is a journey beyond the key -0.14/-0.15% range top. Intra-EMU spreads continued their gradual widening trend with the Italian 10-y yield rising north of 1.10%. Tentative USD ‘resilience’ early in the session didn’t last. EUR/USD closed at 1.2153. The USD DXY index is still attracted toward the 90.00 support (close 90.18). An early attempt of EUR/GBP to hold north of the 0.86 marks failed. The reopening narrative apparently still supports sterling. Soft comments from BoE’s Vlieghe were no obstacle for the UK currency (EUR/GBP close at 0.8595).
This morning, Asian equities mostly show decent to solid gains. Japan outperforms (+2%) despite a weaker than expected Q1 GDP (-5.1% Q/Qa vs -4.5% expected). Dip-buying on recent correction in tech stocks apparently drives the rebound. Treasuries are trading stable. The dollar is coming under further pressure. The eco calendar is again thin today. We keep an eye on the technical charts of the USD dollar. A tentative rebound in equities and commodities doesn’t bode well for the US currency. The EUR/USD 1.2182/1.2242 resistance looks vulnerable as is the 89.98 support for the DXY index. UK labor market data this morning printed slightly stronger than expected (unemployment rate 4.8%), but we don’t expect it to be a lasting driver for sterling trading.
News Headlines
Chilean assets sold off yesterday after candidates from the center-right ruling coalition (37 seats) didn’t succeed in securing at least one-third of the 155 seats on the assembly designed to write the new constitution. That threshold is needed to be able to block certain clauses. Big winners in the elections were leftist and independent candidates, suggesting that the new constitution could include quite some market-unfriendly measures. Moderate and center-left candidates obtained just 14% of the assembly votes. The constitutional convention election outcome also boosts momentum for extreme left presidential candidates ahead of the November election. USD/CLP increased from 700 to 716, the country’s main stock indices lost 9% and the 10-yr yield added 20 bps.
White House Press Secretary Psaki said in a statement that US President Biden expressed his support for a cease-fire between Israel and Hamas and discussed US engagement with Egypt and other partners toward that end. The statement was published after a call with Israeli PM Netanyahu who on Sunday vowed to continue to strike positions in Gaza until it has degraded Hamas’s military capabilities. The US continues walking a thin line, reiterating that Israel has a right to defend itself, but adding that it also has an obligation to prevent civilian casualties.
