Markets
Investors started the week with optimism. Equities rose in Europe and especially in the US where tech outperformed peers (Nasdaq +1.41%). Monday’s trading session was filled with Fed governors including Bostic, Brainard, and Bullard playing down risks for a sustained inflation overshoot. According to Bullard, the time to think about changing policy is still months ahead. Brainard isn’t worried about spiraling inflation, saying expectations “have been extremely well-anchored”. The synchronized message helps explain (tech) stocks doing so well while bond yields stayed in the defensive. Real yields were the driving force. The US yield curve bull flattened with yields 1.8 bps (5y) to 2.2 bps (20y) lower. The German Bund underperformed, seeing yields max 1 bp lower (10y). Both yield dynamics and differentials favored the euro over the dollar. EUR/USD recovered from Friday’s dip to finish again north of 1.22(16). USD/JPY and the trade-weighted DXY closed below 109 and 90 respectively. Sterling had a tough European morning session but managed to limit losses to around EUR/GBP 0.863 (from 0.86).
The soothing comments from the Fed yesterday lighten the mood on Asian markets this morning. Equities are in the green, with China and Hong Kong outperforming peers. European and US futures markets are trading positively as well. Core bonds are trading flat. The Chinese yuan is testing resistance near USD/CNY 6.41, the strongest level since 2018. The Turkish lira is the weakest of EM FX after president Erdogan sacked the CBRT deputy governor (see below). The US dollar is trading a tad weaker with EUR/USD eking out gains beyond 1.222 currently.
Today’s economic calendar contains US Conference Board consumer confidence and the German Ifo indicator. The former is expected to ease a bit to 119 for May after a spectacular rise to 121.7 the month before on vaccine optimism. A further recovery in Germany’s Ifo is all but certain after last week’s PMIs. Having no strong view on surprises on either side of consensus, we expect sentiment to remain in the driver’s seat for trading today. The US end-of-month refinancing operations starting with a 2y auction tonight usually don’t generate as much market attention as the one with longer tenors. It is worth mentioning though. The dovish Fed comments could continue to weigh on the dollar, along with a constructive risk environment as suggested by the futures markets. For the technical picture in EUR/USD to improve, it should take out the 1.224 area though, preferably sooner rather than later. It failed to do so several times during the past week. Sterling trading remains rangebound. An upward sloping trend channel is in the making.
News Headlines
According to an overnight decree published in the official gazette, Turkey today removed Oguzhan Ozbas as one of the four central bank deputy governors. He was replaced by Semih Tumen who served as an adviser to President Erdogan and is the head of the economic department of the TED University in Ankara. At EUR/TRY 10.27, the Turkish lira is trading within reach of all-time low levels against the single currency.
The China National Development and Reform Commission said the government will adopt zero tolerance for monopoly behavior after a meeting with leaders of top metal producers. The meeting follows other recent comments/warnings from Chinese officials on the risk that a sharp rise in commodity prices could complicate the economic recovery. Key enterprises were told to ‘actively fulfill their social responsibilities and maintain market order’ and not to ‘collude with each other to manipulate the prices, fabricate and disseminate price increase information and not hoard and drive up prices’.
