Markets
It’s been a rollercoaster ride for US Treasuries so far this week. (Easter) Monday’s consensus-beating, growth-signaling, manufacturing ISM triggered a fierce sell-off. The move continued on Tuesday with rallying oil prices (Brent $90/b; see news & views) continuously adding pressure. Technical support levels (YTD sell-off low) avoided even steeper losses on Tuesday together with a tougher risk climate. The natural drift south re-emerged yesterday even as lower-than-expected March CPI figures (2.4% Y/Y headline; 2.9% Y/Y core) cement the case for a 25 bps June ECB policy rate cut. A stronger March US ADP employment report (+184k) initially did the trick for UST’s. The mirror image in yield terms was a first stay above 4.4% (10-yr) since the end of November last year. Markets were on the edge of clearcut technical breaks, but the March services ISM and Fed Chair Powell’s speech dented enthusiasm. The ISM declined from 52.6 to 51.4 (vs 52.8 consensus). Details showed accelerating business activity (57.4 from 57.2) and strong new (export) orders. Firms shed jobs at a slower pace (48.5 from 48). However, the slowest increase in four years in prices paid (53.4 from 58.6) drew most attention. The ISM warned not to read too much into this move because of rising fuel costs. They release nevertheless proved to be the intraday turning point in yesterday’s trading session with US Treasuries gradually erasing losses afterwards. This comeback gained even more traction after Powell’s comments on the outlook. He stuck with his view that recent data do not materially change the overall picture which continues to be one of solid growth, a strong but rebalancing labor market and inflation moving down to 2% on a sometimes bumpy path. The Fed is still on track to lower the policy rate at some point this year, but Powell still needs greater confidence that inflation is moving sustainably down towards 2% suggesting that the central bank has time to let incoming data guide the decision. The well-known tune without additional hawkish accents were sufficient for US Treasuries to move all the way back to opening levels. Daily changes on the US yield curve ranged between -1.6 bps (2-yr) and +1.2 bps (30-yr). German yield changes varied between +1.4 bps (2-yr) and -0.9 bps (30-yr). This morning, we see US Treasuries drifting south again. The eco calendar contains several speeches from Fed members and weekly jobless claims. The final say – also on potential technical breaks – will be for US payrolls tomorrow and US CPI inflation next week Wednesday.
The dollar already bumped into resistance on Tuesday (DXY YTD high at 105; USD/JPY 152; EUR/USD low 1.07). The ISM-inspired Treasury gains went hand-in-hand with some profit taking on USD long positions. DXY fell from 104.70 towards 104.25 with EUR/USD closing at 1.0836 from an open at 1.0770. Main European and US markets stock markets ended with gains of up to 0.5%.
News & Views
OPEC+ yesterday decided to keep its policy of supply cuts unchanged. About 2mn b/d of output cuts will be prolonged until the next meeting in June (1st). The committee welcomed pledges from Iraq and Kazakhstan to achieve full conformity as well as to compensate for overproduction and from Russia that its voluntary adjustments in Q2 will be based on production instead of exports. Countries with outstanding overproduction in Q1 will submit detailed compensation plans by April 2024. The Committee will closely assess market conditions and noted readiness of participants to take additional measures at any time. The oil price yesterday extended its rebound with Brent crude almost touching the $90/b barrier as investors see a further tightening of the supply-demand balance.
The second round of the Slovak presidential elections take place this weekend. After an undecided first round, a final run-off takes place between Peter Pellegrini, an ally of Prime Minister Fico and Ivan Korcok, who disagrees with the euro-sceptic stance of PM Fico and Pellegrini. Korcok surprisingly won the first rate (42.5% of votes) with Pellegrini securing 37%. Most recent polls show that the outcome might be a very close call between the two contenders, with surveys showing no statistically relevant difference between support for the two contenders.
. The ISM-inspired Treasury gains went hand-in-hand with some profit taking on USD long positions. DXY fell from 104.70 towards 104.25 with EUR/USD closing at 1.0836 from an open at 1.0770. Main European and US markets stock markets ended with gains of up to 0.5%.){kind=link}