"Calm Returns", Futures Rebound As Yields Drop After Historic Pounding

"Calm Returns", Futures Rebound As Yields Drop After Historic Pounding

"Calm Returns", Futures Rebound As Yields Drop After Historic Pounding

“Calm Returns”, Futures Rebound As Yields Drop After Historic Pounding

Global bond yields slid on Friday following Thursday’s epic meltdown as markets returned to firmer footing at the end of a week that saw the biggest decline in the Nasdaq 100 since the pandemic meltdown. Meanwhile, the quant who predicted this week’s meltdown in both bonds and stocks, turned bullish overnight (more in a separate post) a further indication the liquidation may be ending.

US futures found support around 3,800 and have since rebounded, as global markets stabilized after central banks from Asia to Europe moved to calm a panic that had sent US government bond yields to their highest level in a year and triggered a loss of almost $900 billion in the value of the tech-heavy Nasdaq, the biggest since March.

Contracts on the Nasdaq 100 and S&P 500 fluctuated before turning modestly higher. Thursday’s rout in yields which sent the 10Y as high as 1.61% after a catastrophic 7Y auction, has reversed with broad-based buying across the curve, especially after central bankers stepped in with the usual jawboning to convince markets of their commitment to Yield Curve Control (as the alternative is simply unthinkable). The scale of the sell-off prompted Australia’s central bank to launch a surprise bond buying operation to try and staunch the bleeding. The ECB is monitoring the recent surge in government bond borrowing costs but will not try to control the yield curve, ECB chief economist Philip Lane told a Spanish newspaper.

“If U.S. rates stabilize at these levels, which they appear to be, then equities will find calm,” said Nema Ramkhelawan-Bhana, a strategist at Rand Merchant Bank in Johannesburg. Fears that central banks withdraw support too fast may be overdone “given persistent rhetoric, with the Fed holding firm on its accommodation,” she said.

This week’s plunge was the culmination of growing investor fears that accelerating inflation could trigger a pullback in monetary policy support that has fueled gains in risk assets amid the pandemic. And yet despite soaring expectations of rate hikes in 2023 and 2024, Fed officials so far say surging Treasury yields reflect optimism and have stressed that the central bank has no plans to tighten policy prematurely.

“The fixed income rout is shifting into a more lethal phase for risky assets,” says Damien McColough, Westpac’s head of rates strategy. “The rise in yields has long been mostly seen as a story of improving growth expectations, if anything padding risky assets, but the overnight move notably included a steep lift in real rates and a bringing forward of Fed lift-off expectations.”

Despite today’s stabilization, there is a long way to go before stock bulls can declare victory: the delayed reaction in the MSCI Emerging Markets equity index – which was mostly closed during yesterday’s US fireworks – saw it biggest daily drop in nearly 10 months and was 2.7% lower, and while European shares opened in the red, with the STOXX 600 down 0.8%, recovering from heavier losses earlier in the session. The MSCI world equity index was 0.9% lower and heading for its worst week in a month.

In Europe, stocks pared losses after the benchmark Stoxx Europe 600 slumped more than 1.5% at the open, the Stoxx 600 Basic Resources Index falls as much as 3.1%, most in four weeks, and worst industry group in Europe, as metals slip amid a surge in bond yields. Diversified miners all fell: Rio Tinto -1%, BHP -1.3%, Glencore -1.2%, Anglo American -2.6.  Here are some of the biggest European movers today:

  • Saint-Gobain shares rise as much as 4%, hitting the highest since May 2018. The French building materials supplier’s upbeat outlook is likely to be investors’ focus after it posted FY results, Jefferies (hold) writes in a note.
  • Teleperformance shares rise as much as 7.3%, the most since Nov. 4. The call- center operator’s 4Q growth is “astonishing” and double the estimates by Morgan Stanley (overweight), the broker writes in a note.
  • IAG gains as much as 7.1% in London trading and is the best performer on the Stoxx 600 Travel & Leisure Index after results; Morgan Stanley highlights that the update on liquidity, while in line with its estimates, is likely better than consensus.

Commenting on the move in European stocks, Bloomberg notes “it looks like the worst of the morning’s opening selloff in Europe is over. The Stoxx 600 index is fading the decline. It’s now down just 0.8% after earlier falling as much as 1.7% — and health care and utilities are now in the green.”

Earlier in the session, Asia saw the heaviest selling, falling the most since March, with MSCI’s broadest index of Asia-Pacific shares outside Japan sliding more than 3% to a one-month low, its steepest one-day percentage loss since May 2020.  For the week the index is down more than 5%, its worst weekly showing since March last year when the coronavirus pandemic had sparked fears of a global recession. Taiwan Semiconductor Manufacturing, Samsung Electronics and Tencent were among the stocks contributing most to losses in the MSCI Asia Pacific Index, which dropped 3.3%, the biggest decline since March. A gauge of the region’s technology stocks tumbled 4.5%. Friday’s selloff marks a sharp turnaround for equities which rallied for most of January and February, pushing the Asian benchmark to a fresh record high. Equity benchmarks in Hong Kong, Taiwan and Japan slumped more than 3% each on Friday. “This rise in risk-free rates serves as a trigger to investors who have been looking for a reason for an equity market correction,” said Tai Hui, chief Asia market strategist at J.P. Morgan Asset Management. “The Asian tech sector and outperformers of the past 12 months may also mirror the sharper correction of their US counterparts.”

To help stabilize markets, the Bank of Japan bought 50.1 billion yen in ETFs on Friday, purchasing for the first time since Jan. 28, after Japanese stocks slumped. The BOJ’s absence from ETF purchases led to some suggesting it had changed its pattern of buying; previously the BOJ typically bought if the Topix fell more than 0.5% in the morning session, but it didn’t buy on two occasions last week despite drops exceeding that level.

Central bank jawboning and action overnight sparked some investor optimism, with Francois Savary, chief investment officer at Swiss wealth manager Prime Partners, writing that “it is not the beginning of a correction in equities, more a logical consolidation as price to earnings ratios were excessive. What is reassuring is that Q4 2020 earnings were good and earnings per share suprisingly good and that means down the road we should get back to growth.”

Indeed, after a pounding, the bulls are starting to emerge from cover, with Nomura writing that while U.S. Treasury yields surged more quickly than expected, current risk-off phase in equities unlikely to amount to more than a “temporary release of pressure” adding that the risk-off likely to take a breather next week and beyond as “stage is set” for speculators to buy back Treasuries, investor sentiment hasn’t deteriorated in irregular way and there seems to be little risk of significant de-leveraging by systematic funds. “Expect reflation trade to get another lease of life” in run-up to Easter if next week brings confirmation that speculators are covering short positions in Treasuries and that the seasonal profit-taking on long positions in Asian equities has started to abate.

In rates, besides the slide in US yields overnight noted above, yields on core European bonds also ticked lower. Treasury futures, though choppy, remain well off Thursday’s lows with yields richer by more than 5bp in 10-year sector. Treasury yields are richer by 2bp-6bp across the curve with intermediates leading gains; belly outperforms front-end and long-end, unwinding a portion of Thursday’s cheapening on the flies. In Asia trading hours, Aussie bonds rallied sharply after the RBA stepped in with another aggressive, $3BN yield curve control operation, supporting Treasuries though liquidity remains poor. Thursday’s deep selloff sidelined Asia demand, while futures open-interest data suggest that unwinding of positions drove price action. Gilts are under pressure after BOE’s Haldane said U.K. faces risk that inflation requires assertive policy response.

“Bond yields could still go higher in the short term though as bond selling begets more bond selling,” said Shane Oliver, head of investment strategy at AMP. “The longer this continues the greater the risk of a more severe correction in share markets if earnings upgrades struggle to keep up with the rise in bond yields.”

In FX, the Bloomberg dollar index rose for a second day, rising as much as 0.5% to its highest since Feb. 8. 10-year Treasury yields declined as much as 7bps to 1.45% Friday. The Swiss franc and Japanese yen outperformed peers while Australian and New Zealand dollars led G-10 losses. The pound fell to its lowest in over a week as month-end flows made for choppy price action. “Commodity currencies are caught between the positive of stronger global growth and the risk of the global economy overheating,” said David Forrester, an FX strategist at Credit Agricole CIB in Hong Kong. “The latter is currently winning, but we expect in the long term the uptrend in commodity to remain intact until the Federal Reserve starts tapering its quantitative easing”

Elsewhere, oil retreated from its the highest in more than a year as traders mulled depleting global inventories. Bitcoin tumbled toward $45,000.

Looking at the day ahead, data releases from the US include personal income and personal spending for January, the MNI Chicago PMI for February, as well as the final February reading of the University of Michigan’s consumer sentiment index. Over in France, there’s also the preliminary CPI reading for February and the final Q4 GDP reading. From central banks, we’ll hear from the ECB’s Schnabel and the BoE’s Ramsden and Haldane. Finally, EU leaders will be continuing their European Council meeting via videoconference, while G20 finance ministers and central bank governors will also be meeting via videoconference.

Market Snapshot

  • S&P 500 futures up 0.2% to 3,834.75
  • MXAP down 3.3% to 207.25
  • MXAPJ down 3.4% to 695.81
  • Nikkei down 4.0% to 28,966.01
  • Topix down 3.2% to 1,864.49
  • Hang Seng Index down 3.6% to 28,980.21
  • Shanghai Composite down 2.1% to 3,509.08
  • Sensex down 3.6% to 49,178.10
  • Australia S&P/ASX 200 down 2.4% to 6,673.27
  • Kospi down 2.8% to 3,012.95
  • German 10Y yield down 3bps to -0.26%
  • Euro down 0.3% to $1.2141
  • Brent futures down 1.2% to $66.08/bbl
  • Gold spot down 0.3% to $1,765.46
  • U.S. Dollar Index up 0.5% to 9056

Top Overnight News from Bloomberg

  • Market detectives looking to explain the fury of Thursday’s Treasuries selloff will find most of the evidence pointing to technical rather than fundamental reasons
  • U.S. 10-year Treasury yields catapulted to the highest in more than a year Thursday at over 1.6% and traders yanked forward their opinion of how soon the Federal Reserve will be forced to tighten policy
  • Japanese factories increased output in January for the first time in three months, signaling the country’s economic recovery is continuing despite a renewed state of emergency to contain the coronavirus
  • Oil is heading for a fourth monthly gain with the global market tightening as investors await the OPEC+ meeting next week
  • President Joe Biden’s nominee for trade chief called on China to live up to the commitments in its trade pact with the U.S. — the strongest signal yet that the new administration plans to build on the accord brokered by its predecessor rather than scrap it
  • Two Senate committee chiefs are looking at ways to raise taxes on companies paying workers less than $15 an hour, as part of a new strategy to include President Biden’s push to boost the minimum wage to that level in his Covid-19 aid bill
  • The Asia-Pacific continues to lead Bloomberg’s measure of the best places to be in the pandemic era, with New Zealand in pole position on the Covid Resilience Ranking for a fourth straight month in February, followed by Australia and Singapore
  • The standoff between central banks and bond traders took center stage in Asia on Friday after Treasury yields surged to a one-year high, forcing policymakers into a slew of debt purchases to calm panicking markets
  • U.S. consumer prices are headed higher -– at least according to the people who set them. Corporate leaders are increasingly confident that they can charge more for their products without losing business

A quick look at global markets courtesy of Newsquawk

Asia-Pac stocks slumped after reacting to the sell-off on Wall St amid a global bond rout and surge in yields whereby the US 10yr yield surpassed 1.6% and with Fed speakers providing very little pushback on the rising yield environment. ASX 200 (-2.4%) and Nikkei 225 (-4.0%) suffered heavy losses from the open as yields in the region also advanced and with tech the worst-hit sector in Australia following similar underperformance stateside where the Nasdaq 100 fell 3.6% for its steepest decline since October, while the Japanese benchmark saw intraday losses of more than 1,000 points with selling exacerbated by detrimental currency flows and after mixed data releases which showed Y/Y declines in Industrial Production and Retail Sales. Hang Seng (-3.6%) and Shanghai Comp. (-2.1%) conformed to the bloodbath in the region after the PBoC continued its reserved liquidity efforts and with further punchy rhetoric from USTR nominee Tai who stated that China needs to deliver on commitments under the Phase 1 trade agreement and that the US can work with other countries to craft new rules to cover ‘grey areas’ where China is not being held accountable. Furthermore, reports that US President Biden’s proposed minimum wage increase to USD 15/hour was ruled out of order for the Senate relief bill and a US airstrike on Iranian-backed militia in eastern Syria which destroyed multiple facilities and killed 17 pro-Iran fighters in response to recent attacks against US personnel in Iraq, further added to the overnight concerns. Finally, 10yr JGBs weakened and briefly declined beneath the 150.50 level on spill-over selling from the global bond rout which saw the Japanese 10yr yield breach 0.18% to print its highest since early 2016, while the results of the latest 2yr JGB auction was mostly weaker than previous.

Top Asian News

  • Warburg Pincus-Backed ARA Said to Weigh $1 Billion Dual Listing
  • Israel Gives Half of Population at Least One Covid Shot
  • Huawei Plans to Make EVs After U.S. Sanctions, Reuters Says

European equities are mostly softer (Eurostoxx 50 -0.9%), albeit off worst levels as global stocks attempted to claw back the losses seen as European participants entered the fray; though, some pressure has returned ahead of the US’ entrance to market. Stateside, equities were faring slightly better with the e-mini S&P & Nasdaq back in the green with gains of around 0.3%; however, on the aforementioned dip they are negative once again. In terms of a macro overview, not a great deal has changed since yesterday’s close beyond the ongoing rise in yields which saw the US 10yr surmount 1.5% yesterday; a level which it currently resides south of. The slew of Fed speakers this week have provided little in the way of pushback to the recent moves and as such, yields could continue to act as a driving force for price action, all things equal. Note, today is month-end and as such volatility could act as a feature for today’s session. Back to Europe, sectors are broadly lower with the defensively-inclined healthcare industry the only gainer thus far. To the downside, cyclical names have bore a brunt of the selling with notable laggards comprising of basic resources, oil & gas and travel & leisure names. For the latter, losses have been stemmed by upside in IAG (+3.7%) shares post-earnings despite posting a record EUR 7.43bln loss and refraining from providing FY guidance. Support for the airline industry could also be a by-product of the UK’s decision to extend the “slots waiver”. Elsewhere, tech is also softer in a sign of how broad-based the selling across Europe has been (ex-healthcare).

Top European News

  • Beckham-Backed Cannabinoid Firm Cellular Goods Soars in U.K. IPO
  • Schnabel Says ECB May Need to Add Support if Yields Hurt Growth
  • Ex-Credit Suisse CEO Thiam Raises $300 Million for Upsized SPAC
  • British Airways Parent Sees Signs of Hope After $9 Billion Loss

In FX, the Pound has unwound more gains vs the Greenback and Euro, or vice-versa, as global bonds yields finally show some sign of topping out after extended rallies to even loftier pinnacles above and beyond psychological levels. Currency markets are also consolidating after extended moves bordering on extreme in certain cases, such as Cable’s spike through 1.4200 and the simultaneous or adjacent slide in Eur/Gbp below 0.8550 before marked retracement to sub-1.3900 and circa 0.8730 respectively; although, ‘Hawkish’ Haldane commentary has provided a perhaps brief respite. Similarly, the Aussie reached a symbolic 0.8000 vs its US rival, but could not soak up all offers and breach barrier defences, while losing more momentum vs the Kiwi post-RBNZ as well, with Aud/Usd now sub-0.7800 in wake of softer than forecast private sector credit for January. Meanwhile, the Aud/Nzd cross has pulled back further from 1.0800+ to probe 1.0650 even though Nzd/Usd is under 0.7300 compared to 0.7465 at best yesterday following disappointing NZ trade data and relatively dovish rhetoric from RNBZ Governor Orr who reiterated that more monetary stimulus may be needed, with NIRP among the policy options that are being kept open. Given all the above and broader recovery gains, the US Dollar is confounding more bearish month end rebalancing signals via a UK bank flagging a strong sell vs all majors, as the index reclaims 90.500+ status (high of ~90.65) from 89.677 at the deepest point on Thursday.

  • EUR/JPY/CAD – Also caught out by the speed and magnitude of the Buck revival, with the DXY continuing to rise, as the Euro hovers near the base of 1.2184-05 parameters, Yen tests half round number support at 106.50 having been above 106.00 at the other extreme and Loonie reverses from 1.2587 to test 1.2650 alongside oil.
  • CHF – The Franc is holding up better than the rest in G10 land, though again largely due to corrective trade and only partially on fundamentals, like Swiss GDP not contracting as much as anticipated in Q4 on a y/y basis and the KOF index rebounding firmly in February. Usd/Chf is straddling 0.9060 and Eur/Chf 1.0970 vs 0.9094 and 1.1097 respectively earlier in the week.

In commodities, WTI and Brent front-month futures are softer on the session but picking up from their lowest levels during early European trade. The complex has seen downside this morning which is in-fitting with the overnight APAC session and stronger DXY. Moreover, with Texan refineries coming back online there has been some restoration in WTI supply after the weather storm, adding to the slight downside. Nonetheless, despite the mild softness, the broader narrative towards an upward trend of prices remains unchanged as both Brent and WTI are on track for gains of nearly 20% in February. In turn, fundamentals continue to be consistent with vaccination progress and OPEC+ meeting as the focusses given jet fuel demand continues to strengthen amid the vaccine rollout and prospective economic recovery. WTI resides just below the USD 63/bbl mark (vs high USD 63.57/bbl) and Brent low USD 66/bbl (vs high USD 66.90/bbl). Elsewhere, precious metals are softer on the session, with spot gold hitting an 8-month low and currently trading around USD 1760/oz. XAU’s price has been pressured due to the brighter economic outlook and yield developments. As previously mentioned, spot silver follows this sentiment and is 2.3% softer trading beneath the USD 27/oz handle. Turning to base metals, LME copper is 2.1% lower on the session following the broader market sentiment but due to tight supply and a brighter demand outlook the red metal is set for its best month since 2016, up 17.5%. Dalian iron ore futures are 1.7% firmer alongside Chinese steel futures as they progressed on elevated downstream consumption. Lastly, Indonesia is “ready to fight” the EU’s challenge over the country’s ban on nickel ore exports at the WTO meeting arguing it would hinder their development plans. The South-eastern Asian country banned ore exports to incentivise foreign investors to help develop a full nickel supply chain in the country, but the EU claims the export bans are illegal and unfair to EU steel producers.

US Event Calendar

  • 8:30am: Jan. PCE Deflator MoM, est. 0.3%, prior 0.4%
  • 8:30am: Jan. Retail Inventories MoM, est. 0.5%, prior 1.0%; Wholesale Inventories MoM, est. 0.3%, prior 0.3%
  • 8:30am: Jan. Personal Income, est. 9.5%, prior 0.6%; Real Personal Spending, est. 2.2%, prior -0.6%
  • 8:30am: Jan. PCE Deflator YoY, est. 1.4%, prior 1.3%; PCE Core Deflator YoY, est. 1.4%, prior 1.5%; PCE Core Deflator MoM, est. 0.1%, prior 0.3%
  • 9:45am: Feb. MNI Chicago PMI, est. 61.0, prior 63.8
  • 10am: Feb. U. of Mich. Expectations, prior 69.8; Current Conditions, prior 86.2; Sentiment, est. 76.5, prior 76.2
    • Feb. U. of Mich. 5-10 Yr Inflation, prior 2.7%; 1 Yr Inflation, prior 3.3%

DB’s Jim Reid concludes the overnight wrap

Yesterday proved to be nothing short of a rout in global markets, with the selloff in sovereign bonds accelerating as investors looked forward to the prospect of a strengthening economy over the coming months. Matters weren’t helped either by stronger-than-expected economic data, which only added to the fears that the Fed could withdraw stimulus sooner than anticipated, and helped Treasury yields see their biggest daily rise since March. On top of this, there were quite obvious signs that the sharp move higher for bond yields was beginning to bite elsewhere, with US equities falling across the board and tech stocks in particular suffering big losses as investors reassessed whether current equity valuations could still be justified in a higher-yield environment.

To run through what happened, yields on 10yr Treasuries rose an astonishing +14.4bps yesterday to 1.520%, bringing them to levels not seen for over a year now, albeit they’ve fallen back -2.6bps this morning. To demonstrate how rare daily moves of this size are, the only times in the last 5 years we’ve seen a rise in yields this large have been at the height of the coronavirus pandemic last March, and the day after President Trump’s election in 2016. So not moves you expect to see every day. However, that closing value in fact represented a decline in yields from the intraday high of 1.609%, which occurred very briefly following weak demand at a 7yr note auction. Another important point worth noting is that the higher Treasury yields yesterday were entirely caused by a rise in real yields rather than inflation expectations, with 10yr real yields seeing a +17.9bps advance to -0.609%, as breakevens actually fell back by -3.3bps, with a further -3.2bps decline this morning.

In response to the moves, monetary policymakers struck a confident tone, with Kansas City Fed President George saying in a speech yesterday that “Much of this increase likely reflects growing optimism in the strength of the recovery and could be viewed as an encouraging sign of increasing growth expectations.” It was a similar sentiment from St Louis Fed President Bullard as well, who said that “I think the rise in yields is probably a good sign so far because it does reflect better outlook for U.S. economic growth and inflation expectations which are closer to the committee’s inflation target”. So not sounding the alarm bells just yet. However, there are signs that markets could well be moving faster than the Fed, with a full first hike now priced in within the next two years. For reference, the most recent dot plot from the FOMC in December showed the median dot remaining on hold even at the end of 2023, so there’ll be intense focus on the release of the next set of dots at the meeting in mid-March to see if officials stick to that assessment.

To be fair to the speakers yesterday, better-than-expected data releases bolstered the argument that investors were reacting to the potential for a stronger recovery than they were previously anticipating. Firstly, the weekly initial jobless claims for the week through February 20 fell to 730k (vs. 825k expected), which is one of the timeliest indicators we get on the state of the economy. Furthermore, the previous week’s figure was revised down by -20k while the number of continuing claims also fell to a post-pandemic low of 4.419m (vs. 4.460m expected). And if that weren’t enough, durable goods orders similarly rose by a stronger-than-expected +3.4% in January (vs. +1.1% expected), with the previous month’s growth also revised up seven-tenths. Data releases over the coming days should help to fill in the picture further, with both the ISM readings and the February jobs report coming out next week.

Risk-off sentiment has continued to prevail overnight in Asian markets and equities have moved sharply lower, including the Nikkei (-3.06%), Hang Seng (-2.56%), Shanghai Comp (-1.84%) and the Kospi (-3.24%). Similarly, US equity futures are pointing to further declines, with S&P 500 futures currently trading down -0.36%. Sovereign bond yields have moved higher in Asia too, with yields on Australian (+12.3bps), New Zealand (+4.2bps) and Japanese (+0.1bps) 10yr debt rising, though Australian 3yr yields are down -2.2bps this morning thanks to the Reserve Bank of Australia purchasing A$3bn of 3-year debt in an unscheduled operation.

Ahead of those overnight moves, US equities lost significant ground yesterday thanks to the surge in yields, with the S&P 500 (-2.45%) falling to a 3-week low, as the VIX index of volatility (+7.55pts) rose to a 3-week high. The decline was an incredibly broad-based one, with every sector in the S&P moving lower, and just 47 companies in the index managing to eke out a gain, which is the lowest number to advance on the day since October. Tech stocks in particular were among the worst performers, with the NASDAQ (-3.52%) and the NYSE FANG+ Index (-3.32%) seeing sizeable losses, putting the latter on track for its worst weekly performance since the start of the pandemic last March. European indices didn’t share in these declines, since they closed before the worst of the losses, but the STOXX 600 (-0.36%) still managed to give up its opening gains to move lower on the day.

Speaking of Europe, the continent witnessed a similar rise in sovereign bond yields to the US yesterday, which came in spite of comments from ECB policymakers flagging their concern at the latest developments. Chief economist Lane said that the central bank would “purchase flexibly according to market conditions and with a view to preventing a tightening of financing conditions”, while the Executive Board’s Schnabel said that a “too abrupt increase in real interest rates on the back of improving global growth prospects could jeopardise the economic recovery.” Though Lane’s comments led to a slight pullback in yields during the session, the selloff swiftly resumed, and those on 10yr bunds climbed +7.2bps to -0.23%, a level not seen since March, while yields on French 10yr OATs (+7.5bps) closed in positive territory for the first time since June.

Given the moves higher for yields were mirrored on both sides of the Atlantic, the move in EURUSD was fairly contained relative to what we saw elsewhere, with the euro strengthening just +0.07%. Looking forward however, our FX strategists think that it’s now time to sell the dollar and buy the euro again (link here). Their argument is that the US “exceptionalism” story has now been priced in, with consensus growth expectations having risen. On top of this, Europe should start narrowing the vaccine gap in the coming weeks and the market could well turn its attention to the impact of the US fiscal stimulus on their external accounts. Overall, they think that EUR/USD can break to new highs in the coming months, and reiterate their midyear forecast of 1.25.

One of the big reasons for higher growth forecasts in the US has been the Biden stimulus package. However, the Senate parliamentarian ruled yesterday that one of the key planks of the plan, which is an increase in the minimum wage to $15, could not be included in the bill if it’s going to be passed via the reconciliation process that only needs a simple majority. So either the bill would need to be passed with 60 votes (including at least 10 Republicans), or the minimum wage hike would need to be taken out. In response, Senator Bernie Sanders, who chairs the Senate Budget Committee, said that he would seek to make it a more fiscal measure so that it could still be included in the bill, saying that he would remove tax deductions “from large, profitable corporations” who don’t pay their workers as much, and incentivise small businesses to raise wages. Today the House are expected to vote on the relief plan, though Speaker Pelosi has said that they’ll retain the minimum wage hike in the package, leaving the Senate to decide whether to take it out or not.

In terms of the latest on the pandemic, it was sadly reported by John Hopkins yesterday that the number of global fatalities has now surpassed 2.5 million. And although the number of new daily cases has fortunately slowed since the turn of the year at a global level, this masks a divergent performance between countries, with French Prime Minister Castex saying that new measures could be imposed in Paris and 19 other departments from early March should the situation deteriorate further. In the UK however, the picture has continued to improve, with yesterday seeing the Covid-19 alert level being moved down from 5 to 4, and the 7-day case average fall to its lowest level since early October. And at the other side of the world, Japan’s economy minister Yasutoshi Nishimura said that the government was recommending lifting the state of emergency in 6 of the 10 areas it’s in place, though it would be left in place for the Tokyo region. Over on the vaccine front, we also heard from Pfizer and BioNTech that they’ve started a trial to investigate whether a third dose of their vaccine would lead to a bigger immune response against new variants.

Looking at yesterday’s other data releases, the second estimate of US GDP growth in Q4 was revised up a tenth to an annualised rate of +4.1%, though this was slightly below the +4.2% reading expected. Finally, the European Commission’s economic sentiment indicator for the Euro Area rose to 93.4 in February (vs. 92.1 expected), which was its highest level since last March.

To the day ahead now, and data releases from the US include personal income and personal spending for January, the MNI Chicago PMI for February, as well as the final February reading of the University of Michigan’s consumer sentiment index. Over in France, there’s also the preliminary CPI reading for February and the final Q4 GDP reading. From central banks, we’ll hear from the ECB’s Schnabel and the BoE’s Ramsden and Haldane. Finally, EU leaders will be continuing their European Council meeting via videoconference, while G20 finance ministers and central bank governors will also be meeting via videoconference.

Tyler Durden
Fri, 02/26/2021 – 07:53
"Calm Returns", Futures Rebound As Yields Drop After Historic Pounding