The Catch Up
• Stock markets in Asia started the week in the red, and so did European and US index futures, despite the approval of the $1.9 trillion stimulus bill by the the US Senate over the weekend. The move is most likely an outcome of Treasuries rising to new highs, threatening the high valuation of tech stocks.
• Losses were led by Chinese exchanges, with the CSI300 dropping by 2.9% and the Hang Seng registering a 1.3% loss, despite the positive data releases which shows that China's exports surged 155% in February compared with a year earlier. Naturally, this was an expected growth rate, given that much of the economy shut down to fight the coronavirus in 2020.
• Elsewhere, the KOSPI was down 1% and the ASX shed 1.05%, while the Nikkei was better at 0.42%. The Japanese index is still around 5% below the 30,000 mark hit earlier this year.
• US500 and DAX futures were both down by 0.25% and 0.41% respectively.
• Analysts with JP Morgan still underline that, with the Senate passing the bill, growth will accelerate and forecast global GDP growth will surge to a 7.5% annualised rate in the middle quarters of the year. Furthermore, they note that every $1 trillion of fiscal stimulus adds around $4-$5 to EPS, implying 6-7% upside for the remainder of the year.
• On the down side, analysts also expected a sharp acceleration in inflation, also aided by the latest spike in oil prices, which was pushing up bond yields and stretching equity valuations, particularly in the high tech space.
• The macro data releases continue to be positive, with nonfarm payrolls on Friday registering a strong 379,000 increase in jobs, as the unemployment rate dropped to 6.2%. US Treasury Secretary Janet Yellen tried to counter inflation concerns by noting the true unemployment rate was nearer 10% and there was still plenty of slack in the labour market.
• Interestingly, yields on 10-year Treasuries still hit a one-year high of 1.625% in the wake of the data, and were last at 1.59% today. On the other hand, German yields actually dipped 4 basis points.
• The European Central Bank meets on Thursday amid talk it will protest the recent rise in euro zone yields and perhaps mull ways to restrain further increases.
• The diverging trajectory on yields boosted the dollar on the euro, which fell away to a three-month low of $1.1892, and was last pinned at $1.1904.
• Bank of America analysts argued the potent mix of US stimulus, faster reopening and greater consumer firepower was a clear positive for the dollar. As they noted, the current proposed stimulus package and further upside from a second-half infrastructure bill make the total US fiscal support package six times greater than the EU recovery fund. At the same time, the Fed is also supportive with US money supply growing two times faster than the Euro Area.
• As a result, the dollar index duly shot up to levels not seen since late November and was last at 92.057, well above its recent trough of 89.677. This also meant that it gained against the low-yielding yen, reaching a nine-month top of 108.63, but last trading around 108.41.
• The only gainers against the USD were commodity currencies, which were boosted by rising oil prices. As a result, the Aussie gained 0.08% and the NOK was up 0.24%, while the Loonie was largely unchanged.
• In the crypto world, nothing was was moving with Bitcoin, as it appears to have a found stability around the 50,000 level.
Oil & Gold
• The jump in yields has weighed on Gold, which offers no fixed return, and left it at $1,705 an ounce and just above a nine-month low.
• On the other hand, Oil prices were up, reaching the highest levels in more than a year after Yemen's Houthi forces fired drones and missiles at the heart of Saudi Arabia's oil industry on Sunday, raising concerns about production. Saudi Arabia labeled the attack as a failed assault on global energy security after the drones and missiles were intercepted.
• Prices, which had already been supported by a decision by OPEC and its allies not to increase supply in April, saw a more than 1.5% increase, with Brent breaking the $70 per barrel barrier and reaching $70.80, while WTI followed suit, reaching $67.45 per barrel.
• German industrial production is forecast to have declined by 1.4%m/m in January, even though we expect this to have been less than forecast.