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Market Update
Trade is mixed on Wednesday morning; while European equity bourses trade in the red as they play catch up to losses seen on Wall Street yesterday evening ahead of the US session close, they are off lows and US equity index futures trade in the green, with S&P 500 futures bouncing from the 3910 regions to the upper-3920s this morning. Aiding stocks this morning is a continued pullback in US government bond yields (10-year yields are down another 1bps this morning to under 1.63%) and a recovery in crude oil markets from yesterday’s lows (WTI has recovered back to the mid-$59.00s from the mid-$57.00s); crude oil market commentators are pointing to developments in the Suez canal which became blocked last night – the canal is a key pathway for crude oil from the middle east into Europe, but the Suez canal authority is reportedly close to addressing the problem and allowing the flow of ships to resume.
Looking at FX markets, despite strength in stocks and crude, the dollar is a little stronger this morning and at one point the DXY rallied to the north of the 92.60 level (fresh annual highs). However, the index has struggled to break into the mid-92.00s, likely hindered by the release of very strong preliminary Markit PMI releases out of the UK and Eurozone this morning – the Eurozone survey might already be out of date, however, what with countries within the bloc tightening Covid-19 restrictions in recent days. On which note, there is not much new to update on regarding the state of the global pandemic; there was some fuss being made about 30M AstraZeneca vaccines being held in Italy that were reportedly destined for the UK, but subsequent reports suggest they were actually destined for Canada and Mexico – German officials are now talking about effectively commandeering these vaccines to ramp up deliveries to the EU.
European vaccine nationalism is set to continue to be a talking point in the coming months as the bloc struggles to contain a third wave of Covid-19 infections and rollout its own vaccination drive. Meanwhile, news coming out of the UK and US regarding the state of the pandemic and their respective vaccine drives remains positive. In terms of other market talking points, talk in the US regarding the next fiscal stimulus package is picking up. According to the latest reports, the “recovery” package, which is set to focus on infrastructure investment, could have a price tag of between $3-4T over the next four years. This chatter seems to have so far had a neutral impact on stocks market sentiment, given it could be funded by corporation tax hikes, but does seem to have been supporting the US dollar (hence its further outperformance this morning) as more stimulus feeds into the US economic outperformance narrative.
FX markets
While the DXY is modestly stronger this morning, G10 FX markets have no clear risk bias. AUD and CAD are modest outperformers alongside USD, with AUDUSD back above the 0.7600 level after yesterday’s big drop from 0.7680 all the way to the 0.7580s, and USDCAD reversing sharply back to the 1.2575 area following a brief journey above the 1.2600 level. Both pairs trade flat on the day.
The Aussie appears to have broadly ignored preliminary February trade figures released last night, which saw the country maintain its export surplus of AUD 8.1B last month and a decent preliminary March Markit PMI survey appears to have also been ignored. Meanwhile, some market commentators are citing the BoC’s announcement yesterday that it would be ending (as planned) a number of its emergency liquidity facilities and comments from BoC’s Toni Gravelle alluding to tapering the bank’s QE purchases as supporting the loonie’s recovery from overnight lows this morning.
Meanwhile, EUR, GBP and NZD are underperformers; as noted, much stronger than expected UK and Eurozone preliminary Markit PMI surveys for March released this morning have stemmed but not been able to reverse the tide of selling. EURUSD has managed to recover to around 1.1830 from earlier 1.1810 lows and GBPUSD has managed to recovery back above 1.3700 from earlier 1.3670 lows, with both still down about 0.2% on the day. Meanwhile, the kiwi continues to struggle since losing its grip on the 0.7000 handle for the first time since last November, and currently trades around 0.6980, also down about 0.2% on the day. The fact that last night’s February trade data release showed the country in a small trade surplus has been unable to lift the mood for kiwi at all.
The Day Ahead
Preliminary US Markit PMI surveys for the month of March will be released at 1345GMT and could set the tone for US trading hours. Fed Chair Powell is scheduled to speak at 1400GMT in his second day of Congressional testimony but is unlikely to add anything new to what he said yesterday. Comments from other Fed members including NY Fed President Williams, Fed’s Daly and Fed’s Evans will be worth watching later in the session. Meanwhile, crude oil markets will be on notice for the release of official weekly inventory data at 1430GMT.
Aside from the scheduled calendar events, the main focus of the session will remain on the usual themes such as the path of the global pandemic and chatter surrounding further fiscal stimulus in the US.
