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Market Update
Ahead of what is going to be a very week for financial market participants, we are seeing a tentative start; US equity market futures are pointing to a modestly higher open, meaning the S&P 500 and Dow are set to resume trade this week at all-time high levels. The Nasdaq 100 will still be a little way off recent highs but has recovered nicely from recent lows. Note that some volatility is expected at the open given American’s received their $1400 stimulus cheques over the weekend and it is expected that many billions of this is likely to be poured directly into equity markets. Looking at other asset classes, crude oil is flat (with WTI close to $65.50), US government bond yields are flat (with the US 10-year yield close to 1.63%) and the US dollar is marginally firmer (with DXY trading in the 91.80s).
In terms of this week’s key events of note; we have US Retail Sales and Industrial Production on Tuesday, an FOMC rate decision on Wednesday, a BoE rate decision on Thursday and a BoJ meeting on Friday. Other key events include New Zealand Q4 GDP on Wednesday and Canadian Retail Sales on Friday.
A few other stories worth noting this morning, though do not seem to have impacted sentiment too much; firstly, overnight Chinese activity data was pretty solid, with both Industrial Production and Retail Sales in the month of February beating expectations and posting huge YoY growth rates, though this is primarily as a result of base effects (i.e. extreme weakness seen in economic activity in China this time last year when the country was in lockdown for the Covid-19 outbreak).
Meanwhile, Chinese “observers” reportedly do not expect this week’s meeting between high level US and Chinese officials to lead to any diplomatic breakthrough. The meeting with be taking place on Thursday to Friday and is another key risk event worth watching. Finally, US press reports that the White House is going to propose a “suite” of tax hikes which are set to mirror Biden’s election promises. This includes hiking corporation tax from 21% to 28% and reducing tax preferences for businesses – this could be a headwind for risk appetite if markets perceive Biden as pursuing fiscally contractionary policy to soon (i.e. before the US economy has fully recovered).
Markets have also shrugged off more furore regarding the AstraZeneca vaccine and blood clots; health authorities in Ireland, Norway and the Netherlands have halted their rollouts of the vaccine given concerns it could be linked to blood clots. Most other major international health authorities continue to maintain its safety.
G10 FX
A closer look at price action within G10 FX markets this morning; things are pretty subdued this morning and there are not really any big movers. NZD is modestly outperforming, up around 0.25% versus the US dollar, with NZDUSD swinging either side of the 0.7200 level in the last few hours. Conversely, AUD is a marginal underperformer in the G10, down about 0.2% this morning versus the US dollar (AUDUSD is trading with a negative bias and has dropped below 0.7750) following dovish remarks from RBA Governor Lowe, who noted that while Australia has responded well to the pandemic and thus had a stronger than expected recovery, there is still a long way to go (in terms of the bank meeting its policy goals).
Another modest underperformer is the euro, down just under 0.2% on the day versus the dollar, corresponding to a drop in EURUSD back under 1.1950 and into the 1.1920s. The euro is being weighed by a few negative stories; German ICU doctors are calling for a return to partial lockdown, a few EU nations including Austria, Czech Republic, Slovenia, Bulgaria and Latvia are demanding an EU summit on what they perceive to have been “uneven” vaccine distribution and German Chancellor Merkel’s party (the CDU) just suffered heavy defeats in two key state elections in Baden-Wurttemberg and Rhineland-Palatinate.
Turning to pound sterling; GBP is flat on the day versus USD, with GBPUSD for now holding comfortably above the 1.3900 level. BoE Governor Andrew Bailey was unexpectedly on the wires this morning (it is unusual for the Governor to speak so close to a rate decision) and he sounded pretty upbeat on the prospects for the UK economy, whilst downplaying fears that inflation might pick up to well beyond the bank’s 2% target. Upbeat BoE commentary might offer sterling some support and pandemic news has also been good; the Time reported that the UK is on track to offer all UK adults at least one vaccine dose by early June, sooner than government targets for the end of July. However, the ONS is warning that there is likely to be another surge in Covid-19 cases in the Autumn despite vaccine protection.
Finally, CAD is flat, amid subdued crude oil price action and safe haven currencies CHF and JPY are both also conforming to the humdrum market tone.
Day Ahead
There is very little to get excited about during the coming session ahead of some data out of New Zealand (Westpac Consumer Sentiment and Credit Card Spending) and Australia (House Price Index and RBA Minutes) tonight. Thus, focus will remain on the usual market themes, including the pandemic, fiscal stimulus and movements in bond markets.
