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Market Update
For the most part, markets continue to trade within this week ranges as key risk events look; S&P 500 futures point to a positive open for US equity markets, up a little over 0.5%, but continue to trade within recent day’s 3870-3900ish ranges. Likewise, US 10-year yields are also a little higher this morning but remain stuck within this week 1.40%-1.45%ish range, while WTI, which is trading a little higher on the day and not far from the $61.00 handle, remains stuck in its $59.50-$61.00ish range of the last 36 or so hours. Meanwhile, the US Dollar Index (DXY) is a touch firmer this morning and looking to recapture the 91.00 handle, but still trades pretty close to where it started the week.
Comments from US President Biden revealing his hopes that all adults in the US could be vaccinated by May are being touted as having given risk assets a modest boost on Wednesday morning, but fundamental drivers otherwise remain thin and rangebound conditions are, thus, unsurprising given looming risk events in the coming days; Wednesday sees the release of the ISM Services PMI report for February, a timely update on the state of the US’ service sector recovery, as well as February’s ADP National Employment Change estimate, a release that helps set expectations for the NFP release later in the week. Thursday sees Fed Chair Jerome Powell plus Weekly Jobless Claims numbers and Friday sees the release of the February Labour Market Report, which will be the main event of the week from a global macro perspective.
Market participants look to the above US data releases for further information as to the state of the US economy as the country exits its worst wave of Covid-19 infections yet. Meanwhile, Fed officials have started to show a little more concern about rising US government bond yields, as well as hinting at what the Fed could do to maintain accommodative monetary conditions, in recent days and traders will look for Thursday’s speech from Powell for more on this. Separately, the Senate is expected to vote in favour of US President Joe Biden’s $1.9T “rescue” package before the end of the week.
Note also that OPEC+ are scheduled to meet today; sources cited by newswires suggest the cartel is in agreement that oil markets handle further supply, meaning an agreement to increase output remains the likeliest option, though sources also noted that the option of a rollover of current output quotas is reportedly supported by a few members and, as such, remains on the table. Expect ongoing choppiness amid continued uncertainty as to how much (if any) oil OPEC+ opts to bring back online from April. Note also that the Saudi Arabians are currently expected to be fully reversing the 1M barrel per day output cuts they pledged for February and March in April; if they opt to bring this supply back on more slowly, this could be a positive catalyst for oil.
EUR, GBP
EURUSD, which has been flirting with the 1.2100 handle, has slipped back towards the 1.2050 mark in recent trade, down about 0.2% on the day. According to sources cited by newswires, the ECB is said not to see any need for drastic action to curb rising European government bond yields. This comes in contrast to recent, much more dovish, commentary from other ECB officials who have recently called for an increased pace of bond buying to counter rising yields and highlights an apparent split in opinion at the bank. This news was touted as supporting the euro this morning, though this support seems to have faded, with EUR now one of the worse G10 performers on the day, despite significantly better than expected Italian, French and EU wide final Services and Composite PMI number released this morning.
By contrast, GBP is flat versus USD, with GBP/USD trading around 1.3950, albeit the pair has reversed back from earlier morning highs of above the 1.4000 level. GBP traders await a speech from UK Chancellor of the Exchequer Rishi Sunak, who is going to unveil the details of his latest budget in a speech to the UK Parliament from 1230GMT/0730EDT; the Chancellor is expected to announce an a range of economic support measures to help businesses and individuals through the economic crisis, including an extension of current furlough scheme until September (although employers will reportedly have to pay 10% of these costs in July and 20% in August and September) and a new Self-employed Income Support Scheme that will grant up to 80% of three months trading profit, up to a maximum of £7500 and will cover up to 600K more workers. Sunak’s is expected to warn that taxes will eventually have to rise to pay for the support, but in the meantime, his focus is on nursing the economy back to health. Given the fact that the details of Sunak’s budget are already for the most part leaked, GBP is not expected to react too much.
JPY, NZD, AUD
USDJPY crossed above the 107.00 level for the first time since August 2020 this morning but is yet to convincingly break above this level. News that Tokyo is set to remain under state of emergency conditions for at least a few weeks does not seem to have impacted FX markets much, with the upside likely instead being driven by higher US bond yields if anything. A more convincing break above 107.00 might have to wait until after today’s US data (assuming the data is strong, which it might not be!).
The two antipodes are rangebound, with AUDUSD at the lower end of its intraday 0.7810-0.7840ish range and NZDUSD at the lower end of its 0.7280-0.7300ish range. Somewhat surprisingly, the Aussie has mostly ignored a much stronger than expected Q4 2020 GDP growth reading; the latest GDP showed that the economy finished 2020 just 1.1% smaller than its started it, better than expectations for an annual drop-in economic activity of 1.8%. Capital Economics “think that GDP will surpass its pre-virus level by the middle of the year and today’s solid data only strengthen our conviction in that forecast”.
Day Ahead
As noted, UK Chancellor of the Exchequer Rishi Sunak is likely to start speaking at 1230GMT/0730EDT and will unveil the contents of his latest budget. Then, the US ADP National Employment Change estimate for February will be released; consensus expectations are for the data to show a 177K rise in employment on the month. As usual, the data will be important as markets calibrate expectations for the official labour market report on Friday.
Canadian Building Permits is set for release at 1445GMT/0945EDT, alongside final US Markit Services PMIs. The main event of the day, stateside anyway, is at 1500GMT/1000EDT, with the release of ISM’s Service PMI survey for February; the headline index number is expected to come in at 58.7.
Official EIA crude oil inventories will then be released at 1530GMT/1030EDT, but energy traders are likely to be much more focused on the OPEC+ meeting, with sporadic comments, reports and leaks likely to occur throughout the day and likely to trigger oil market volatility.
Market participants should also keep an eye on a smattering of central bank speakers from the Fed, ECB and BoE; ECB’s Panetta speaks at 1300GMT/0800EDT, ECB Vice President de Guindos at 1500GMT/1000EDT, BoE MPC Member Tenreyro at 1600GMT/1100EDT, FOMC Member Bostic at 1700GMT/1200EDT, FOMC Member Evans at 1800GMT/1300EDT and then ECB’s Schnabel at 1830GMT/1430EDT. RBNZ Governor Orr will is also scheduled to speak at 2015GMT/1515EDT – something for the NZD traders to watch.
