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Market Update
Markets trade in a mixed fashion on Thursday morning, with Thursday essentially being the last trading day of the week for many market participants (most North American and European participants will be taking Friday off amid market closures for the Good Friday public holiday). As things stand, US equity index futures are trading with a positive bias with outperformance in Tech; with the Nasdaq 100 (up 1.0%) having surged above 13K again yesterday, the index seems likely to test March highs in the 13200-13300s soon. Meanwhile, European equities are trading in the green despite news of France going into a nationwide lockdown for at least four weeks (starting on Saturday), longer-term US government bond yields are pulling back a little (30-year yields are down nearly 5bps on the day to under 2.40% – this is helping Tech), while industrial and precious metals are struggling amid continued resilience in the US dollar (the DXY is currently holding firm above 93.00 and trading close to 93.20).
US President Joe Biden announced plans for a two-part public investment programme; the first part, called the American jobs plan, will involve $2.0T in spending on infrastructure (pretty much in line with expectations) over the next eight years and will be funded by a corporation take hike to 28% from 21%, as well as tax hikes on those earning over $400K per year. Part two, the American families plan, will be unveiled later in the month (markets expect this proposal to amount to another $1-2T). Focus is now on Congress; the specifics of the spending package will have to be negotiated in a way that is palatable to all of the Democrat Senators in order for it to pass into law.
Markets have largely taken last night’s announcement in their stride, though it is arguably helping to support risk sentiment and the US dollar. In other news worth noting, further data from Pfizer/BioNTech regarding the efficacy of their Covid-19 vaccine has been positive, with the vaccine remaining up to 91% effective as much as six months after inoculation. Elsewhere, Johnson & Johnson has reportedly faced some production issues affecting some 15M doses, but the company said it still expects to deliver over 1B doses this year. This latest news appears not to have impacted sentiment, with markets instead focused on a busy US economic calendar today.
Crude Oil, OPEC+
Crude oil markets had been trading well in the green this morning, but OPEC+ related jitters have seen them drop sharply and hand back most of the day’s gains. Having been as high as the $60.50s earlier this morning, WTI has dropped back into the mid-$59.00s. After yesterday’s Joint Ministerial Monitoring Committee meeting, which was alleged to not have been an upbeat gathering, no policy recommendation was made to OPEC+.
Most market participants still expect the cartel to agree to roll over current output cuts; this is what more cautious members such as the Saudis have been pushing for. However, an OPEC+ delegate recently said the cartel is thinking about a return to phased monthly oil-output hikes and separate reports suggest that the UAE and Kuwait will increase output if the Russian’s continuing to increase their output. All of this could of course be sabre rattling – we should know by the end of the day as to what the new policy is going to be. If OPEC+ does surprise markets with output hikes, this would pressure crude prices.
FX Markets
As noted above, the dollar remains resilient with DXY holding firm above 93.00. This ongoing strength is coming mostly as a result of weakness in the Aussie, CHF and CAD, each of which are down over 0.2% versus the buck this morning. Starting with the former; AUDUSD has dropped back from the 0.7600 level and hit overnight lows in the 0.7530s overnight following downbeat Retail Sales data and a smaller than expected trade surplus in the month of February, with the latter as a result of a 1% fall in exports due to lower iron ore prices. Suggestions from some desks that the RBA might adopt a hawkish tone on the outlook for the economy next week may support AUD from falling any further, note. In terms of the Swiss Franc, softer than expected March CPI and a downbeat Retail Sales reading for the month of February are weighing. USDCAD, meanwhile, has risen sharply from yesterday’s 1.2530 lows, but is finding solid resistance and has been unable to rally above 1.2600 ahead of the March Markit PMI survey out in the afternoon.
Looking elsewhere, things are much more subdued. EUR, GBP, NZD and JPY are all trading broadly flat on the day versus each other and versus the US dollar; EURUSD continues to range below 1.1750, GBPUSD continues to range under 1.3800, USDJPY is ranging between 110.60-110.80 parameters and NZDUSD has recovered back into the 0.6980s following a brief overnight slip (in tandem with downside in AUDUSD) to under 0.6950.
For reference, there are a few economic updates for these currencies; starting with the euro, final Eurozone Markit Manufacturing PMI data was out this morning and was a little better than expected, while the French Health Minister predicted the country’s Covid-19 outbreak could peak in 7-10 days. Meanwhile, ECB officials have been sounding dovish, with Chief Economist Lane noting near-term uncertainties and downplaying inflation risks and ECB’s Weidmann noting risks to the bank’s 2021 growth forecasts amid recent tightening of lockdown restrictions. Turning to sterling, final UK Markit Manufacturing PMI data was also released this morning and saw a fairly substantial beat on expectations. Sticking with the theme of strong survey data, the BoJ Tankan report for Q1 was strong, showing large manufacturer sentiment at its highest since September 2019 and non-manufacturing at its best levels in over a year – none of the above seems to have influenced FX markets much. The US dollar is dominating proceedings right now traders are tentative ahead of key US data releases later in the session.
The Day Ahead
Weekly US Jobless Claims and Canadian Building Permits data will be released at 1330BST. Final US Markit Manufacturing PMI will then be out at 1445BST, ahead of the main event of the day, US ISM Manufacturing PMI at 1500BST – markets expect the headline index to rise to 61.3 from 60.8 last month. Fed speakers (Harker and Kaplan) will also be on the wires later in the evening. Things are likely to die down in the latter half of the US session with key risk events out of the way and ahead of the long weekend in the US and Europe.
