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Market Update
US Retail Sales data for the month of February, the main event of the day from an economic calendar standpoint, were just released and showed a larger than expected drop in consumer spending in the second month of the year. Headline retail sales dropped 3.0% MoM in February versus forecasts for a more modest 0.5% drop. Core retail sales were down 2.7% on the month, also a larger than expected drop of 0.1%.
Markets did not see a notable reaction to the worse than expected retail sales report – market participants will remember that January saw a much larger than anticipated spike in consumer spending, with Americans having received a $600 cheque from the government that month. Some paring back from last month’s enormous jump in spending thus appears not to have either come as a surprise or triggered any concerns about the health of the consumer. Indeed, Americans are currently receiving another cheque from the government, this one $1400, implying if things go like they did in January, we could see another huge spike in retail spending in March.
A quick overview of where markets and sentiment are at this morning then; US government bond yields continue to pare last Friday’s gains, with the 10-year yield now back under the 1.60% level. Falling long-term rates is helping Big Tech and growth stocks again, hence the Nasdaq 100 continues to outperform, with futures of the index up 0.5% this morning.
Meanwhile, S&P 500 and Dow futures are both flat and European equities are broadly in the green, as Europe plays catch up to gains seen in global equities following the close of European equity markets yesterday. Crude is a little softer and gold is flat.
In terms of the major themes driving markets right now; things remain cautious ahead of this week’s main event, which is tomorrow’s FOMC meeting. Europe’s panicked halting of its AstraZeneca vaccine rollout amid fears the vaccine may be causing serious blood clots has been the main story of the week so far; health authorities in the UK, US and at the EU are currently at loggerheads with the various health authorities of individual EU states which have halted the vaccine rollout over its safety – UK health authorities, for example, who have vaccinated over 11M people with the AstraZeneca vaccine found no evidence of higher blood clots in vaccinated patients than non-vaccinated. But anyway, markets do not really care about this debate, what they care about is if these halts to the rollout slow the EU’s economic recovery and delay when the continent will reach herd immunity – some suggest this is weighing on crude oil prices.
G10 FX
FX markets are subdued, with most major USD pairing having not moved more than 0.2% so far on the session. As noted, retail sales appeared not to have much of an impact and FX market participants will now look ahead to tomorrow’s FOMC rate decision as the next driver of market direction.
The euro had been an early outperformer, with EURUSD bouncing from the low 1.1900s back to close to the 1.1950 mark over the course of the morning, helped by strong German ZEW survey data and in spite of more turmoil in Europe’s vaccine rollouts amid further EU nations halting the rollout. The pair has since dropped back into the 1.1930s, however, and is again flat on the day.
In terms of the data, German ZEW Economics Sentiment rose to 76.6 in March from 71.2 in February, a larger jump than the expected rise to 74.0. Similarly, Current Conditions saw a larger than expected jump, rising to -61 from -67.2, though this is still well below pre-pandemic levels, which is unsurprising given Germany has been stuck in varying degrees of lockdown so far this year. ZEW commented that while the second lockdown has paused the recovery, their data does not suggest there will be as drastic a drop in GDP in Q1 2021 as was experienced in the Q2 2020 lockdown.
In terms of the rest of the G10; CHF is an outperformer this morning, though only modest and is up by only about 0.2% versus the buck on the session – European vaccine concerns could be causing a bid for European safe haven assets (like CHF), some market commentators have suggested, though it is probably wise not to look to much into such a small move. JPY is up about 0.1% versus the buck, with USDJPY dropping back under 109.00 in recent trade.
Meanwhile, USDCAD, NZDUSD and AUDUSD are all flat, with the Aussie having mostly recovered from earlier underperformance in wake of dovish RBA minutes released overnight; the bank reiterated that very significant monetary support will be needed for some time and that stimulatory conditions will be maintained for as long as necessary. Moreover, the RBA reiterated minutes reiterated that the bank is not planning on hiking interest rates until inflation is back sustainably within its 2%-3% target range.
The RBA continues to believe that its unemployment and inflation goals will not be reached until 2020. The minutes showed that the bank thinks that rising Australian government bond yields reflect improved optimism regarding the economic outlook and expectations for higher inflation. Meanwhile, there was also mention of the fact that wage growth would have to reach 3% per year for the bank to consider hiking – this raising of the bar for hikes has been taken as dovish and seems to have weighed modestly on the Aussie.
Finally, GBP is a modest underperformer, down 0.1% on the day versus the buck, though GBPUSD has recovered nicely from the low-1.3800s back to around the 1.3875 area. There does not seem to be much behind GBP underperformance this morning; perhaps some traders are fretting about recent negative UK/EU headlines regarding the latter taking legal action against the former over its action on Northern Ireland trading arrangements and also on reports earlier in the week of disagreements overfishing rights.
Day Ahead
US Industrial and Manufacturing Production data for February will be released soon and though is not usually a market moving event, could garner some attention and is worth watching.
Then, NZD traders should watch out for the latest bi-weekly GlobalDairyTrade auction results, which should be released around 1430GMT/1030EDT. Thereafter, the main event of the session will be Private weekly API crude oil inventory numbers, which could trigger some volatility in crude oil markets.
Focus will otherwise remain on the usual themes of the pandemic, vaccine rollouts and news regarding central banks or the next round of US fiscal stimulus.
