The US dollar started the week somewhat surprisingly on a solid footing. The trade-weighted dollar tested the year-to-date high just below 91. USD/JPY extends its comeback after piercing through the upper end of the downward trend channel since Summer last week. The pair currently changes hands in the high 104-area, the strongest since November. EUR/USD returns below 1.21, but a test of the year-to-date low at 1.2054 remains absent so far. Dollar strength comes in a more fertile risk environment compared to last week. Main European benchmarks followed Asia around 1.5% higher. Asian markets found comfort as the PBOC reversed some of its stealth tightening. The European equity gains don’t alter the technical picture which suggests that the correction lower is ongoing. First important support in the EuroStoxx50 stands near 3400 with a return above 3575 necessary to call off the downside alert. A second factor at odds with dollar strength are rising commodity prices (also see below). Silver obviously stands out being “target” of the retail Reddit-army. Silver prices reach an 8-yr high north of $29/Oz. Other commodities like oil prices (Brent $56/b from $54.8/b) rise as well. Finally, US Republicans countered US President Biden’s $1900bn opening fiscal gambit with a watered down $600bn proposal, highlighting the difficult battle ahead for the Biden administration with only a very small edge in US Senate. The slow but steady EUR/GBP decline initially continued, but the EUR/GBP 0.88 deterrent, eventually caused return action higher towards 0.8840.
US Treasuries today slightly underperformed vs German Bunds. The US yield curve steepened with yield changes ranging between -0.3 bps (2-yr) and +2.1 bps (30-yr). German yields add 1 bp to 1.5 bps across the curve. The action lacked strong market drivers. 10-yr yield spread changes vs Germany are broadly unchanged with Italy (-4 bps) outperforming. The Kingdom of Belgium announced the near term syndication (likely tomorrow) of a 50-yr bond (OLO 93 June2071). It will become the longest outstanding OLO line. Belgium already raised €6bn earlier this year via a 10-yr syndicated deal. We expect OLO-sales to reach €36.41bn this year.
The US manufacturing ISM remains elevated in January, declining from 60.5 to 58.7. Details show the employment component (52.6) rising to the highest level since mid-2019. New orders at 61.1 bode well for the near-term future. The prices paid index went further through the roof (82.1 from 77.6), highlighting building price pressure. Supplier delivery times hit a 9-month high, pointing at disturbed supply chains. Inventories fell to the lowest since Dec 2009.
Sweden’s preliminary GDP indicator, a GDP estimate since May 2020 based on early compilations of monthly and quarterly economic statistics, suggested its economy grew 0.5% q/q in the final quarter of last year. That’s less than expected (1%) and a strong deceleration from the 4.9% growth in Q3. Sweden’s economy is still down -2.6% y/y. Final and detailed GDP figures are due on Feb 26. The Swedish krone loses ground with EUR/SEK rising to 10,17.
Italia Viva wants to see Democratic Party member Economy Minister Gualtieri set aside in any cabinet that would arise from the government to signal a clear break with the past, political sources close to the matter said. However, the PD said it would not sacrifice support for Gualtieri in return for Italia Viva’s support. Earlier, Italia Viva leader Renzi said if no political agreement for a new government can be found, he would support a government of technocrats with former ECB president Draghi as prime minister.
US natural gas futures soar almost 9% today to about $2.8/MMBtu. The jump comes amid an Arctic blast hitting the east of the US. Temperatures plummet and colder-than-normal conditions forecasted over the next two weeks spur speculation of tighter supplies while demand (for heating fuel) is expected to peak.