Wed, Apr 14, 2021 @ 09:05 GMT
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Reflation Theme Drives Commodities And Yields Higher

Market movers today

  • A quiet day today with the German IFO survey for February as today’s highlight.
  • Later during the week we hear both from Fed chair Powell (Tuesday) and Fed vice chair Clarida (Wednesday) although they are unlikely to say anything new. On Friday we get Q4 GDP details from Sweden and Denmark.
  • Today, ECB President Lagarde will speak in the European Parliament at 15:30 CET. Riksbank member Floden speaks on Inflation, Economy and Policy at 13.00 CET.
  • On Friday-Saturday, the Johnson & Johnson vaccine is likely to be approved in the US.

The 60 second overview

Covid-19: News agencies reported over the weekend that the Pfizer-BioNtech shot was 89.4% at preventing infections and 99% effective at preventing deaths from the virus. The data are collected in Israel that are well ahead the rest of the world with its vaccination programme and only use this Pfizer-BioNTech vaccine.

Commodity markets: This morning Copper prices traded above USD 9,000 a ton for the first time since 2011. The business cycle sensitive copper price receives support from the economic recovery hopes. The rally in copper might indicate that the market has been too pessimistic on the Chinese growth outlook. Oil prices are also supported recovery hopes and the big freeze across Texas. The Brent futures rose to USD 63.75 a barrel this morning in London. The market is now scrutinizing any comments from especially the Saudis and the Russians ahead of next month’s OPEC+ meeting to see if the higher prices will trigger a production boost from the cartel.

Bond yields: 10Y US treasury yields have continued to climb in Asian trading this morning and is now trading 5bp higher at 1.38. The fear of inflation and economic recovery hopes are boosting yields. The markets will keep a very close eye on any comments on the rising yields when Lagarde speaks today and Powell speaks tomorrow. It is noteworthy, that we are seeing that real rates are also moving higher as the rise in nominal yields outpace the rise in inflation expectations (break-evens). A higher real rate makes monetary policy less stimulative all things equal.

Equities: Equities flat Friday but with rather big underlying sector and styles moves as US yields continued their move higher late Friday (curve steepening continuing this morning with US 10Y at 1.39%). Cyclical stocks outperformed defensives by 1% in US and almost 2% in Europe and value outperformed growth for the fifth day in a row. Strong demand for small cap securing a comeback after three days with selloff. US equities finished mixed after giving back earlier gain, Dow +0.00%, S&P 500 -0.2%), Nasdaq +0.1%, Russell 2000 +2.2%. Asia equities are mixed this morning with indexes off session highs. US and European futures slightly down.

FI: The sell-off continued on Friday, led by the long end of the US curve.Bund yields rose 4bp to -0.307% in the bearish steepener move across the EGB space. All intra-EGB spreads against Bunds tightened. Notably the BTPs-Bund spread saw a significant tightening of 6bp to 93bp as Draghi’s government formally received the backing and is now the ruling government.

FX: Many countries seem to actively be moving towards (mild) re-opening, US fiscal talks are progressing and commodity prices are rising as the supply situation is tight. This will likely keep supporting commodity currencies. We continue to highlight the very high uncertainty as to EUR/USD’s direction this year, even if we lean towards USD strength as markets move towards seeing US as a frontrunner of global growth and productivity, seeing 1.16 in 12M.

Credit: Credit markets had a decent session on Friday where iTraxx Xover tightened to 246bp (-3bp) and Main to 47½ (-1bp). Cash bonds saw smaller moves with HY tightening 1bp while IG was only marginally tighter.


Danske Bank
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