HomeContributorsFundamental AnalysisReflation Trades Remain The Bet

Reflation Trades Remain The Bet

Notes/Observations

  • Equities higher aided by dovish takeaways from Fed officials
  • Bond yield higher on continued hopes of a global economic recovery (Pfizer study in Israel noted that the shot could end the pandemic)

Asia:

  • Bank of Korea (BoK) left the 7-Day Repo Rate unchanged at 0.50% (as expected). Reiterated to maintain accommodative monetary policy stance and pay attention to financial stability

Coronavirus:

  • Total cases 112.5M (+0.4% d/d); total deaths: 2.50M (+0.5% d/d)
  • Pfizer COVID vaccine 94% effective in preventing symptomatic cases after 2 doses in Israel nationwide mass vaccination; 92% effective against severe COVID after 2 doses

Europe:

  • ECB’s Schnabel (Germany) reiterated stance that pandemic posed risk to short term outlook; would not withdraw fiscal and monetary policy aid early
  • Northern Ireland First Min Foster: No breakthroughs in post-Brexit trade issues in Northern Ireland
  • UK Chancellor of the Exchequer Sunak (Fin Min) upcoming budget speech expected to announce a six month extension of the ÂŁ20-a-week uplift to Universal Credit. To shelve plan for 5p increase in fuel duty and slash hospitality VAT rates and look at vouchers for high street shoppers and lower alcohol duty in pubs

Americas:

  • Fed Chair Powell testimony in House reiterated stance that there was a lot of slack in the labor market; there was a long way to go to max employment. Reiterated bond-buying to continue at current pace until saw actual data moving closer to inflation and employment goals
  • Fed Vice Chair Clarida: FOMC would keep accommodating until outcomes were reached; would take some time for economy to return to pre-virus levels

Energy:

  • OPEC+ said to expect Saudis to end voluntary 1M bpd cut beginning in April, though it could be done gradually; OPEC+ considering boosting oil output by 500K beginning in April

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 +0.14% at 413.74, FTSE +0.37% at 6,683.55, DAX -0.16% at 13,953.20, CAC-40 +0.37% at 5,819.17, IBEX-35 +0.79% at 8,335.00, FTSE MIB +0.26% at 23,157.50, SMI -0.15% at 10,711.69, S&P 500 Futures -0.19%]
  • Market Focal Points/Key Themes: European indices open broadly higher but moderated gains as the session wore on; technology and telecom sectors among those leading to the upside; consumer discretionary and materials sectors underperforming; reportedly Mondi considering bid for DS Smith; focus on upcoming EU leaders virtual meeting on covid situation; earnings expected in upcoming US session include ASM International, HP, Salesforce and Moderna

Equities

  • Consumer discretionary: Aston Martin Lagonda Global Holdings [AML.UK] +10% (earnings), AB Foods [ABF.UK] +1% (trading update), Anheuser-Busch InBev [ABI.BE] -5% (earnings)
  • Healthcare: Bayer [BAYN.DE] -3% (earnings)
  • Financials: Axa [CS.FR] +3% (earnings), Standard Chartered [STAN.UK] -5% (earnings)
  • Utilities: Veolia Environment [VIE.FR] +2% (earnings)
  • Industrials: DS Smith [SMDS.UK] +7% (potential acquisition)
  • Telecom: Telefonica [TEF.ES] +3% (earnings)

Speakers

  • India govt to implement rules for social media, digital media and streaming operations in 3 months’ time; Stated that sector needed for level playing field

Currencies/Fixed Income

  • Both FX and Fixed income markets moving on the reflation trade that refers to bets on an upswing in economic activity and prices. Dealers noted that the promise of fiscal stimulus and accelerating COVID-19 vaccine rollouts providing the impetus for the sentiment. Safe haven currencies (UDS, CHF and JPY) have been unwound against other pairs in recent sessions as a result.
  • USD continued to be on soft footing as several Fed officials on Wed maintained their dovish rhetoric. EUR/USD moving above the 1.22 level in the session. US Dollar Index at 7-year lows as it moved below 89.80.
  • Global bond yields continued to move higher over continued optimism of the global economic recovery hopes. US 10-year real rate at highest level since the Nov Presidential election (**Note: rate, which strips out inflation and is seen as a pure read on growth prospects). The latest push was aided by a new Pfizer study in Israel which implied that the vaccine shot could end the pandemic.

Economic data

  • (NL) Netherlands Feb Producer Confidence Index: 0.1 v 0.6 prior
  • (FI) Finland Feb Consumer Confidence: -0.8 v -0.9 prior; Business Confidence: -3 v 0 prior
  • (DE) Germany Mar GfK Consumer Confidence Index: -12.9 v -14.0e (12th straight negative reading)
  • (TR) Turkey Feb Economic Confidence: 95.8 v 96.2 prior
  • (TH) Thailand Jan Current Account Balance: -$0.7B v -$0.5Be; Overall Balance of Payments (BOP): -$0.7B v +$1.4B prior; Trade Account Balance: $1.9B v $2.8B prior; Exports Y/Y: -0.3% v 4.6%; Imports Y/Y: -6.9% v -0.1% prior
  • (FR) France Feb Consumer Confidence: 91 v 92e
  • (TW) Taiwan Jan Industrial Production Y/Y: 18.8% v 20.4%e
  • (TW) Taiwan Jan Unemployment Rate: 3.8% v 3.7%e
  • (ES) Spain Jan PPI M/M: 3.4% v 0.9% prior; Y/Y: +0.9% v -1.5% prior
  • (AT) Austria Dec Industrial Production M/M: -5.6% v -0.3% prior; Y/Y: -5.1% v +0.4% prior
  • (SE) Sweden Feb Consumer Confidence: 97.5 v 94.4 prior; Manufacturing Confidence: 114.6 v 113.7 prior; Economic Tendency Survey: 103.6 v 100.9 prior
  • (HU) Hungary Dec Average Gross Wages: Y/Y: 10.6% v 9.1%e
  • (SE) Sweden Jan Household Lending Y/Y: 5.5% v 5.4% prior
  • (HK) Hong Kong Jan Trade Balance (HKD): -25.2B v -48.0Be; Exports Y/Y: 44.0% v 30.5%e; Imports Y/Y: 37.7% v 28.8%e
  • (IS) Iceland Feb CPI M/M: +0.7% v -0.1% prior; Y/Y: 4.1% v 4.3% prior
  • (EU) Euro Zone Jan M3 Money Supply Y/Y: 12.5% v 12.5%e
  • (IT) Italy Feb Consumer Confidence Index: 101.4 v 101.0e; Manufacturing Confidence: 99.0 v 96.0e; Economic Tendency Survey: 93.2 v 88.3prior
  • (PT) Portugal Feb Consumer Confidence Index: -24.4 v -25.7 prior
  • (ZA) South Africa Jan PPI M/M: 0.8% v 0.4%e; Y/Y: 3.5% v 3.2%e
  • (EU) Euro Zone Feb Economic Confidence: 93.4 v 92.0e; Industrial Confidence: -3.3 v -5.0e; Services Confidence: -17.1 v -17.8e; Consumer Confidence (final):
  • 14.8 v -14.8 prelim

Fixed income Issuance

  • (DK) Denmark sold total DKK6.88B in 3-month, 6-month, 9-month and 12-month Bills
  • (IT) Italy Debt Agency (Tesoro) sold €5.0B vs. €B vs. €4.5-5.0B indicated range in 0.0% Apr 2026 BTP bonds; Avg Yield: 0.11% v 0.06% prior; Bid-to-cover: 1.33x v 1.48x prior
  • (IT) Italy Debt Agency (Tesoro) sold €1.25B vs. €0.75-1.25B indicated range in Dec 2023 CCTeu (floating rate Notes); Avg Yield: -0.19% v +0.27% prior; bid-to-cover: 1.79x v 2.06x prior

Looking Ahead

  • (BE) Belgium Feb CPI M/M: No est v 0.4% prior; Y/Y: No est v 0.3% prior
  • 05:10 (EU) Daily ECB Liquidity Stats
  • 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)
  • 05:45 (IE) ECB’s Lane (Ireland, chief economist) at webinar
  • 05:50 (HU) Hungary Central Bank One-Week Deposit Rate tender
  • 06:00 (CA) Canada Feb CFIB Business Barometer: No est v 58.7 prior
  • 06:00 (BR) Brazil Feb FGV Inflation IGPM M/M: 2.5%e v 2.6% prior; Y/Y: 28.7%e v 25.7% prior
  • 06:45 (US) Daily Libor Fixing
  • 07:00 (MX) Mexico Q4 Final GDP Q/Q: 3.1%e v 3.1% prelim; Y/Y: -4.5%e v -4.5% prelim; GDP Nominal Y/Y: -4.8%e v -4.8% prior; Overall 2020 Full Year GDP Y/Y: No est v -0.1% prior
  • 07:00 (MX) Mexico Jan IGAE Economic Activity Index (Monthly GDP) M/M: -0.2%e v +0.9% prior; Y/Y: -3.7%e v -3.9% prior
  • 07:00 (MX) Mexico Jan Unemployment Rate NSA (unadj): 4.4%e v 3.8% prior
  • 07:30 (BR) Brazil Jan Total Outstanding Loans (BRL): 4.078Te v 4.018T prior; M/M: 1.5%e v 1.6% prior; Personal Loan Default Rate: No est v 4.2% prior
  • 08:00 (RU) Russia Gold and Forex Reserve w/e Feb 19th: No est v $591.5B prior
  • 08:00 (UK) Daily Baltic Dry Bulk Index
  • 08:30 (US) Q4 Preliminary GDP Annualized (2nd reading) Q/Q: 4.2%e v 4.0% advance; Personal Consumption: 2.5%e v 2.5% advance
  • 08:30 (US) Q4 Preliminary GDP Price Index: 2.0%e v 2.0% advance; Core PCE 1.4%e v 1.4% advance
  • 08:30 (US) Jan Preliminary Durable Goods Orders: 1.0%e v 0.5% prior; Durable Goods (ex-transportation: 0.7%e v 1.1% prior; Capital Goods Orders (non-defense/ex-aircraft): 0.8%e v 0.7% prior; Capital Goods Shipments (non-defense/ex-aircraft): 0.6%e v 0.7% prior
  • 08:30 (US) Initial Jobless Claims: 825Ke v 861K prior; Continuing Claims: 4.46Me v 4.494M prior
  • 08:30 (US) Weekly USDA Net Export Sales
  • 08:30 (US) Fed’s Bostic
  • 10:00 (US) Jan Pending Home Sales M/M: 0.0%e v -0.3% prior; Y/Y: No est v 22.8% prior
  • 10:00 (MX) Mexico Q4 Current Account Balance: $15.8Be v $17.5B prior
  • 10:00 (MX) Mexico Central Bank (Banxico) Feb Minutes
  • 10:00 (ES) ECB’s De Guindos (Spain)
  • 10:30 (US) Weekly EIA Natural Gas Inventories
  • 10:30 (US) Fed’s Bullard
  • 11:00 (US) Feb Kansas City Fed Manufacturing Activity Index: 15e v 17 prior
  • 12:00 (CA) Canada to sell 30-year bonds
  • 14:00 (AR) Argentina Jan Trade Balance: +$0.1Be v -$0.4B prior
  • 15:00 (US) Fed’s Williams
  • 16:00 (NZ) New Zealand Feb Consumer Confidence Index: No est v 113.8 prior
  • 16:45 (NZ) New Zealand Jan Trade Balance (NZD): -0.6Be v 0B prior; Exports: 4.2Be v 5.4B prior; Imports: 4.8Be v 5.3B prior
  • 18:30 (JP) Japan Feb Tokyo CPI Y/Y: -0.4%e v -0.5% prior; CPI (ex-fresh food) Y/Y: -0.4%e v -0.5% prior; CPI (ex-fresh food/energy) Y/Y: 0.2%e v 0.2% prior
  • 18:50 (JP) Japan Jan Retail Sales M/M: -1.2%e v -0.7% prior (revised from -0.8%); Y/Y: -2.6%e v -0.2% prior (revised from -0.3%)
  • 18:50 (JP) Japan Jan Preliminary Industrial Production M/M: +3.8%e v -1.0% prior; Y/Y: -5.45e v -2.6% prior
  • 19:01 (UK) Feb Lloyds Business Barometer: No est v -7 prior
  • 19:30 (AU) Australia Jan Private Sector Credit M/M: 0.3%e v 0.3 % prior; Y/Y: 1.8%e v 1.8% prior
  • 21:00 (SG) Singapore Jan M2 Money Supply Y/Y: No est v 13.2% prior; M1 Money Supply Y/Y: No est v 32.8% prior
  • 22:30 (JP) Japan to sell 3-Month Bills
  • 22:35 (JP) Japan to sell 2-Year JGB Bonds
  • 23:00 (MY) Malaysia Jan Trade Balance (MYR): 17.0Be v 20.7B prior; Exports Y/Y: 7.5%e v 10.8% prior; Imports Y/Y: 0.3%e v 1.6% prior

 

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