Mon, Jun 21, 2021 @ 23:16 GMT
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US: Fall-Out Of The Margin Call Saga Might Keep Investors On Edge


Core bonds on Friday extended a decline that started somewhere after a poor US 7-year bond auction the day earlier. Exceptionally strong German Ifo data (96.6 vs. 93.2 expected) and a stronger final U. of Michigan consumer sentiment (84.9 vs. 93 preliminary) added to the bond’s Friday downfall. Overall sentiment was very constructive, equity markets included even as a large block sale caught the attention (cf. below); another bond negative. The US yield curve steepened with the belly underperforming. Yields rose 1.6 bps (3-yr) over 5.6/4.2 bps (7-/10-yr) to 2.2 bps (30-yr). The Bund curve bear steepened also, seeing yields 2.2 bps (5-yr) to 4.1 bps (30-yr) higher. Peripheral spreads narrowed vs. Germany’s 10y. Greece (-3 bps) outperformed. The dollar retreated slightly, ending a strong week on softer footing. EUR/USD neared 1.18 in the wake of the German Ifo but failed to push through. A second try during US dealings failed as well. The couple finished just below. USD/JPY closed at a new recovery high in a strong session at 109.64, up from 109.19. Sterling ignored disappointing retail sales and has it sights set on the first easing of the restrictive measures, starting today. EUR/GBP declined further south of 0.86 in choppy trading to close at the lowest level since March last year (0.855).

Asian Pacific indices trade mixed. There is a lot of fuzz this morning on Asian markets about a multi-billion block sale of shares by a hedge fund on Friday. Several stocks slumped in forced liquidation after margin calls. Pondering how much and which stocks are to follow is weighing on sentiment. The dollar is firmer against most G10 peers except the yen. EUR/USD shies away from 1.18. Core bonds trade stronger. US yields ease a few basis points. Oil declines some 2% after reports that the massive container ship Ever Given has been partially refloated.

This week’s economic calendar is backloaded. Data includes US Conference Board consumer confidence and the EC’s economic confidence tomorrow, US ADP job growth and European CPI on Wednesday, the manufacturing ISM on Thursday and US payrolls as the apex on Friday. US figures should come in strong after a weather-influenced February and as vaccinations pave the way for a further reopening. For today however, we’ll be eying the fall-out of the margin call saga. It might keep investors on edge, more so as we’re nearing the end of the quarter which typically involves some portfolio calibration. A minor risk-off setting supports core bonds. We keep a close eye at the German 10y yield and its support zone near -0.38%. The last thing a euro already in dire straits could use is a negative equity environment. EUR/USD is testing support at 1.177 and at the same time nearing the lower bound of the downward trend channel. Cautious markets in theory weigh on the pound. However, sterling maintains a vaccination edge vs. the euro. This could leave EUR/GBP balanced.

News Headlines

At the end of last week, trading on Wall Street was spooked by big volume selling in some stocks including ViacomCBC and Discovery. According to market sources and press articles, the selling was triggered by forced liquidations from private investment fund Archegos managing the wealth of Bill Hwang. Forced sales are said to have caused margin calls from several banks reinforcing the move. Markets today are looking out whether there is additional fall-out from last week’s selling.

According to a response to questions from Bloomberg news, the new governor of the Turkish central bank, Sahap Kavcioglu, said that markets shouldn’t take for granted that the CBRT will cut interest rates as soon as the April meeting. He reiterated that bank will make decisions with a corporate monetary policy perspective to ensure a permanent fall in inflation. The new governor also stressed the Bank’s independent decision making process. For now, the reaction of the Turkish lira is limited.


KBC Bank
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