In the absence of eco data, non-economic events were the main focus for trading today. Equity investors pondered potential further contagion from forced block selling of positions in Chinese tech shares and some US media firms that were linked to position squaring of the Archegos capital fund. For now, the case remains ‘isolated’ with limited/manageable impact on global markets. Still, it eased the euphoria after a record close of the S&P 500 and the Dow on Friday evening. European investors also took a guarded start, but major European indices including the EuroStoxx 50 and the Dax are holding near cycle or even all-time record levels, gaining about 0.25%. US equities opened with modest losses (0.25%). Progress in freeing the Ever Given container ship in the Suez Canal caused a (temporary?) setback in the oil price, with volatile intraday price moves (currently ($64 p/b). Investor caution initially supported a mild bid for US Treasuries. However the decline is currently reversing with US yields rising 1.0 bp in the 5-10-30 y sector. In a broader perspective, the uptrend in the US 10-y yield is developing a ST consolidation pattern between 1.58%/1.75% with this week’s data update from the ISM’s and the labor data, potentially deciding on a next directional move. German yields rise 1/1.5 bp across the curve. The 10-y German yields continues challenging the -0.38%/0.34% support area. The 10-y EMU swap yields hovers around the 0.0% pivot. European yield markets, amongst others, keep an close eye at EMU CPI data to be released on Thursday. 10-y intra-EMU spreads versus German Bunds show similar limited changes (0/1 bp).
Last week’s FX trends continue. The noise from the equity repositioning keeps the dollar well bid. The DXY index (92.80) is holding north of the 92.50 previous top. The USD/JPY rally (108.65) take a breather. EUR/USD (1.1775) doesn’t show any sign of a countermove. The correction low (1.1765) remains vulnerable, with a break raising chances for a full retracement to the 1.1612/03 MT range bottom. Sources reporting the Italian government to lower its 2021 growth forecast from 6.0% to 4.1% only illustrated slow economic progress of the EMU economy. In the post-Brexit era, end of month positioning also doesn’t help EUR/GBP anymore. On the contrary, soon after the open, EUR/GBP dropped below the 0.8533/41 2021 correction lows (currently 0.8520 area). Cable rebounded to the 1.3850 area. Recent constructive UK data and the prospect of an gradual easing of the lockdown, starting today, supports the hope a rather swift economic reopening. For other currencies, the zloty is holding near a multi-year low of EUR/PLN 4.65. The new corona-wave, ‘justifies’ an going ultra-easy NBP policy. The Turkish lira declines further even as new governor Kavcioglu tried to convince markets on its commitment to the 5% inflation target, indicating that no April rate cut is guaranteed. Markets remain reticent on the Turkish currency. EUR/TRY is trading near 9.66.
UN secretary-general Guterres warned in an FT article for an illusion of debt sustainability in developing markets that risks bringing quite dramatic surprises especially if the recovery is slower than expected from the slower access to vaccines. Brazil is a point in case which significantly shortened internal borrowing last year to reduce costs. Average maturities fell from 5.5 years to 2 years. The UN today launched proposals for dealing with the debts of low and middle-income countries. One of them is through a new and sizeable allocation of SDRs by the IMF, something the G7 group recently backed.
Visa said that its payments network will allow the use of the cryptocurrency USD Coin (USDC; stablecoin directly pegged to USD) to settle transactions. The company launched a pilot program in collaboration with payments and crypto platform Crypto.com and digital-asset bank Anchorage and plans to offer the option to more partners later this year. Visa will use the Ethereum blockchain to strip out the conversion need from crypto to fiat money. Visa’s move is the latest sign in companies’ embracement of cryptocurrencies. The Bloomberg Galaxy Crypto Index rises by more than 6% today.