It was again business as usual on markets yesterday. The Suez Canal and Archegos sagas made way for the global reflationary story, which was supported by the data as well. EC economic confidence in the euro zone surprised to the upside (101 vs. 96 expected) as did the US conference board consumer confidence. The indicator jumped from 90.4 to 109.7, driven by a strong improvement in both the expectations and current situation component. It might herald a catch up move of consumer confidence in line with producer gauges (eg. ISMs). German HICP in March reached the ECB’s 2% target (from 1.6%) in what’s largely seen as a statistical bounce. The Bund nevertheless fell, pushing German yields 1.7 bps (2-yr) to 3.2 bps (10-yr) higher. US yields rose as much as 7 bps at the long end of the curve before paring all gains as the US session developed. This came despite the strong US data and news of Biden planning to unveil details of his to $2.25tn downscaled infrastructure bill today. End-of -quarter positioning could have played a role. Yields eventually rose about half a bp at the short to middle end while giving 2-3 bps away at long tenors. The dollar was strong and profited also from a technical point of view. EUR/USD dropped below the downward trend channel from 1.1765 to 1.1717. DXY (93.35) jumped beyond resistance by the 2021 upward sloping trend line and USD/JPY surged north of 110(.36). EUR/GBP also remains in the ropes but prevented a return to the downward trend channel for now. The pair finished at 0.8548.
Most Asian-Pacific indices are losing ground this morning. A surprisingly strong Chinese PMI fails to lift spirits. The non-manufacturing gauge jumped from 51.4 to 56.3 (52 expected) in March as new orders jumped. Manufacturing rose from 50.6 to 51.9. The yuan strengthens slightly, putting the Chinese currency on par with the SK won on the Asian scoreboard today. The US greenback overall trades a tad firmer. EUR/USD nears 1.17. Core bonds weaken.
The US March ADP job report is in focus today. The payrolls-bellwether is expected to surge from 117k to 550k. While impressive, there’s still room for an upward surprise thanks to the $1.9tn stimulus bill approved early this month. Moreover, a snap back is due after the severe winter conditions depressed the February reading. We’ll be looking at euro area March CPI figures (seen at 1.4% y/y) as well. Yesterday’s stoic market response to the German release suggests we shouldn’t expect too much of a reaction today as well. Biden’s infrastructure plan will be scrutinized, especially with respect to its funding. The prospect of higher taxes could weigh on equity markets in particular. Core bond yields have more upside potential. King dollar remains strong and the euro weak. EUR/USD 1.1695 is a first and very nearby support. We assume the 1.16 area in any case to hold though. We also see little reason to row against the current tide in EUR/GBP. Sterling’s momentum might slow a bit but isn’t over yet.
IMF Managing Director Kristalina Georgieva indicated the Fund will upgrade its projections for global expansion at its spring meeting next week. Its previous growth forecast for 2021 and 2022 stood at 5.5% and 4.2%. Acceleration in growth is mainly driven by a stronger performance of the US and China. However, ‘economic fortunes are diverging’as vaccines are not available to everyone and everywhere. The cumulative loss of per-capita income compared to the precrisis levels by the end of next year is estimated at 11% in advanced economies but might reach 20% for emerging and developing countries (excluding China). Georgieva also warned that a rapid increase in (US) yields might lead to a sharp tightening of financial conditions and significant capital outflows of emerging and developed countries.
Brazil’s factory gate inflation in February rose 5.2% M/M and 28.6% Y/Y, the fastest pace in since the start of the series in 2014. A 27.9% monthly rise in mining costs was the main factor behind the move, but price rises were recorded in each of the four main categories. Food price inflation also contributed nearly 8 pts to the annual rise. Comments from IGBE pointed at the dynamics of prices of commodities increasing in foreign currency which is reinforced by the exchange rate depreciation of the real.