Markets started the week on a cautious footing after Friday’s ‘reflationary up-tick’. With few eco data on the agenda, investors are awaiting key US inflation (tomorrow) and other activity data (including US retail sales and confidence data) scheduled for release later this week. For interest rate markets, the mid-month US refinancing might bring some clarity on investors’ willingness to continue facilitating the joined stimulus effort of US monetary and fiscal authorities. A risk-off sentiment on Asian/Chinese markets initially capped the rally of European equities and slightly favoured core (European) bonds. However, the correction in European equities didn’t go far (currently little changed). The bid for bonds also gradually faded. Stronger than expected EMU retail sales (+3.0% M/M vs 1.7% expected) for sure weren’t the trigger for this intraday reversal, but maybe helped. US yields currently are rising up to 2.5 bps (5y). Bund yields reversed an initial setback of up to 2 bps and currently are little changed with the 30y rising about 1.5 bps. The jury is still out, but for now Friday’s bottoming in core yields tentatively continues. Key support for the US 10y yield at 1.58% (currently 1.65%) looks ‘safe’ for now. The comparable -0.38%/-0.34% support for the German 10y yield also survives even as the ECB is stepping up PEPP bond purchases. First reality check this evening at 5:30 pm (US 3y auction) and at 7 pm (US Treasury 10y sale). 10-y intra-EMU spreads versus German mostly change less than 1 bp. Brent trades in the mid $63/b area, extending last week’s consolidation pattern.
The US dollar showed a hesitant, even slightly disappointing performance. EUR/USD initially dropped to the 1.1875 area, but the floor of the second half of last week (1.1860 area) wasn’t even challenged. EUR/USD (currently 1.1915) easily regained the 1.19 big figure. The 1.1950/1.1990 resistance remains within reach. USD/JPY is also drifting further away from the 110 mark (currently 109.35). The trade-weighted index (DXY) struggles not to fall below the 92 handle. Upcoming events might easily change the USD dynamics, but at least for now the USD bulls aren’t frontrunning any supportive news from data or interest rates. Cable (1.3750 area) developed a similar, even slightly more forceful intraday rebound compared to EUR/USD. Last week’s EUR/GBP rebound stalled ahead of the 0.87 big figure (currently 0.8660). Smaller currencies that last week profited from softer core yields remained well bid. In Central Europe, the forint extends gains (EUR/HUF 356.50 area). The zloty preserves last week’s gain (EUR/PLN 4.5275). The Swiss franc, which most often develops a divergent pattern from those ‘riskier’ currencies, this time also continues to profit from the relative calm on core interest markets with EUR/CHF testing the 1.10 barrier.
Turkish eco data disappointed today. The February current account deficit rose more than forecast from $1.82bn to $2.61bn. The Turkish unemployment rate increased from 12.7% to 13.4%, the highest level since July last year. The grim eco data come in the run-up to the first central bank meeting of newly installed CTRB governor Murat Cetinkaya. Consensus expects him to keep policy rates unchanged at 19% and at least for now stick to the hawkish inflation-fighting approach of his predecessor. However, it’s known that Cetinkaya’s thinking closely resembles the unorthodox view of Turkish president Erdogan who lauds low interest rates to combat inflation. EUR/TRY rose from 8.7 to 9.7 since Cetinkaya’s appointment. Thursday’s policy meeting will be closely watched.
Eurozone retail sales increased by 3% m/m in February, beating 1.7% m/m consensus. Details showed gains for non-food products (6.8% m/m), mail order and internet (0.4% m/m) and automotive fuel, special stores (3.7% m/m). Food, drink and tobacco sales declined by 1.1% m/m. Tighter lockdowns in March suggest that next month’s data will likely show another pullback again. The much awaited release of pent-up demand probably remains several months away.