European PMI confidence came in better than expected last Friday. Manufacturing continues to run hot (63.3 from 62.5) and the services sector entered growth territory (50.3) for the first time since August last year. Pricing pressures continue to build across the economy. European equities and core bonds yields nevertheless held a downward bias which only reversed after US markets started joining. US PMIs (60.6 in manufacturing, 63.1 in services) and new home sales (highest since 2006) came in sky high. Wall Street (up to 1.44% for the Nasdaq) pulled European stocks (flat) from the depths. US yields tested April lows/support before bouncing higher, strengthening the case for a gradual bottoming out. The curve bear steepened with the belly underperforming. Yields rose 2.1 bps (3-yr) over 2.6 bps (7-yr) to 1.6 bps (30-yr). German yields finished flat. EUR/USD profited considerably more from strong European business confidence. The pair jumped from the low 1.20 area to around 1.206 with a second leg in US dealings sending it just south of 1.21. EUR/JPY returned to heavy resistance near 130.50, USD/JPY held below 108. DXY finished an ugly slide from 91.3 to 90.82 support (61.8% retracement of 2021 strengthening). EUR/GBP broke and finished for the first time since mid-February north of 0.87 even though UK PMIs were everything and more markets hoped for.
Most Asian stock markets inch higher in news-limited trading. India outperforms (+1.4%). Copper and iron surge, boosting the Australian dollar to AUD/USD 0.777. The three majors, USD, EUR and JPY are all under minor selling pressure with the first leading losses. EUR/USD extends Friday’s jump and takes out the next 1.21 big figure to trade at the strongest level since early March. USD/JPY’s (107.74) gap north of 108 quickly fades. DXY (90.73) dips below 61.8% support. Core bonds lose some terrain.
Probably strong US durable goods orders and the German Ifo business climate are due later today. Actual investor attention, however, is probably centered around the Fed policy meeting (Wednesday), and Q1 growth and inflation for the US on Thursday and for Europe on Friday. So we’re bound to see sentiment and technically driven trading today. US Treasuries have outperformed the Bunds recently but are ever more showing signs of a topping out, i.e. yields bottoming. The 10y yield (1.57%) is a few bps away from first resistance near 1.6%. A break probably needs the go-ahead from the Fed and US data. Until then, we assume the downside to be well protected. EUR/USD’s technical picture improves greatly with this morning’s break north of 1.21. The pair surpassed 61.8% resistance of the 2021 correction, calling off its downward bias. The next reference situates around 1.218. We continue to keep a close eye at EUR/JPY. Sterling failed to profit one bit of mostly stellar economic data last week, suggesting the British currency frontrunned the economic awakening enough for now. EUR/GBP remains north of 0.87.
Argentina is considering an increase in taxes on grains exports, according to an interview of Domestic Commerce Secretary Paula Espanol. The tax hike on exports is aimed at providing ample domestic supply to keep local prices low. However, crop sales by local growers are said to have been held back as they use of corn and soy stockpiles as a reserve against political risk and a sharp devaluation of the currency. Argentina is the world’s number 3 corn supplier. This morning, Chicago Corn futures rose further to the highest level since 2013 on global supply concerns. Aside from potential export taxes in Argentina, dryness in Brazil and adverse weather conditions in the US are mentioned as potentially hampering supply. On the demand side, strong demand from China supports prices.
Italian PM Mario Draghi yesterday evening told his cabinet that the country has reached a deal with the European Commission on its recovery plan. The government will propose a plan to Parliament of € 222 bln to reengineer the economy, with composed of €191.5 bln in EU grants and loans and €30 bln of domestic funding. If approved by Parliament, the plan can be submitted to the EU commission before the April 30 deadline.