Markets
The comeback of US investors didn’t bring clear directional dynamics for global trading. Most markets are holding on to a mild risk-off modus. Uncertainty on further Chinese regulation and multiple risks to future growth kept potential ‘dip buyers’ in risk assets on the sidelines. Below consensus German ZEW economic sentiment illustrated the erosion in confidence among investors. (expectations at 22.3 from 26.5; current conditions at 21.6 from 31,9). According to the ZEW President Wambach, ‘The further decline …is mainly due to the persisting supply bottlenecks for raw materials and intermediate products. The financial market experts profits to go down, especially in export-oriented sectors such as vehicle manufacturing and chemicals/pharmaceuticals.” US NFIB small business confidence told a similar story, touching the lowest level since March (991.1 from 100.1). Entrepreneurs expecting business conditions to improve the next 6 months declined to the lowest level since 2012!, ‘as business are unable to hire workers or receive the needed supplies and inventories’. With rising costs perceived as the major obstacle to growth, the risk-off/negative eco narrative again didn’t help core bonds. The US curve flattens with the 2y rising 3 bps and the 30y easing 3 bps. It will be interesting to see investor appetite at this evening’s US 3y and 10y Treasury auctions. German yields are rising up to 2.5 bps (10y) and as such continue to challenge recent peak levels (-0.10% for 10y). Despite overall uncertainty, peripheral bonds show resilience with the Italian 10y spread narrowing 2 bps. European equities mostly show losses of about 0.5%. US indices opened marginally higher. Oil stabilizes ($83.5/b).
The dollar keeps the upper hand with the DXY index testing the 94.50 barrier. USD/JPY extends its recent impressive ascent with the pair surging beyond 113.5 to the highest levels since December 2018. However, contrary to yesterday euro weakness is also again in play. EUR/USD (1.1545) struggles not to fall below the 1.1530 correction low, being last defense ahead of the 1.1495 support. Sterling this morning hesitated despite strong UK labour market data, but EUR/GBP finally returned below the 0.85 barrier currently changing hands near 0.8480. Markets still await the speech of UK’s Frost on the Northern Ireland protocol.
News Headlines
French president Macron presented a €30 billion plan, dubbed France 2030, that foresees investing the funds over a period of five years in the nuclear sector & renewable energy sources (8bn), electric cars (4bn), semiconductors and robotics (6bn). The aim is to create high-tech champions and reverse a years-long decline of the French industrial sector. According to Macron, France 2030 holds three key objectives: building small reactors, becoming the leader of green hydrogen and decarbonize the industry. The investment plan comes only a year after the €100 billion programme, France Relaunch, aimed to go beyond crisis spending and tackle long-lasting issues of low investment, hiring and education. By the end of this year, there’s still about one third yet to be spent, the government expects.
The EU successfully launched an inaugural green bond. The €12bn deal is the largest ESG one on record. Order books closed at a whopping €135bn, allowing the EU to print the 15y bond (Feb2037) at MS – 8 bps compared with guidance in the MS -5 bps area. Under the NextGenerationEU green bond framework, the funds will be used for nine broad categories including energy efficiency, clean energy and climate change adaptation. Today’s deal was the first of an expected €250bn green issuance as part of the EC’s €800bn Covid-19 recovery fund.
The IMF trimmed world growth for this year with 1 bp to 5.9%. The figure for 2022 remained unchanged at 4.9%. The 2021 figure does mask some impressive downgrades, for example in the US (-1 ppt to 6%). Low-income countries’ growth was shaved with 0.9%. The IMF warned for a “dangerous divergence” with growth in advanced economies (AE) reaching pre-pandemic levels in 2022 while forecasting growth in emerging markets still 5.5% below that level in 2024. Inflation is seen subsiding to 2% by mid-2022 in AE but still at 4.9% for EM. Overall, the Washington-based Fund cautioned inflation risks are tilted to the upside and those for growth to the downside.
