Tuesday, March 30, 2021

"US Yields Push Higher, Lifting the Greenback Especially Against the Euro and Yen"

And friggin gold prices seem to be convex, not just in terms of real rates but in terms of the dollar as well. 
(gold goes up faster when real rates decline than it drops when real rates increase)

Today the implied nominal yield on 10-year futures is the highest its been in 14+ months and the dollar futures are the highest they've been in months, DXY 93.20, back to July 2020 prices, but is gold back to $1600? 

No. (not yet)

From Marc to Market:


The US 10-year yield is at new highs since January 2020, pressing above 1.77% and helping pull up global yields today. European benchmarks yields are up 4-5 bp, and the Antipodean yields jump 8-9 bp. The impact on equities has been minor, and the talk is still about the unwinding of Archegos Capital. Most large markets in the Asia Pacific region rose, with the notable exception of Australia. South Korea and New Zealand led the region. Europe's Dow Jones Stoxx 600 is at a new high in over a year, while US futures are mixed. The dollar has rallied above JPY110 for the first time since last March, and the euro has been pressed below $1.1735. Sterling and the dollar bloc are showing some resilience. Most emerging market currencies are lower. Turkey's Erdogan fired the deputy governor of the central bank (and replaced him with a former executive of Morgan Stanley), and the Turkish lira has approached last week's extreme. The Chinese yuan managed to eke out a small gain in the mainland markets. The JP Morgan Emerging Market Currency Index is off for a third session. After dropping nearly 1.2% yesterday, gold is off another 0.75% and below $1700 for the first time in three weeks. Oil prices initially extended yesterday's recovery, and May WTI rose to an eight-day high near $62.25 before retreating to almost $61.00. OPEC+ meets on April 1 and is not expected to alter its output, though Russia and Kazakhstan are thought to be pressing for increased quotas. US oil inventories are expected to have fallen last week for the first time in six weeks.

Asia Pacific
The Australian government let the JobKeeper program expire.
There seem to be compelling reasons. Australia lost about 378k full-time positions as the pandemic struck last year, and 358k have returned. The participation rate since last October has been 66.1% compared with 65.9% in December 2019. Yet, the unemployment rate, which was at 5.1% in February 2020, was at 5.8% in February 2021. Part of the improvement was flattered by the JobKeeper initiative, which had been extended twice. Reports suggest around 900k workers were still getting a wage subsidy as the program ended, and more than 10% will likely lose their jobs. The Reserve Bank is putting greater weight on the labor market in setting monetary policy, and this will likely be underscored at next week's (April 6) RBA meeting. The new six-month round of A$100 bln bond-buying program begins mid-April.

FTSE Russell confirmed yesterday that it would add Chinese bonds to its World Government Bond Index. The inclusion will begin at the end of October and gradually increase to 5.25%-weighting over the next three years. This period seems longer than many would have anticipated. It will be the sixth-largest component when finished. Broadly, this is how Chinese markets are becoming more integrated into the global capital markets: benchmark inclusion and the rise of passive investment. When it comes to equities, Americans are sensitive to companies tied to China's military, but bonds appear to be a different matter. Separately, FTSE Russell says it will consider adding India and Saudi Arabia to its emerging market bond index....