Wednesday, April 28, 2021

Capital Markets: "Biden and Powell are Center Stage"

 From Marc to Market:

Overview: It appears that the backing up of US yields is giving the dollar a better tone and challenging the Eurosystem, which has stepped up its bond purchases. The US 10-year yield is around 1.65%, roughly a two-week high and back above the 20-day moving average. European yields are mostly 2-4 bp higher, but benchmark UK yield is up six basis points about 0.84%, which, if sustained, would be the highest close this month. For its part, the greenback is firm against all the majors, but to be sure, the gains are modest. After falling each day last week against the yen, it is posting gains for the third consecutive session. The dollar traded above JPY109 for the first time since April 14. The euro made a marginal new low for the week near $1.2055 but has steadied in the European morning. Soft inflation data weighed on the Australian dollar, but the other dollar-bloc currencies and Scandis are sporting only minor losses. Emerging market currencies are mixed, though of note the Indian rupee is recovering, and its equity markets advanced the most in the Asia Pacific region today. The JP Morgan Emerging Market Currency Index is little changed. The rising yield has sapped gold prices. After rejecting the $1800-level last week, the yellow metal was sold to almost $1766 today, a seven-day low. OPEC+ decision to go forward with returning some output it has cut next month, despite emergencies in Japan, the lockdown in India, and restrictions in parts of Europe, coupled with the build that API reported (which would be the largest in several weeks), leaves June WTI in roughly a 30-cent range on either side of $63.

Asia Pacific
Japan retail sales rose 1.2% in March.
That was twice the median forecast in the Bloomberg survey. Despite a reduction in hours, shops were open, consumers appeared resilient. In turn, that may encourage economists to shave forecasts that saw the economy contracting by 3.9% in Q1. Still, the real challenge is here in Q2. The third formal emergency for several large population centers began this past weekend and runs through May 11. However, recall that the first two emergency declarations were initially extended.

Australia's Q1 inflation undershot expectations. The quarter-over-quarter increase of 0.6% missed the 0.9% median forecast, which anticipated a steady pace from Q4 20. The underlying measures were softer, and the trimmed mean rose 0.3% for a record low 1.1% year-over-year. If it weren't for energy and administrative prices, inflation would have been even weaker. However, we are reluctant to read too much into today's report for implications for monetary policy. Recall that in Q2 20, Australia's CPI fell by 1.9%. This will drop out of the year-over-year calculations (base effect). The beginning of the exit for QE and yield curve control remains possible in Q4....