Sunset Market Commentary | Forex action
This week’s ecological calendar contains a lot of data (data on growth and prices of the United States and EMU in the first quarter, confidence in the EMU and the United States) and events (political decision of the Fed on Wednesday, the US Treasury sells over $ 180 billion combined in 2-, 5- and 10-year bonds). The earnings season (especially in the US) will also reach maximum momentum with several (tech) reports. Despite these promising prospects, today’s data has not provided any directional indications. the German IFO Business Climate Index further improved from 96.6 to 96.8, but markets had hoped for a larger gain. German companies have become more optimistic about where they are now, but expectations have unexpectedly eased from 100.3 to 99.5. The business climate has improved further in the manufacturing sector to its highest level since May 2018, but expectations are clouded as companies see growing bottlenecks for intermediates. Sentiment in the service sector has also lost momentum. Still, the overall picture was not that different from the German PMI on Friday. In the USA, Durable goods orders in March also missed expectations. Securities orders increased by 0.5% M / M against 2.3% expected. Similar story for basic orders (excluding non-defense aircraft 0.9% M / M against 1.7% forecast) and shipments of basic capital goods (+ 1.3%). Orders data is notoriously volatile and today’s report does not change the broader narrative on a strong US rebound. It was still a slight disappointment. US yields showed tentative signs of rebounding this morning with longer maturities rising up to 3bp, but momentum slowed after the data. US rates are currently only “rising” by 1bp (10 years) or less. The Treasury will sell $ 60 billion in 2-year notes and $ 61 billion in 5-year bonds later today. German Bunds are also looking for direction with yields for all maturities currently down by less than 1bp. The 10-year intra-EMU spreads are trading mostly stable, Italy slightly underperforming (+ 2bp) while the government of Prime Minister Draghi proposes a plan of 235 billion euros, mainly financed by the EMU stimulus fund to structurally improve the country’s economy. Italian debt will also continue to increase. European equities also gained slightly (0.25% Eurostoxx 50). US indices show a similar trend after Friday’s strong performance, awaiting major earnings releases later this week. Other parts of the reflation trade remain intact, such as copper and iron ore, setting new cycle highs.
In the forex market, the dollar lost further ground in Asia this morning, but poor German data and ditto stock performance gradually brought some relief to the US dollar ahead of the US session. EUR / USD fell back below 1.21 (currently 1.2077). The USD / JPY is trying to regain the 108 level. The bearish trend of the DXY trade-weighted dollar (90.45) remains in place. After a strong advance last week, the EUR / GBP cross rate is also encountering resistance. The resistance of 0.8700 / 0.8731 is again proving to be a difficult obstacle.
A number of leading American companies including P&G, Coca-Cola and Whirlpool reported that they would increase prices to offset rising input costs, especially commodities. Chipotle, an American restaurant chain, has flagged rising labor costs as a potential risk to profit margins. The Financial Times reported that for the roughly 25% of S&P 500 companies that have released first quarter results so far, rising commodity prices were one of the most cited headwinds.
The confidence of Belgian BNB companies has reached its highest level in a decade. The stock streak fell from -1 to 4.4, crushing expectations of 1.8. Construction (from 0.8 to 6.4) progressed in particular on expected demand, business services (0.3 to 7) on current activity and expected aggregate demand and manufacturing (-1 to 4.4 ) on domestic orders and to a lesser extent expected employment and demand. Trade (-10.3 to -13) declined due to lower employment and forecasted orders. This could be linked to the tighter restrictions on coronaviruses introduced last month.