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Intermarket:
- SP Futures 3820 (-0.20%)
- EUSTXX 3621 (-1.82%)
- Crude Oil 62.93 (-0.94%)
- US 10YR 1.52% (+1.62%)
- EurUsd 1.2156 (-0.10%)
- UsdJpy 106.21 (+0.07%)
- DAX 13670 (-1.61%)
Risk sentiment is taking a hit as the US10YR surpasses 1.5%, taking it above the S&P dividend yield, weighing on stocks and driving inflows into the USD. Nasdaq posted the largest daily decline since October. Of course, month-end flows are also part of the story as month-to-date gains in the equity space will require selling to rebalance portfolio allocations. European bourses are set to open lower today.
Yield Curve Control might not be too far away now in the US. But tightening financial conditions are seen in Europe too, with sharp rises in yields from Germany to Greece. The ECB is watching closely: Lane said the ECB is prepared to buy bonds flexibly in order to keep yields under control. The question is: what ammunition do they have left?
Another factor weighing on risk appetite could be the US Senate referee blocking Biden’s $15 minimum wage proposal. Fiscal stimulus is a core driver of the risk rally, so setbacks will be watched closely.
Today we get US PCE inflation, personal income and spending. The G20 starts (focus on fiscal support and coronavirus containment). CB speakers are ECB’s Schnabel, BOE’s Haldane and Ramsden.
Matters that Matter:
• Risk appetite spoiled as bond rout turns ‘lethal’
• Bitcoin back to $47K.
• U.S. Senate referee blocks $15 minimum wage in COVID bill
• Benchmark US govt yield overtakes S&P 500 dividend as pandemic risks subside
• NY Fed Williams – GDP growth this year could be strongest in decades, low rates widening inequality
• Australia’s RBA tries to calm bond rout with surprise buying
• RBNZ governor says patience needed on policy for now, NZD near fair value, negative rates are an option.
• G20 to pledge support for robust post-COVID recovery, cash for IMF
Majors 1-DayView:
USDJPY
- This week’s rally has attracted sellers from close to last week’s high. Although no reversal pattern is present, we remain cautious into Friday and suggest selling into rallies.
- USDJPY driven by yields as inflows into USD continue.
- Month end flows also a factor.
EURUSD
• Prices posted a shooting star from fresh 6-week highs on Thursday. The topside rejection leaves signals weaker into Friday and we favour a cautious bearish stance.
• Month end flows and USD strength main drivers • Bids reported around 1.2120s.
AUDUSD
• Prices posted a bearish engulfing at the daily level from the .8000 round number on Thursday, switching signals to bearish for Friday.
• Risk off tone weighing on Aud as yield rise impacting stocks.
• Key Resistance .8000 defended, support at .7820
• RBA buying more bonds to contain yields.
GBPUSD
• Wednesday’s shooting star and Thursday’s losses of 1 ¾ Big Figs leave signals bearish for Friday.
• Prices softer on USD moves.
• Trend still up, close below 1.4000 would undermine long bias.
FX Relative ATR Grid
Comment: Volatility has expanded across the board as reversal days were posted across the board on Thursday. These moves should have legs in the short-term as volatility is high.
Relative Strength Grid
Comment: The main trending currencies remain AUD (long), NZD (Long), CHF (short), JPY (short). However, the trends are experiencing a short-term correction. The strongest momentum was seen yesterday in AUD (weakness), CHF (strength), GBP (weakness).