EQUITIES: NASDAQ-100 Enters Bear Market Territory

Cross-market flows seemingly continue to dominate here, keeping the pressure on Bunds even as Tsys move away from lows in the wake of the ADP employment reading.

• Fiscal reform leaves 10-Year German yields on track for the largest one-day rise since ’90 (+25bp at typing).
• We covered downside levels of note in the 10-Year Tsy/Bund spread in a recent post.
• We also highlight that the Gilt/Bund spread has moved through a cluster of support that we identified earlier, nearing 190bp.
• The next real downside level of note comes in at the October 3 close (187.2bp).

Fig. 1: 10-Year Gilt/Bund Yield Spread (bp)

Source: MNI - Market News/Bloomberg

• The Canada S&P Global services PMI fell from 49.0 to a depressed 46.6 in February, its steepest decline in nearly a year for the lowest level since September.
• It adds to Monday’s manufacturing release sliding from 51.6 in Jn to 47.8 in Feb for its lowest since July.
• The service details are bleak, with stagflationary implications from tariffs including the steepest cut in employment since mid-2020. 

Press release highlights (full release here): 

• "Canada’s service sector suffered its steepest fall in activity for nearly a year during February amid reports of a drop in market demand due to tariff concerns.
• New business received declined markedly, whilst confidence in the outlook slumped to its lowest level in over two-and-a-half years.
• Job losses were the steepest recorded by the survey since June 2020 as firms responded to weak current demand and an increasingly uncertain outlook.
• On the price front, input costs showed the largest monthly increase in operating expenses since last October whilst output charges were also raised to a stronger degree."

(The US readings above are from the flash release)

• Euro optimism continues to be a key feature of FX markets, as the latest leg lower for the greenback propels EURUSD to a near four-month high of 1.0763. Price action continues to erode the post-US election declines, further narrowing the gap to 1.0804 (retracement point) and 1.0825, the Nov 7 high.
• We noted earlier that EURCHF was pushing back towards the significant 0.95 mark and strength over the past couple of hours has been standing out. We have breached the 0.9518 highs, and subsequently popped aggressively to trade at the highest level since August (0.9567 high at typing). This signals scope for a stronger recovery. 0.9581 is the initial target, ahead of 0.9655, the 61.8% retracement of the May-August downswing.
• Elsewhere, EURGBP is also outperforming in recent trade, extending intra-day gains to 0.7% as the cable rally stalls around 1.2850. Relative strength for the euro has allowed EURGBP to expand its 2-day bounce to 1.35%, exacerbated by the breach of both the 20- and 50-day EMAs. The cross is swiftly moving towards initial resistance at 0.8378, the Feb 06 high.