FOREX: Softer Equity Picture Underpins USD
Mar-21 09:36
- Equities in European are extending a moderation off recent highs, with core European bourses off 0.5-0.9% as flow-driven profit-taking remains a dominant theme in cross-asset markets. For currencies, this has translated to another push higher for the USD, although Scandi currencies are the outperformers on the day.
- JPY is the weakest in G10. The Rengo union have moderated their pay demand slightly in the final tally - although the demand for an average wage hike of 5.40% remains the largest pay demand for over three decades. USD/JPY has gravitated back toward the Y150.00 handle, however broader trend signals continue to point to a bearish condition, pointing to Y148.35 as key support.
- Of note, the pair will also imminently print a death cross (50-dma < 200-dma) for the first time since September of last year, which may further suggest that the recovery off recent lows has been corrective in nature.
- UK public finances data served as a further reminder of the precarious position of the UK fiscal condition ahead of next week's Spring statement. While this morning's data won't feature in the OBR's forecasting round (cut-off was last month), GBP is among the poorest performers on the day, meaning GBP/USD extended the pullback off the cycle high printed this week to not far off 100 pips.
- Canadian retail sales are the data highlight Friday, with markets expecting sales to have declined 0.4% across January, set to add more evidence to the building argument that the Canadian economy is faltering in the near-term. The FOMC's media blackout period has now concluded, meaning markets look ahead to appearances from Fed's Goolsbee and Williams - both speaking across the US morning.
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GILTS: Downtick Extends, Futures Eye Next Support
Feb-19 09:35
Gilts continue to tick lower as catch up to overnight weakness in wider core global FI markets, a modest hawkish short end reaction to the mixed CPI data and spill over from supply-related pressure in Bunds all weigh.
- Futures move closer to the 29 Jan low (91.96), which protects more meaningful support at the 24 Jan low (91.52). The short-term bull cycle remains intact above the latter.
- Yields 3.5-4.5bp higher across the curve.
EGB OPTIONS: Bobl call spread
Feb-19 09:15
OEH5 117.25/117.75cs, bought for 7.5 in 3k.
BUNDS: /SWAPS: Defence Spending Risks Bearish For Long End Swap Spreads
Feb-19 09:13
{GE} BUNDS/SWAPS: German ASWs vs. 3-month Euribor are tighter but trade within 0.5bp of yesterday’s closing levels after debt issuance risks surrounding increased defence spending helped counter the (initially U.S. swap spread-driven) widening seen late last week.
- The Buxl ASW is the only spread which hasn’t fully retraced last week’s move.
- We have suggested that fundamentals point to continued tightening pressure in long end ASW spreads in the medium-term and increased defence spending would add further weight to this idea, as does the potential for debt brake reform.
- More broadly, Commerzbank play down the likelihood any fundamental regulatory shifts within EUR markets, noting note that “while ECB heavyweights are now actively calling for regulatory relief, we doubt that the Leverage Ratio is the binding constraint for € repo intermediation considering GC/specialness dynamics during the past 15 months.”
- As a result, Commerzbank reaffirm their view that “recoveries in (ultra-)long Bund spreads should be used to add to structural shorts.”
Fig. 1: German ASW Spreads (Vs. 3-Month Euribor)
Source: MNI - Market News/Bloomberg
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