Archives of “February 2021” month

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EUR/USD 1.25 the line in the sand for the European Central Bank (but there’s a but …)

  
Analysis, Forex

BNY Mellon with the remarks on ECB euro sensitivity:

  • “If we really surge towards 1.25 by the March meeting, the ECB will absolutely push back. For now it’s just about manageable”
From an interview a BNY analysts on Bloomberg TV, stressing that the pace of the gain is more important than the level (hence the ‘surge’ comment).
More:
  • says the ECB will act if there is an undue tightening in financial conditions. For now its manageable
 —-
No stress right now for the ECb though, especially after the USD gains on Thursday (US time)

As Expected complete Bloodbath at #WALLTREET

  
Analysis, US Market

Closing changes in US equities:

Closing changes in US equities:
  • S&P 500 down 92 points to 3833 (-2.3%)
  • Nasdaq -3.3%
  • DJIA -1.6%
  • Russell 2000 -3.8%
The bond market is a mess:
  • 2s +5 bps to 0.17%
  • 5s +22 bps to 0.82%
  • 10s +15 bps to 1.53%
  • 30s +6 bps to 2.29%
There are a multitude of ways to spin this but this is a market that suddenly wants to reassurances from the Fed that they won’t let yields run too far too fast. There’s also very good argument that convexity hedging in the mortgage market combined with dealer selling after the auction is responsible for a good chunk of this move.
The good news is that the S&P 500 and Nasdaq both closed above Tuesday’s low. The bad news is that tomorrow is the PCE report and if inflation is high, those levels aren’t likely to hold.

US sells 7-year notes at 1.195% vs 1.151% WI

  
  Analysis

Results of the $64 billion sale

  • 4.4 bps tail
  • Bid to cover 2.04 vs 2.30 prior
This is a disastrous auction. The wheels are about to come off the bond market.
The belly is falling apart, US 5-year yields just hit 0.86% on a puke out.
bonds
Before the auction I read that today’s move was 6 standard deviations. It’s gotta be up to 8 or 10 now.
The vast majority of money in the bond market is slow-moving and there will be many bond holders pulling the plug in the day ahead.

Italy reports the most new covid cases since January 9

  
Analysis, COVID-19

Uptick in cases?

I wrote earlier about the potential for another wave in cases. Today Italy reported 19,866 new cases, which is up from 16,424 a day ago and is the most since January 9.
Uptick in cases?

The US and a few other countries can seemingly plow through high cases and deaths but much of the developed world will shut down again (or stay shut down) if/when cases rise. The vaccine timeline is also longer.

US Q4 GDP (second reading) +4.1% vs +4.2% expected

  
  Analysis
#  #  #

Fourth quarter 2020 GDP estimate

US Q4 GDP (second reading) chart
  • First reading was +4.0%
  • Final Q3 reading was +33.4%
  • Personal consumption +2.4% vs +2.5% expected
  • GDP price index +2.1% vs +2.0% expected
  • Core PCE +1.4% vs +1.4% expected
  • Deflator +2.0%
  • Full report
Details:

  • Ex motor vehicles +4.7% vs +4.5% prelim
  • Final sales +3.0% vs +3.0% prelim
  • Inventories added 1.11 pp to GDP vs 1.04 in prelim report
  • Business investment +14.0% vs +13.8% prelim
  • Business investment in equipment +25.7% vs +24.9% prelim
  • Exports +21.8% vs +22.0% prelim
  • Imports +29.6% vs +29.5% prelim
  • Home investment +35.8% vs +33.5% prelim
The consumer was a tad weaker in Q4 than initial reports while business and home investment was a bit stronger. Overall, I don’t see anything here that will bleed into Q1 2021.

US weekly initial jobless claims 730k vs 825k expected

  
Analysis, Economy

Initial jobless claims for the week ending 20 February 2021

  • Prior 861k; revised to 841k
  • Continuing claims 4,419k vs 4,460k expected
  • Prior 4,494k; revised to 4,520k

The headline is lower than estimates and is also better than the previous week at least. The 4-week average for initial jobless claims fell to 807,750 in the week to 20 February from the prior week of 833,250.

That said, claims have sort of hit a floor and we’re seeing this relatively high figure week in, week out. So, there’s that to ponder if you are the Fed.

The largest increases in initial claims were in Illinois (+28,110), Ohio (+6,563), Idaho (+4,764), Kansas (+1,744), and California (+1,664).
Meanwhile, the largest decreases were in Maryland (-9,835), Rhode Island (-6,129), Georgia (-5,854), New Jersey (-4,630), and Texas (-4,234).

German 10-year bond yields climb to highest since March last year as the global steepening continues

  
  Analysis

10-year bund yields rise to -0.255%, the highest since March last year

GDBR10Y

As mentioned earlier, if it didn’t work with Lagarde, it isn’t going to work with Lane.
The big story in the market today continues to be that of bonds as the steepening continues with the long-end of the curve rising sharply.
10-year Treasury yields are up nearly 7 bps to 1.442% while 30-year Treasury yields are up 6.4 bps to 2.297% currently in European morning trade.
European stocks are starting to see gains chipped away while US futures reflect a decline in tech with Nasdaq futures down 0.7% after a brief and minor rebound. S&P 500 futures are down 0.2% near the lows but Dow futures are up 0.1%.

Japan reportedly to end state of emergency in five prefectures at the end of the month

  
  Analysis

Kyodo News reports on the matter

This will apply to the prefectures of Osaka, Kyoto, Hyogo, Aichi, and Gifu – most of which were already anticipated since last week. Tokyo will likely have to wait until 7 March before its state of emergency is lifted but there’s still some debate on that before a formal decision is announced by the Japanese government this Friday.
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