A good week for European equities as they benefit from flow of funds
The major European indices are ending the week with mixed results. The German Dax broke its four day streak that also saw new all time highs being made.
The provisional closes are showing:
- German DAX, -0.5%
- France’s CAC, +0.2%
- UK’s FTSE 100, +0.4%
- Spain’s Ibex, +0.45%
- Italy’s FTSE MIB, unchanged
For the week, the major indices are all solidly higher:
- German Dax, +4.18%
- France’s CAC, +4.5%
- UK’s FTSE 100, +1.9%
- Spain’s Ibex, +4.1%
- Italy’s 4.9%
Year to date, all the indices are also higher:
- German Dax, +5.71%
- France’s CAC, +8.87%
- UK’s FTSE 100, +4.62%
- Spain’s Ibex, +6.9%
- Italy’s footsie MIB, +8.4%
In the European debt market, the benchmark 10 year yields are ending the day higher across the board
In the forex, the snapshot of the strongest weakest as London/European traders look to exit shows the CAD is extending its lead to the upside after a trauma than expected jobs report today. The NZD and GBP remain the weakest. The USD is stronger but losing ground vs the CAD.
Tech-led selloff underway
US 10-year yields are up 7.5 bps to 1.61%. They had dipped as low as 1.58% in the past hour but have begun moving higher again.
The stock market is far from uniform as the divergence in tech and value continues. Nasdaq futures are almost 2% lower while Russell 2000 futures are fractionally higher. S&P 500 futures are down a modest 14 points after yesterday’s 40 point gain.
This has the feeling of a day when the bond market is in charge and there’s plenty of hand-writing about repo rates but that should sort itself out when this week’s 10-year sale settles on Monday. Beyond that, the worries about the SLR. It’s clear to me the Fed isn’t going to extend the waiver and that presents a risk for Wednesday’s FOMC.
Here’s some background on the SLR from TD:
The run above the 200 hour moving average yesterday fails
The EURUSD moved above its 200 hour moving average yesterday for the first time since February 26, and in the process, extended above the midpoint of the move down from the March high at 1.19739 and a topside channel trendline. However, the high price yesterday stalled near the swing low going back to March 2 at 1.19907 (and also fell short of the 1.2000 level).
In trading today, buyers try to lean against the 200 hour moving average, but could not sustain the bid. When the price correct below the level in the early European market, buyers turn to sellers on the failure and the price moved lower.
The lower channel trendline was ultimately broken but support held against its 100 hour moving average (blue line in the chart above). The price has subsequently moved marginally higher off the key support target and as tested the broken 38.2% retracement at 1.19411.
With the price trading between the 100 hour moving average on the downside at 1.19096 and the 200 hour moving average above at 1.19581, the buyers and sellers are back in a battle for full control. In between the levels sits the 38.2% retracement at 1.19411 which may tilt the bias down or up intraday.
If I were to give a nod to buyers or sellers, the sellers probably have more control. The price move to the upside this week is looking more like a corrective move of the bigger move lower. The price action failed above the 200 hour moving average, and topside trend line. The buyers had their shot. They missed.
Having said that, if the pair is able to extend back above the 200 hour moving average, the landscape changes more in favor of the buyers once again. The bearish tilt, turns more bearish below its 100 hour moving average at 1.19096.
Local media reports on the matter
The lockdown restrictions will also cover Milan and Rome, with non-essential shops to be ordered to close or operate with tight restrictions. Meanwhile, schools are to be closed during the period – which will be until 6 April (after Easter).
With the vaccine rollout progressing rather slowly and virus variants starting to become more rampant, this is a key risk to watch in case other European countries suffer from similar circumstances in the weeks/months ahead.
10-year Treasury yields move up by over 7 bps to 1.61%
The surge higher in yields continues to underpin the dollar today as the greenback rises to fresh highs against the major currencies bloc. Risk assets are being dragged lower as a result but USD/JPY is keeping perky as the pair moves up above 109.00.
Of note, price is now moving towards a test of the week’s high @ 109.23 and keeping a daily break above 109.00 itself will be a massive win for buyers technically.
Elsewhere, EUR/USD has also slipped to a low of 1.1935 (large expiries seen @ 1.1930) while AUD/USD has fallen to a low of 0.7741 to start the session.
On the latter, the pair is moving closer towards a test of its 200-hour moving average @ 0.7737 and that will be a key near-term level to watch in case the downside extends.
Further support is then seen from its 100-hour moving average @ 0.7716.
Outdone by DB now, who have raised their forecast to 2.25% from 1.25% previously! And the 30-year yield to be 3%.
- vigorous growth and risks of upward pressure on inflation
- steady bearish steepening of the yield curve through year end as the economy reopens, Congress turns to a potential infrastructure package before fiscal 2022 begins in September, and the Fed forewarns the market of plans to taper QE asset purchases
DB expect the Federal Reserve prime markets for a 2022 taper beginning in the third quarter of 2021
An upcoming piece in the German press (Handelsblatt business daily) from the economy ministers for Germany and France and an EU official
Plans for the EU wanting to boost local production of battery cells
This guy could probably do it better?