Duncan Donald

Mon, Mar 8

Surge in Bond Yield leads the US Dollar surging as Risk brings Tech Stocks off the highs

The US Dollar remains firmly on the front foot as the markets continue to test the resolve of the Central Bankers over the speed of a normalisation of interest rates. Last week we saw Jerome Powell opt not to differ in his views as a long slow steady rate path as he kept his feet on the ground unprepared to give in to the wave of optimism for the post pandemic future. 


As stocks and in particular the tech sector started to build traction to the downside the “risk” attraction of the US Dollar. This was further fuelled by last Fridays Non-farm Payroll and unemployment which showed more green shoots on the US Economy and whilst US President Joe Biden got his stimulus plan through the Senate, the fact the vote was close would have been a concern to him, but overall the markets focus was on the money flowing to help the economy recover. 


The next two weeks will be big with policy decisions from the ECB, Federal Reserve, Bank of England, Bank of Japan and Bank of Canada. The bond market surge will be the disrupting factor for all of these Central Banks, who will have to reference the markets perception of recovery and rate forecasts against their own. The ECB is first up this week on Thursday, where the market will look closely at any updates on PEPP. The Eurozone sits behind the curve on vaccination and over the weekend Mario Draghi had to implement heightened lockdowns in some parts of Italy.  The EU is still trying to increase procurement of vaccines and have had to turn to US firms to meet the demand to catch up with the rest of the western world, despite having multiple suppliers on their own doorstep. 


Today marks the commencement of lockdown easing in the UK, and with vaccinations working there way down in age categories those aged between 56-59 will be offered the vaccine appointment this week. With a reasonable amount of personal and business aid offered at last week's Budget by Rishi Sunak aswell its somewhat surprising to see the pound back around 1.3800 against the US Dollar. Naturally, the bullish Dollar performance seen week on week was the major contributor to this but comments from the Bank of England's Haskell last week, noting that the risks for the UK were skewed to the downside brought a shift in tone and the fact negative interest rates could be used back onto the table.  For now though, we persist with the view that EUR/GBP continues to have potential to test lower amid the pandemic recovery of both regions. 


The Week Ahead: 


Tuesday - Japan's Prelim Machine Tool orders come first. In the European session we get French Private Payrolls, German Trade Balance, Italian Industrial Production, Eurozone Employment Change and Revised GDP. In the late session we hear from Australia’s Governor Lowe. 


Wednesday - A quiet European Session with just French Industrial Production. In the US Session we get US CPI Core and Non-Core and rate decisions from the Bank of Canada. 


Thursday - China’s SECO Eco Forecast, Money Supply and New Loan data comes first. Mid session we get the ECB’s rate decision and statement as well as US Weekly Jobless numbers and JOLTS Job Openings. 


Friday - Starts with German Final CPI before a raft of data from the UK with GDP, Trade Balance, Index of Services, Industrial Production and Manufacturing Production, before Consumer Inflation Expectations. From Europe we get Italian Q/Q Unemployment and Industrial Production. In the US session we get Canadian Employment Change and Unemployment rate and US Core and Non-Core PPI as well as UoM Consumer Sentiment and Inflation Expectations.