- US consumer confidence leapt sharply in March, hitting 109.7. This compared to expectations of 96.9 and the previous month’s (downwardly revised) reading of 90.4. This marked the highest reading for the index since last March, and the jump from February was the biggest in 18 years. The ongoing recovery from the pandemic crisis, with the US one of the global leaders in terms of vaccinating residents, alongside the sizeable stimulus from the Biden administration, is driving the optimism. Household plans to buy big-ticket items including cars, automobiles and appliances has surged, which will likely fuel the reflation debate, even if the recovery’s inflationary pressures prove to be transient as the Fed predicts.
- Economic sentiment in the 19 countries sharing the euro jumped to 101 points in March from 93.4 in February, according to data released by the European Commission. The figure moved above the long-term average for the first time since the coronavirus pandemic hit Europe 12 months earlier. The Commission said that Germany stood out with the largest monthly sentiment improvement on record of +7.9 points to 103.7 points. Optimism was up in all categories, with industry sentiment improving to 2.0 from -3.1 and services, the largest sector in the Eurozone, rising to -9.3 from -17.0. Consumer optimism rose to -10.8 from -14.8 and in retail to -12.2 from -19.1. Construction and financial services showed improvements too. Selling price expectations in industry was sharply higher to 17.6 from 9.8 and consumers expectations of price trends over the next 12 months rose to 18.6 from 15.7.
- The International Monetary Fund Managing Director Kristalina Georgieva said the IMF will raise its forecasts for global economic growth to 5.5% in 2021 and 4.2% in 2022. This comes on the back of higher fiscal spending in the US and prospects for a vaccine-powered recovery in other advanced economies. Georgieva added that the global economy was on firmer footing after governments spent close to USD 16tn on fiscal measures to contain the Covid-19 pandemic and limit its economic impact. However, she warned that developments are diverging dangerously across regions and countries, and even within nations. Georgieva said the US and China were powering a "multi-speed recovery" from the crisis, with advanced economies facing an 11% cumulative loss in per capita income, relative to pre-crisis projections, while emerging and developing economies, excluding China, would see a 20% drop She added the IMF had provided over USD 107bn in new financing to 85 countries and debt service relief for 29 of its poorest members. However, low-income countries would need USD 200bn over five years to fight the pandemic and USD 250bn to return to the path of catching up to higher income levels, according to IMF estimates. Georgieva said support was building for a possible USD 650bn expansion of the IMF's Special Drawing Rights.
- Federal Reserve Vice Chair Randal Quarles said the Financial Stability Board will lay out recommendations in July to improve the resilience of money market funds and minimize the chance they will need government support in the future. He said the board will now focus on the relationship between money market funds and the short-term funding market, particularly the commercial paper market, after a liquidity crunch led to a run on those funds last March, necessitating government intervention. Quarles said US institutional prime money market funds saw outflows of roughly USD 100bn over two weeks in 2020, which accounted for roughly 30% of the funds' assets and was more severe than the run experienced at the peak of the 2008 financial crisis. Quarles did not specifically say what reform recommendations the group would make, other than highlighting a few areas of focus.
Today’s Economic Data and Events
5:00 CN Manufacturing PMI (Mar) Forecast 51
10:00 GB GDP (YoY) (Q4) Forecast -7.80%
10:00 GB GDP (QoQ) (Q4) Forecast 1.00%
11:55 DE (Mar) German Unemployment Change -Forecast 5K
13:00 EU CPI (YoY) (Mar) Forecast 1.30%
16:15 US ADP Nonfarm Employment (Mar) Forecast 525K
16:30 CA GDP (MoM) (Jan) Forecast 0.50%
18:00 US (Feb) Pending Home Sales (MoM) Forecast -2.60%
18:30 US Crude Oil Inventories Forecast -0.272M
Fixed income
- Government bonds continued to sell off into the end of the first quarter. Yields on the 10yr UST rose to as high as 1.7742% overnight, their highest levels since January 2020. By the end of the session, however, USTs managed to stage a recovery and yields ended relatively unchanged. There was no respite across European markets, however, as UK, French and German bonds continued to sink.
- Emerging market bonds remain caught up in the sell off with Turkish 10yr yields rising to over 18% and South African bonds adding 8bps to close at 9.5%.
- Arabian Centres is pricing a USD 5.5yr sukuk at around 5.875% while Pakistan issued USD 2.5bn in a multi-tranche issue: a USD 1bn 5yr at 6.25%, a USD 1bn 10yr at 7.375% and a USD 500m 30yr at 8.875%.
FX
- It was a strong day of dollar buying overnight, likely helped by the persistent run-up in UST yields to over 1.75%. The DXY index added 0.38% to settle at 93.297 with gains coming principally from EURUSD (down 0.4% at 1.1717) and USDJPY (up 0.5% at 110.36). GBPUSD generally drifted lower to settle at 1.374, a decline of 0.16%.
- Elsewhere among the majors there was broad weakness among the commodity currencies. USDCAD rose 0.34% while AUD was down almost 0.5% at 0.7597 and NZD fell by 0.3% to 0.6981.
Equities
- The surge in economic optimism in Europe was reflected in its equity markets yesterday, as the European composite STOXX 600 gained 0.7%, and it steadily drawing close to its pre-pandemic record highs. The DAX rose 1.3% and the CAC 1.2%, while the UK’s FTSE 100 gained a more modest 0.5%.
- It was a different story in the US where equity markets tumbled despite the positive consumer confidence data, with the ongoing fallout from Archegos Capital maybe weighing on the near-term performance. The NASDAQ closed -0.1% lower, while the S&P 500 and the Dow Jones both lost -0.3%.
Commodities
- Oil markets pushed lower ahead of the OPEC+ meeting tomorrow. Brent futures fell 1.3% to close at USD 64.14/b, WTI fell 1.6% to USD 60.55/b and Murban futures closed at USD 63.08/b, a drop of around 1.3%.
- The OPEC+ joint technical committee has revised downward its expectations for oil demand in 2021, clearing the way for OPEC+ to maintain existing levels of production or perhaps tighten them further.
- The sell-off in bond markets is doing no favours to gold prices which settled at USD 1,685/troy oz, a drop of 1.6% overnight. The outlook remains poor for gold going forward as reflation trades hold in markets and investors pull out of haven assets.
Click here to download charts and tables