09 June 2021
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Eurozone outlook remains mixed

ECB is unlikely to slow the speed of asset purchases

By Daniel Richards

  • US JOLTS labour data showed a record high of 9.3mn job vacancies in April, further illustrating the mismatch in the labour market following two months of lower-than-anticipated gains in the NFP reports. The quits rate also rose to a record high of 2.7%, demonstrating worker’s confidence in the recovery.
  • The revised Q1 growth figures for the eurozone showed that the contraction was shallower than previously reported, at -0.3% q/q compared to the initial reading of -0.6%. The single currency union was under pressure over the first three months of the year as a surge in Covid-19 cases saw strict movements on activity reimposed in many of the bloc’s key markets. Since then, vaccination programmes have picked up pace and restrictions have been loosened once more, and the outlook has brightened considerably and European stock markets have been hitting record highs in recent weeks.
  • Nevertheless, the ECB is unlikely to slow the speed of its asset purchases at its meeting tomorrow as data points are still fairly mixed and the recovery as yet unassured. In data from Germany (the eurozone’s largest constituent economy) yesterday, industrial production declined -1.0% m/m, a greater contraction than the consensus prediction of -0.4%. Supply chain issues are weighing on output. On the other hand, the ZEW current expectations rose to its highest reading since January 2020 at -9.1, and while the future expectations index fell it remains fairly robust.
  • Chinese CPI inflation came in at 1.3% y/y, up from the 0.9% recorded the previous month but slower than expectations of 1.6%. On the other hand, PPI inflation accelerated to 9.0%, the highest level since 2008, driven by the recent explosion in commodity prices. Chinese authorities have been taking measures to try and cool the rise in raw materials prices.
  • Abu Dhabi has announced plans to invest USD 6bn into culture and creative industries over the next five years. The emirate has targeted 16,000 new jobs in multimedia and gaming and is developing a number of new museums. These plans are part of the drive to diversify the economy away from a reliance on hydrocarbons.

Today’s Economic Data and Events

15:00 US MBA mortgage applications

18:00 Bank of Canada rate decision: forecast 0.25%

Fixed Income

  • US Treasuries remain bid as markets balance expectations of a pending high US inflation print and a persistently dovish stance from the Federal Reserve. Yields fell across the curve with 2yr UST yields down to 0.1508% overnight while 10yr UST yields moved lower by more than 3bps to settle at 1.5331%.
  • Moves in European bond markets were similar ahead of the ECB meeting this week. Bund yield slipped almost 3bps to -.225% on the 10yr likely in anticipation that the ECB will make, at most, only marginal adjustments to its asset purchase policies.
  • Emerging market bonds also rallied overnight with yields lower across the major economies we track. Yields on 10yr Turkish government bonds fell almost 10bps and are back below 18% while South African yields sank nearly 5bps to just above the 9% level.
  • The regional primary market has kicked into life with Aramco offering a USD sukuk in multiple tranches. The initial pricing for the 3yr is +105bps, 5yr at +125bps and a 10yr at +160bps.
  • Emirates Development Bank priced a USD 750m 5yr at midwaps +80bp with strong demand while Oman priced a USD 1.75bn sukuk at a yield of 4.875%.
  • Elsewhere in MENA, Morocco’s OCP has mandated banks for USD 10yr and 30yr issuances.


  • A risk-off tone to markets helped the USD overnight and the broad DXY index gained 0.14% to climb back above the 90 figure. US inflation and the ECB will provide the next substantial catalyst for currency markets. EURUSD settled down 0.14% overnight at 1.2173 while USDJPY pushed up around 0.2% to 109.50.
  • Sterling wobbled marginally, off by 0.18%, as Brexit issues came back to the fore. Tension over the UK’s post-Brexit obligations to Northern Ireland and a potential pushback of the UK’s reopening date later this month will weigh on the near-term outlook for sterling.


  • Equity markets were relatively mixed yesterday, but with no significant moves in either direction. In the US, the S&P 500 closed flat, the Dow Jones lost -0.1% and the NASDAQ closed up 0.3%.
  • In Europe, the DAX lost -0.2% but the CAC (0.1%) and the FTSE (0.3%) both closed higher.
  • Within the region, the DFM lost -0.1% but the ADX (0.4%) and the Tadawul (0.1%) both gained.


  • Oil prices gained around 1% across the major benchmarks overnight even as there were few immediate catalysts to send prices higher. Brent gained 1% to settle at USD 72.22/b and is tentatively edging higher today while WTI settled above USD 70/b for the first time since October 2018.
  • The API reported a modest draw in US crude inventories of 2m bbl last week while there were builds in both gasoline and diesel. The EIA has revised its 2021 production estimate slightly higher to 11.08m b/d from 11.02m b/d previously but pulled back on its expectation for 2022, now seeing output of 11.79m b/d compared with 11.84m b/d previously.

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Written By

Daniel Richards Senior Economist

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