09 March 2021
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German industrial production fell in January

Industrial production in Germany fell in January, a soft start to the year as construction was a major underperformer.

By Edward Bell

  • Markets are waiting for more significant fundamental drivers to set the tone this week after a reasonably quiet start, at least by current standards. The USD 1.9trn American Rescue Plan will be voted on later this week with cash handouts likely to hit households soon.
  • The Federal Reserve is closing three of its emergency facilities—the commercial paper funding facility, a money market mutual fund liquidity facility and a primary dealer credit tool—owing to their lack of use. The Fed will extend, however, the paycheck protection programme until the end of June.
  • Industrial production in Germany fell 2.5% m/m in January, a soft start to the year as construction was a major underperformer. With Germany’s economy enduring extended lockdown conditions, Q1 is likely to be a particularly soft quarter while industry has also had to shift supply chains during the first few months of Brexit. Germany continues to lag behind both the UK and US economies in terms of vaccine doses that have been administered and until there is a major turnaround in the deployment of vaccines growth potential this year will be limited.

Today’s Economic Data and Events

13:30 SA GDP y/y (Q4 2020): forecast -4.6%

14:00 EC GDP y/y (Q4 2020): forecast -5%

Fixed Income

  • Bond markets saw more muted action at the start of the week as there were few catalysts to push them heavily one way or the other. USTs extended their sell off with a broad index of the bonds down by almost 0.3%. Yields on 2yr UST were up almost 3bps to 0.16% while the 10yr added a little more than 2bps to settle just below 1.6%.
  • Action was similar across the rest of the developed market space with 10yr yields up by 3bps on JGBs and 2bps on bunds. Gilts continue to consolidate at current levels of around 0.75% on the 10yr. Emerging market and high yield bonds were lower as well. South African bonds are showing the heaviest moves with yields on the LCCY 10yr adding almost 24bps overnight while Turkish bonds saw no change and Indian yields actually tightened.


  • The dollar extended its rally for a fourth day in a row with the DXY index settling back above the 92 figure at 92.313, a 0.4% gain. Anxiety over risk assets and a considerably improving growth outlook for the US economy are helping to power the greenback higher against peers. EURUSD took the brunt of losses among major pairs, falling 0.57% to settle at 1.1847. Soft economic data out of Germany and a still nascent vaccination programme are threatening the Q1 outlook for the Eurozone economy, weighing on long EURUSD positions.
  • USDJPY also pushed higher and has now moved above 109 in early trading today. Among the major pairs, JPY has fallen the most so far this year, declining by 5.5% ytd. GBPUSD was relatively more sanguine, closing down 0.12% at 1.3824.
  • Both the antipodeans saw fresh selling pressure, down by around 0.5% each to 0.765 for the AUD and 0.7129 for the NZD while USDCAD edged higher, unwinding some of the loonie’s gains from late last week.


  • The tech rout in the US continued, with some of the big gainers since the pandemic began seeing significant continued losses. The tech-heavy NASDAQ lost a further -2.4% yesterday, which took it to down -9.9% compared to where it stood one month ago, and down -2.2% ytd.
  • By comparison to the NASDAQ, the S&P 500 is up 1.7% ytd (it lost -0.5% yesterday), while the Dow Jones is up 3.9% ytd, having secured a 1.0% rise in yesterday’s trading.
  • Away from the tech sector it was a broadly positive day for equity indices in the rest of the world also, suggesting a rotation within equity investment rather than widespread aversion. The UK’s FTSE 100 closed up 1.3% to its highest level in around a month, while in Germany the DAX shrugged off the poor industrial production data to secure gains of 3.3% and a new record high.
  • Within the region the DFM lost -0.5% and the Tadawul gained 0.3%.


  • After an early pop higher thanks to the OPEC+ decision and a missile attack on an oil export terminal in Saudi Arabia, oil prices closed lower to start the week. Both Brent and WTI future fell by around 1.6% to USD 68.24/b and USD 65.05/b respectively.
  • Gold prices plunged further overnight, down by more than 1% to settle at USD 1,683/troy oz. The reflation trade is a particularly negative outcome for non-yielding, no-income gold markets. Even if inflation were to return this year it is likely to be modest, removing another leg from the bullish gold narrative.

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Written By

Edward Bell Head of Market Economics

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