US adds new taxes and defence spending

• US President Joe Biden unveiled his budget proposal for fiscal 2023 yesterday, which as expected included a new minimum wealth tax on billionaires, which would go towards funding spending commitments on climate and green energy. There was also a 4% increase in defence spending earmarked, with the President saying that ‘we’re in a different world today’, as well as more spending to be allocated for community police officers.
• US wholesale inventories expanded 2.1% m/m in February, compared to 1.1% in January. This beat consensus projections of a 1.0% gain.
• The UAE’s energy minister, Suhail al-Mazrouei, has reaffirmed the country’s commitment to the OPEC+ production quotas. Speaking at the Atlantic Council Global Energy Forum in Dubai, he argued that the producers’ bloc should stay out of politics and reiterated that ‘Russia is an important member’, whose continued participation is vital for oil market stability.
• In Japan, the jobless rate has fallen to 2.7%, compared to 2.8% previously, despite ongoing restrictions on activity related to the Covid-19 pandemic. In Australia, retail sales surprised to the upside in February, expanding 1.8% m/m, compared to expectations of 0.9% and faster than the (downwardly revised) expansion of 1.6% in January. Spending in cafes and restaurants surged as any residual wariness from the pandemic ebbed.

Today’s key economic data releases and events

18:00 US Conference board consumer confidence, March. Forecast 107 

Fixed Income

• US Treasuries oscillated in a relatively tight range overnight with few fundamental catalysts to push markets one way or the other. Yields on the 2yr UST ended the day up almost 6bps at 2.3277% while 10yr UST yields closed lower, down more than 1bps to 2.4855% The net impact is a further flattening of the US yield curve to 12bps overnight on the 2s10s spread and it has moved below 10bps in early trading today.
• Bond markets in other developed economies were more mixed with bunds and gilts gaining while much of the rest of the European economies saw bonds weaken. Emerging market bonds showed little conviction across the asset class with South African bonds rising for instance, marginally, while emerging Europe saw declines.
• Fitch affirmed their rating on Bahrain at ‘B+’ with a stable outlook and also affirmed Kuwait Finance House at ‘A’ with a stable outlook.
• Sharjah has issued a USD 8yr sukuk at well inside its initial pricing range of T+155-160bps.

FX

• The dollar remained supported overnight though the gains are now coming much more strongly from the yen than from Euro. After some choppy trading with an initial early dive, EURUSD stabilized later in the session and closed flat at 1.0985. USDJPY rose 1.4% overnight to 123.86, fading surge to as much as 125 at one point.
• GBPUSD also dropped sharply at the start of the week, down 0.7% to 1.3088 on dovish commentary from Bank of England governor Andrew Bailey. Commodity currencies were weaker to start the week with USDCAD up by 0.33% to 1.2518 while AUDUSD fell 0.35 to 0.7489 and NZDUSD fell more than 1% to 0.6895.

Equities

• Key China and Hong Kong equity indices ended the day in positive territory yesterday, despite the news that Shanghai is entering a major lockdown as the authorities there continue to pursue a zero-Covid strategy. While consumer stocks fell this was offset by a rally in recently beleaguered tech stocks, and the Shanghai Composite (0.1%) and the Hang Seng (0.5%) both closed higher. In Japan, the Nikkei lost -0.7%.
• Later in the day equity markets were boosted by a slump in the oil price. In the US, all three major indices gained, as the Dow Jones, the S&P 500 and the NASDAQ added 0.3%, 0.7% and 1.3% respectively. Most European markets also closed up. The CAC gained 0.5% and the DAX 0.8%, but the FTSE pared earlier gains on the comments from Andrew Bailey, and closed down -0.1%.
• Locally, the DFM added 2.1% and the ADX 0.6%. In Saudi Arabia the Tadawul closed 0.5% higher.

Commodities

• Oil prices dropped substantially overnight with both contracts down nearly 7% as China imposes more lockdowns related to Covid outbreaks in major centres of its economy. Brent settled at USD 112.48/b and WTI closed at USD 105.96/b.
• OPEC+ meets later this week with no apparent sign of accelerating their production increases ahead of agreed terms. The UAE’s energy minister, Suhail al Mazrouei, noted yesterday that OPEC+ wouldn’t “add resources if the market is balanced” even as flows of crude out of Russia are impacted by sanctions and firms avoiding deals.

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