US jobless claims fall to multi decade low

• The number of Americans filing new claims for jobless benefits dropped to a 52-1/2-year low last week reported by the Labor Department. Initial claims for state unemployment benefits fell 28,000 to a seasonally adjusted 187,000 for the week ended March 19, the lowest level since September 1969. Claims have been declining in part as Covid-19 restrictions across the US have been lifted amid a massive drop in coronavirus cases. They have plunged from a record high of 6.149mn in early April 2020.
• The Eurozone’s Flash Composite Purchasing Managers’ Index slipped to 54.5 in March from 55.5 in February. The output prices index jumped to 65.7 from 62.3 suggesting inflation in the Eurozone, already a record 5.8% in February, has further to climb. The Eurozone’s services PMI fell to 54.8 this month from 55.5, while the manufacturing PMI dropped to 57.0 from 58.2 but was ahead of expectations for 56.0. An index measuring output, which feeds into the composite PMI, sank to 53.6 from 55.5. High inflation and concerns over Russia's invasion of Ukraine dented optimism. The factory future output index plummeted to 53.8 from 68.5, its lowest reading since May 2020, not long after the coronavirus pandemic began.
• The preliminary UK composite PMI for March edged down to 59.7 from a historically high 59.9 in February, much less of a fall than the forecast 57.8. The PMI for services hit its highest in nine months, but output in the manufacturing sector was reported at its lowest in five months. Average prices charged rose by the most since records began in 1999, driven by the services sector as businesses sought to pass on unprecedented rises in their operating expenses.
• ECB Governing Council member Mario Centeno said the central bank does not contemplate a recession in the Eurozone in its economic scenario despite the conflict in Ukraine that has exacerbated inflationary pressures. He however pointed out  that the situation was delicate and had to be followed very carefully by policymakers as it depends on the evolution of the conflict adding that the normalization of the ECB's monetary policy will be carried out gradually and proportionally at the end of this year.

Today’s key economic data releases and events

11:00 GB Retail Sales (MoM) (Feb) Forecast 0.80%

13:00 EU German Ifo Index (Mar) Forecast 94

14:00 EU EU Leaders Summit 

18:00 US Pending Home Sales (MoM) (Feb) Forecast 1.50%            

Fixed Income

• Another Fed speaker came out in favour of a 50bps at upcoming meetings as Chicago Fed president Charles Evans said he was “open” to a larger hike. With the chorus of policymakers since the March FOMC suggesting that 50bps is the next likely move, it would seem to mean that the Fed wanted to be extra cautious in their first move by just raising 25bps to gauge market reaction.
• An auction of 10yr TIPS came out weaker than expected with total bids of USD 36.6bn versus USD 39.1bn in a previous auction for similar securities. The share awarded to dealers dropped to just under 11% from 15% previously.
• In the 2yr UST, yields added 4bps overnight to settle at 2.1387% with an auction next week set to determine the tone of trading. Yields on the 10yr UST rose 8bps to 2.3718% helping to widen out the 2s10s curve somewhat. At 23bps it has bounced up from its multi-year lows of around 19bps reached earlier this week.
• European bond markets also closed weaker with declines in bunds and gilts. The 10yr gilt yield rose slightly less than 2bps to 1.643% while the similar maturity bund yield added 6bps to settle just shy of 0.53%.
• Emerging market bonds in general closed weaker though South African 10yr managed to buck the trend. The 10yr South African yield fell about 10bps to close at 9.988%.
• Abu Dhabi Commercial Bank issued a 5yr USD 500m issue at 115bps over USTs.

FX

• Currency markets failed to show much conviction in moves overnight with a modest gain for the US dollar against most peers. The outcome of NATO and EU summits this week, more than economic fundamentals, will set the near-term outlook for market moves generally, with currencies no exception. EURUSD closed slightly lower last night but has made up gains this morning, trading 0.3% stronger at 1.103. USDJPY was the standout performer, with the pair rising almost 1% to 122.35 but has given back a good share of that in trade today. GBPUSD settled lower by 0.14% to 1.3187.
• In commodity currencies, USDCAD fell 0.29% in favour of the loonie at 1.2526. AUDUSD also managed to gain, up by 0.19% to 0.7513 while NZDUSD moved in the opposite direction, down 0.13% at 0.6956.

Equities

• Equity markets were mixed yesterday, but with little major movement in either direction early in the session. In Asia, the Nikkei gained 0.3% but the Shanghai Composite closed -0.6% lower. Asian stocks trended down as the Nifty lost -0.1% and the Sensex -0.2%.
• In Europe the FTSE 100 eked out a 0.1% gain while the DAX lost -0.1% and the CAC -0.4%, following disappointing PMI surveys.
• There was greater risk-on sentiment in the US, which is more isolated from the Ukraine conflict and enjoyed some positive data releases yesterday. The Dow Jones, the S&P 500 and the NASDAQ added 1.0%, 1.4% and 1.9% respectively.

Commodities

• Oil markets remain in a “will they, won’t they” holding pattern waiting to see if the EU will take a more aggressive stance against imports of Russian energy. In the near term the EU will benefit from additional supplies of US-sourced LNG to help push it away from its reliance on Russian gas.
• Brent futures settled lower by 2% at USD 119.03/b while WTI fell by 2.2% to USD 112.34/b. Both are treading water in early trade today.

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