The Week Ahead – Economic Data, Monetary Policy, and China in Focus

On the Macro

It’s a quieter week ahead on the economic calendar, with 42 stats in focus in the week ending 12th March. In the week prior, 70 stats had been in focus.

For the Dollar:

It’s a quieter week ahead.

February inflation figures are due out on Wednesday and Friday along with consumer sentiment figures on Friday.

JOLT’s job openings and weekly jobless claims figures will also draw attention on Thursday, however.

With market sensitivity to inflation heightened in recent weeks, expect plenty of influence from the numbers.

The Dollar Spot Index ended the week up by 1.22% to 91.985.

For the EUR:

It’s a busier week ahead on the economic data front.

German industrial production figures are due out on Monday ahead of finalized 4th quarter GDP numbers for the Eurozone on Tuesday.

Barring another revision, the GDP figures, expect Germany’s industrial production figures to have the greater impact.

On Tuesday, German trade data will also draw attention, with the markets focused on demand.

In the 2nd half of the week, industrial production figures for the Eurozone are due out.

Finalized inflation figures for Germany and Spain are also due out but will likely have a limited impact.

On the monetary policy front, the ECB monetary policy decision and press conference on Thursday will be the main event.

With market jitters over a possible shift in policy stemming from reinflation, expect the press conference to be key. Lagarde will need to assure the markets that there will be no shift in policy.

The EUR ended the week down by 1.33% to $1.1915.

For the Pound:

It’s another relatively quiet week ahead on the economic calendar.

In the first half of the week, retail sales figures for February are due out on Tuesday. With little else for the markets to consider, the BRC numbers will influence.

The markets will then need to wait for GDP, manufacturing and industrial production figures on Friday for more direction.

Trade data is also due out but will likely have a muted impact on the Pound.

The Pound ended the week down by 0.66% to $1.3841.

For the Loonie:

It’s a quieter week ahead on the economic calendar.

February employment figures and January wholesale sales figures are due out on Friday.

Employment change figures for February will be the key driver on the day.

On the monetary policy front, the Bank of Canada is also in action on Wednesday.

With the markets expecting the BoC to stand pat, the BoC press conference will be the main area of focus. Once more, inflation will likely be a hot topic…

The Loonie ended the week down by 0.62% to C$1.2659 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a quiet week.

Business and consumer confidence figures for February and March are due out on Tuesday and Wednesday.

While business investment is also key to an economic recovery, expect consumer sentiment figures to have the greatest impact.

The Aussie Dollar ended the week down by 0.26% to $0.7686.

For the Kiwi Dollar:

It’s another quiet week ahead.

Electronic card retail sales figures are due out on Wednesday ahead of Business PMI numbers on Friday.

With little else for the markets to consider, both data sets will influence.

The Kiwi Dollar ended the week down by 0.91% to $0.7167.

For the Japanese Yen:

It is another quiet week ahead.

2nd estimate GDP numbers for the 4th quarter are due out on Tuesday.

Barring a marked revision from 1st estimates, however, the stats should have a limited impact on market risk sentiment.

At the end of the week, BSI Large Manufacturing Conditions Index numbers for the 1st quarter will draw interest.

The markets will be looking for manufacturing conditions to have improved for the 1st quarter…

The Japanese Yen ended the week down by 1.63% to ¥108.31 against the U.S Dollar.

Out of China

It’s a busier week ahead. Over the weekend, trade data for February is due out and will set the tone.

Expect plenty of interest in the numbers following some disappointing private sector PMIs.

Weak figures and we could see concerns over the Chinese economic recovery begin to hit the markets.

On Wednesday, inflation figures for February will also draw attention.

With the National People’s Congress continuing from last Friday, chatter from the Chinese government will also influence market risk sentiment.

The Chinese Yuan ended the week down by 0.36% to CNY6.4970 against the U.S Dollar.

Geo-Politics

U.S Politics

Iran and the Middle East will remain a key area of focus, particularly following last week’s report on the Khashoggi murder.

For Joe Biden and the Democrats, this could prove to be the first test. A breakdown in U.S – Saudi relations would raise questions over stability in the region.

While the Iran nuclear agreement will be a main area of focus, U.S – China relations also remains a key focal point for the markets.

The Weekly Wrap – Rising Yields and A Dollar Resurgence Was the Story of the Week

The Stats

It was a busier week on the economic calendar, in the week ending 5th March.

A total of 70 stats were monitored, following 52 stats from the week prior.

Of the 70 stats, 40 came in ahead forecasts, with 25 economic indicators coming up short of forecasts. There were 5 stats that were in line with forecasts in the week.

Looking at the numbers, 37 of the stats reflected an upward trend from previous figures. Of the remaining 33 stats, 28 reflected a deterioration from previous.

For the Greenback, it was a 2nd consecutive week in the green, in the week ending 5th March. The Dollar Spot Index rallied by 1.22% to end the week at 91.985. In the previous week, the Dollar had risen by 0.57% to 90.879.

FED Chair Powell’s speech from Thursday delivered 91 levels for the Dollar.

Out of the U.S

It was another relatively busy week on the economic data front.

In the first half of the week, private sector PMI figures were in focus along with ADP nonfarm employment numbers.

It was a mixed set of stats for the markets.

While manufacturing sector activity picked up in February, service sector growth hit a speed bump.

In February, the ISM Manufacturing PMI rose from 52.6 to 54.4. The Non-Manufacturing PMI, however, fell from 58.7 to 55.3.

The ADP numbers were not much better. In February, nonfarm employment rose by 117k in February, according to the ADP. Economists had forecast a 177k rise.

On Thursday, the market attention shifted to the weekly jobless claims figures ahead of the government labor market numbers on Friday.

In the week ending 26th February, initial jobless claims increased from 736k to 745k.

At the end of the week, nonfarm payrolls impressed, however, with a 379K jump in February. The better-than-expected rise took the unemployment rate down from 6.3% to 6.2%.

In January, nonfarm payrolls had risen by a more modest 166k.

On the monetary policy front, FED Chair Powell fueled a Dollar rally overnight on Thursday. Powell failed to address the issue of rising yields, which suggested a willingness to allow yields to rise further.

In the equity markets, the NASDAQ fell by 2.06%, while the Dow and S&P500 rose by 1.82% and by 0.81% respectively.

Out of the UK

It was another relatively quiet week on the economic data front.

Finalized private sector PMI figures for February were in focus along with the Tories annual budget release.

It was a mixed set of numbers for the Pound.

An upward revision to the manufacturing PMI was offset by a downward revision to the services PMI.

Late in the week, construction PMI figures for February had a muted impact on the Pound.

In February, the construction sector joined the manufacturing sector in expansion, with the PMI rising from 49.2 to 53.3.

From the UK government, the annual budget failed to move the dial.

In the week, the Pound fell by 0.66% to end the week at $1.3841. In the week prior, the Pound had fallen by 0.59% to $1.3933.

The FTSE100 ended the week up by 2.27%, reversing a 2.12% slide from the previous week.

Out of the Eurozone

It was a particularly busy week on the economic data front, with private sector PMI figures in focus.

While the manufacturing sector continued to deliver, service sector woes left the Eurozone Composite at 48.8 in February. A continued contraction highlighted some uncertainty towards the economic recovery.

Other stats included German and Eurozone inflation, retail sales and unemployment figures.

The stats were skewed to the negative, however, with a retail sales slump in January worse than expected.

At the end of the week, the German economy was back in focus. Factory orders rose by a larger than anticipated 1.4% and were up by 3.7% when compared with Feb-2020.

For the week, the EUR slid by 1.33% to $1.1915. In the week prior, the EUR had fallen by 0.36% to $1.2075.

For the European major indexes, it was bullish week. The CAC40 rose by 1.39%, with the DAX30 and EuroStoxx600 gaining 0.97% and 0.88% respectively. A bearish end to the week left the majors with relatively modest gains.

For the Loonie

It was a busy week.

4th quarter GDP figures were in focus in the 1st half of the week.

The figures revealed a slowdown in growth from the 3rd quarter, aligned with economies elsewhere.

Quarter-on-quarter, the economy grew by 2.3%, while contacting by 3.23% year-on-year.

In December, the economy expanded by a modest 0.1%, slowing from 0.8% growth in November.

At the end of the week, the focus shifted to January trade data and February’s Ivey PMI

In January, the trade balance jumped from a C$1.98bn deficit to a C$1.41bn surplus. A more marked increase in exports led to the return to a trade surplus mid-way through the quarter.

For February, the Ivey PMI was also Loonie positive, jumping from 48.4 to 60.0. While an impressive figure, the market impact was limited as a result of market concerns over yields.

In the week ending 5th March, the Loonie fell by 0.62% to C$1.2659. In the week prior, the Loonie had fallen by 0.57% to C$1.2738.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 5th March, the Aussie Dollar fell by 0.26% to $0.7686, with the Kiwi Dollar ending the week down by 0.91% to $0.7167.

For the Aussie Dollar

It was a busy week.

Early in the week, manufacturing and company gross operating profit figures were in focus.

It was a mixed bag, with manufacturing sector activity improving in February.

4th quarter profits were dire, however, sliding by 6.6% in the 4th quarter. In the 3rd quarter, company gross operating profits had risen by 3.2%.

In the 2nd half of the week, GDP, retail sales, and trade data were in focus.

The stats were skewed to the positive. The economy contracted by less than had been anticipated, with the trade surplus widening off the back of a marked pickup in exports.

Retail sales figures came up short of prelim numbers but still recovered from December’s 4.1% slide.

On the monetary policy front, the RBA was also in action but stood pat following the previous month’s surprise move.

For the Kiwi Dollar

It was a particularly quiet week.

Economic data was limited to building consent figures that had a muted impact on the Kiwi Dollar

For the Japanese Yen

It was a relatively busy week.

Finalized private sector PMIs for February and 4th quarter capital spending figures were in focus.

The stats were skewed to the positive in the week, though not enough to prevent a Yen slide to ¥108 levels.

In February, the manufacturing sector returned to expansion, with the PMI rising from 49.8 to 51.4.

The services sector continued to contract, however, with the PMI rising from 46.1 to 46.3.

Capital expenditure saw further decline in the 4th quarter, though to a lesser extent than in the previous quarter. Year-on-year, capital expenditure was down by 4.8%. In the 3rd quarter, CAPEX had been down by 10.6%.

The Japanese Yen slid by 1.63% to ¥108.31 against the U.S Dollar. In the week prior, the Yen had fallen by 1.06% to ¥106.57.

Out of China

It was a busier week on the data front, with private sector PMI figures for February in focus.

The stats were skewed to the negative, with growth across the private sector slowing moderately mid-way through the quarter.

In February, the market’s favored Caixin manufacturing PMI fell from 51.5 to 50.9, with the services PMI falling from 52.0 to 51.5.

As a result, the composite PMI slipped from 52.2 to 51.7.

Common themes across the PMI numbers from China and beyond were rising prices but also marked increases in optimism.

In the week ending 5th March, the Chinese Yuan fell by 0.36% to CNY6.4970. In the week prior, the Yuan had fallen by 0.25% to CNY6.4737.

The CSI300 fell by 1.39%, while the Hang Seng rose by 0.41%.

European Equities: A Week in Review – 05/03/21

The Majors

After a bearish final week of the month in February, it was a bullish start to the month in March.

The CAC40 rallied by 1.39%, with the DAX30 and the EuroStoxx600 seeing gains of 0.97% and 0.88% respectively.

Through the early part of the week, better than expected manufacturing PMI figures provided the majors with support.

An easing in U.S Treasury yields from the previous week’s spike, however, was the main driver early in the week.

Later in the week, a combination of weak economic data and pickup in yields saw the majors give up some of their earlier gains.

The Stats

It was a busy week on the economic data front, with February private sector PMIs in focus.

Manufacturing PMI numbers impressed, while the services sector continued to struggle as a result of extended containment measures.

Weighed by service sector woes, the Eurozone’s composite PMI rose modestly from 47.8 to 48.8. The overall picture continued to paint a gloomy picture and reflected the downside risks to the Eurozone economy.

Other stats in the week included German and Eurozone retail sales and unemployment figures and German factory orders.

Retail sales figures were particularly disappointing, while both Germany and the Eurozone’s unemployment rates held steady in January.

At the end of the week, factory orders from Germany impressed, rising by a larger than anticipated 1.4%. More significantly, orders were up by 3.7% when compared with Feb-2020, the month prior to the pandemic.

From the U.S

ISM private sector PMI figures for February also delivered mixed results, For the U.S, manufacturing sector activity picked up, while service sector growth slowed.

The all-important ISM Non-Manufacturing PMI fell from 58.7 to 55.3 in February.

Labor market figures ahead of Friday’s nonfarm payrolls also disappointed.

According to the ADP, nonfarm employment increased by just 117k in February, following a 195k increase in January.

Weekly jobless claims were on the rise in the final week of February, with initial jobless claims increasing from 736k to 745k.

At the end of the week, the government’s official labor market numbers wrapped things up.

Nonfarm payrolls impressed, with a 379K jump in February. The better-than-expected rise took the unemployment rate down from 6.3% to 6.2%.

In January, nonfarm payrolls had risen by a more modest 166k.

On the monetary policy front, FED Chair Powell failed to assure the markets of action to stem the rise in yields on Thursday.

A spike in the Dollar and a sell-off in the U.S equity markets had spilled into the European markets on Friday.

The Market Movers

From the DAX, it was a bullish week for the auto sector. Volkswagen surged by 13.27%, with BMW and Daimler rallying by 6.18% and by 6.52% respectively. Continental ended the week up by a more modest 3.53%.

It was also a bullish week for the banking sector. Deutsche Bank rallied by 4.40%, with Commerzbank gaining 1.47%.

From the CAC, it was yet another particularly bullish week for the banks. Credit Agricole rallied by 5.25%, with BNP Paribas and Soc Gen gaining 4.69% and 3.90% respectively.

It was a relatively bullish week for the French auto sector. Renault and Stellantis NV ended the week up by 1.91% and by 3.85% respectively.

Air France-KLM slid by 7.17%, with Airbus ending the week down by 0.51%.

On the VIX Index

It was back into the red for the VIX  in the week ending 5th March. Partially reversing a 26.76% jump from the previous week, the VIX fell by 11.77% to end the week at 24.66.

The VIX had been on track for a 3rd consecutive weekly gain before a Friday rebound from early losses across the U.S equity markets.

For the week, the NASDAQ fell by 2.06%, while the Dow and the S&P500 rose by 1.82% and by 0.81% respectively.

VIX 06321 Weekly Chart

The Week Ahead

It’s a relatively busy week ahead on the economic calendar.

From Germany, industrial production and trade figures for January are due out on Monday and Tuesday.

Expect the industrial production figures to have the greatest impact on the majors.

On Tuesday, finalized 4th quarter GDP numbers for the Eurozone will also draw interest ahead of Eurozone industrial production figures on Friday.

On the inflation front, finalized inflation figures from Germany and Spain are due out at the end of the week. Barring marked upward revisions, however, these should have a muted impact on the majors.

While the stats will provide direction, it will be the ECB press conference on Thursday, however, that will be the main event.

With the markets expecting the ECB to stand past on policy, Lagarde’s view on inflation, yields and the impact on the economy and monetary policy will be key.

From the U.S, the economic calendar is on the lighter side.

On Wednesday, February inflation figures will draw interest ahead of the weekly jobless claim figures on Thursday.

At the end of the week, prelim March consumer sentiment figures will also influence late in the European session.

Following FED Chair Powell’s comments from last week, FOMC member chatter in the week ahead will also need monitoring.

Having a Trading Plan is More Important than Just Focusing on NFP Report

Enough with the focusing already. What’s your game plan for trading the U.S. Non-Farm Payrolls report? The focus began when you first saw the report on the economic calendar. Now that you’ve seen the price action this week and saw the reaction to Federal Reserve Chairman Jerome Powell’s lack of concern about a recent sell-off in bonds while sticking to his stance to keep interest rates low for a long time. How do you think traders will react to the headline number if it comes in bullish or bearish?

First of all, no one really knows what a bullish or bearish number will look like, given the massive amount of nonfarm payrolls estimates. If you look on to the Dow Jones number you may have a different interpretation than the guy trading the Bloomberg number or the Reuters number or the Wall Street Journal figure? Shall I go on?

From experience, it’s not knowing about the accuracy of “number” that brings success but how to trade it. Who to follow? How financial markets – bonds, stocks currencies, the dollar, gold – will be affected.

In my opinion, it all starts with the reaction to the number by Treasury traders. They are the smartest traders in the world and they control a lot of money. So latch on to the Treasury futures contract. Do not try to trade the headline number. You’ll get whip-sawed.

Follow the yields. They are what got us here in the first place. While the small time players are being told by the brokers to “focus” on the NFP number, the professionals know that this one report will not recover the 10 million jobs lost during the pandemic.

Do the math? How long will it take the economy to recovery 10 million jobs at a pace of 200,000 jobs per month?  Exactly. This tells me this report could be a dud with professionals already preparing for the Fed’s March 17 announcements.

So when you do the math, you see that the report is not that important after all. Furthermore, it’s being called Joe Biden’s first jobs report. That’s true so we don’t even have a trend yet in the labor market.

However, I do have to add that if the number comes in below last month’s 49,000 or negative then those betting on a fast recovery and high inflation will have a hard time building a case for higher Treasury yields or even a faster exit from monetary policy by the Federal Reserve.

NFP Trading Tips

Don’t trade off of the headline jobs number. Use the June 10-year Treasury note futures contract for guidance. There are just too many Non-Farm guesses out there. You won’t be able to tell if it’s bullish or bearish. You also may want the T-notes to settle before making your move. Sometimes there is a reaction to the headline number and a different reaction to the unemployment rate. This causes whipsaw price action. Don’t force a trade either. Sometimes there is little reaction to this report.

If T-notes are moving lower, rates are rising. This tends to be bearish for stocks bonds and gold.  If T-notes are moving higher, rates are falling. This tends to be bullish for stocks, bonds and currencies.

With all these correlations going on, make sure you don’t double or triple up in the same direction. You’ll lose it twice or three times as fast if the market turns suddenly. Also make sure that you don’t end up at some point with a bullish gold and bullish dollar position at the same time. That could confuse you.

If you stick to following the Treasury futures and understand their relationships with the other markets at this time then you should be alright. Remember, don’t waste your time focusing on the report, focus on the direction of yields.

For a look at all of today’s economic events, check out our economic calendar.

German Factory Orders Rise But Fail to Impress the EUR

After a particularly quiet economic calendar through the Asian session, German factory orders were in focus.

Manufacturing data from Germany has been upbeat at the turn of the year. Factory orders for January needed to be aligned with the survey-based data.

Factory Orders

In January, factory orders increased by 1.4%, coming in ahead of a forecasted 0.7% increase. In December, orders had fallen by 1.9%.

According to Destatis,

  • Compared with January 2020, new orders were up 2.5% and up by 3.7% when compared with February 2020.
  • Domestic orders slid by 2.6%, while foreign orders increased by 4.2%, month-on-month.
  • New orders from the euro area rose 3.9%, with new orders from other countries jumping by 4.4%.
  • Manufacturers of intermediate goods saw new orders increase by 0.2%, with new orders of capital goods up 3.3%.
  • Consumer goods manufacturers, however, reported a 5.8% slide in new orders.

Market Impact

Ahead of today’s stats, it was a mixed start for the EUR. Early in the day, the EUR had struck a current day high $1.19771 before falling to a pre-stat low $1.19516.

In response to the stats, however, the EUR slid from $1.19537 to a current day low $1.19482.

At the time of writing, the EUR was down by 0.10% to $1.19514.

EURUSD 050321 Minute Chart

Next Up

U.S nonfarm payrolls and February’s unemployment rate.

Wage growth and trade data are also due out of the U.S but should have a muted impact on the Dollar and the broader markets.

US Stocks Edge Lower Ahead of Jobs Report after Surging Bond Yields Fuel Steep Sell-Off

U.S. stock index futures are trading lower overnight following a steep decline in the tech-sector that dragged all the major cash indexes lower on Thursday. The catalyst behind the early selling pressure is fear of a surge in bond yields. The trading range is tight and volume is relatively low ahead of the release of a U.S. Non-Farm Payrolls report at 13:30 GMT. Economists predict the report will show the economy added 210,000 jobs in February, compared to just 49,000 in January, according to Dow Jones.

In addition to the headline figure, traders will get the opportunity to react to Average Hourly Earnings that are expected to come in unchanged at 0.2%. The Unemployment Rate is also expected to remain unchanged at 6.3%.

The U.S. Trade Balance deficit is expected to have increased to 67.5 billion from -66.6 billion. Consumer Credit is also expected to have risen to 11.8 billion from 9.7 billion.

Thursday Recap

Wall Street’s major stock indexes ended sharply lower on Thursday, leaving the NASDAQ Composite down around 10% from its February record high, after remarks from Federal Reserve Chair Jerome Powell disappointed investors worried about rising longer-term U.S. bond yields.

In the cash market on Thursday, the benchmark S&P 500 Index settled at 3768.47, down 51.25 or -1.34%. The blue chip Dow Jones Industrial Average finished at 30924.14, down 345.95 or -1.11% and the technology driven NASDAQ Composite closed at 12723.47, down 274.28 or -2.11%.

The NASDAQ Composite wiped out all of its year-to-date gains and was down about 10% from its record closing high on February 12.

Apple Inc, Tesla Inc and PayPal Holdings Inc were among the largest drags on the S&P 500. Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond returns go up.

Fed Chair Powell’s Comments Light the Match

U.S. stocks fell sharply on Thursday after remarks from Federal Reserve Chair Jerome Powell disappointed investors worried about rising longer-term U.S. bond yields.

Powell said the recent run-up caught his attention but he didn’t give any indication of how the central bank would rein it in. Some investors had expected the Fed chair to signal his willingness to adjust the Fed’s asset purchase program in an effort to help push down long-term interest rates.

The economic reopening could “create some upward pressure on prices,” Powell said in a Wall Street Journal webinar Thursday. Even if the economy sees “transitory increases in inflation…I expect that we will be patient,” he added.

Bond Spike Weighs on Technology Sector

The benchmark 10-year Treasury yield spiked to 1.533% after Powell’s comments, which did not point to changes in the Fed’s asset purchases to tackle the recent jump in yields. It still held below last week’s one-year high of 1.614%.

Tech stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when bond returns go up.

“Valuations are at the high end of historic ranges, so you are seeing selling, especially in the higher valuation areas like the NASDAQ and tech in general,” said Tim Ghriskey, chief investment strategist at Iverness Counsel in New York.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: German Factory Orders and U.S Nonfarm Payrolls in Focus

Economic Calendar:

Friday, 5th March

German Factory Orders (MoM) (Jan)

The Majors

It was a mixed day for the European majors on Thursday.

Mixed economic data from the Eurozone and the U.S provided little support for the European boerses.

The lingering fear of the impact of reinflation on monetary policy continued to weigh on the majors late in the week.

On Thursday, the DAX30 the EuroStoxx600 fell by 0.17% and by 0.38% respectively, while the CAC40 rose by 0.01%.

The European majors came under further pressure as the markets responded to a pickup in U.S Treasury yields on the day.

The Stats

It was a relatively busy day on the economic calendar on Thursday.  Key stats from the Eurozone included Eurozone retail sales figures along with January’s unemployment rate.

Retail sales slid by 5.9% in January, reversing a downwardly revised 1.8% increased from December. Economists had forecast a more modest 1.1% fall.

Year-on-year, retail sales fell by 6.4% across the Eurozone in January, which was worse than a forecasted 1.2% decline. In December, retail sales had risen by an upwardly revised 0.9%.

According to Eurostat,

  • Month-on-month, non-food product sales slid by 12.0%, with automotive fuel sales by 1.1%.
  • There was a 1.1% increase in the sales of food, drinks, and tobacco.
  • By member state, Austria (-16.6%), Ireland (-15.7%), and Slovakia (-11.1%) registered the largest falls.
  • Estonia registered the largest increase, rising by a relatively modest 1.7%.

While retail sales figures disappointed, the Eurozone’s unemployment rate held steady at 8.1% in January. December’s unemployment rate was revised down from 8.3% to 8.1%.

According to Eurostat,

  • While stable at 8.1%, this was up from January 2020’s 7.4%.

Ahead of today’s key stats, construction PMI figures from Germany failed to impress. In February, the IHS Markit Construction PMI slid from 46.6 to 41.0.

From the U.S

Weekly jobless claim figures were in focus along with January factory orders late in the European session.

In the week ending 26th February, initial jobless claims increased from 736k to 745k. Economists had forecast a rise to 750k.

Factory orders were positive for riskier assets. In January, factory orders increased by 2.6%, following a 1.6% rise in December. Economists had forecast a 2.1% increase.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Thursday. Volkswagen rallied by 2.02%, with Continental and Daimler rising by 0.16% and by 1.15% respectively. BMW bucked the trend, however, falling by 0.32%.

It was a bearish day for the banks. Deutsche Bank slid by 3.16%, with Commerzbank falling by 1.34%.

From the CAC, it was a bearish day for the banks. BNP Paribas fell by 0.14%, with Credit Agricole and Soc Gen seeing heavier losses of 1.30% and 1.23% respectively.

The French auto sector also struggled. Stellantis NV and Renault fell by 0.25% and by 0.50% respectively.

Air France-KLM and Airbus SE ended the day down by 1.08% and by 0.16% respectively.

On the VIX Index

It was a 3rd consecutive day in the green for the VIX on Thursday. Following a 10.66% gain on Wednesday, the VIX rose by 7.12% to end the day at 28.57.

The NASDAQ slid by 2.11%, with the Dow and S&P500 falling by 1.11% and by 1.34% respectively.

VIX 05321 Daily Chart

The Day Ahead

It’s quieter day ahead on the European economic calendar. German factory order numbers for January are due out later this morning.

Expect any heavy fall in orders to raise questions over the recent uptrend in German survey-based figures.

Back in January, Germany’s Manufacturing PMI survey had reported a continued rise in new orders, albeit at a slower pace than in December.

From the U.S, nonfarm payrolls and February’s unemployment rate will also garner plenty of interest later in the day.

Ahead of the European open, China Premier Li Keqiang’s National People’s Congress speech will draw interest.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 12 points.

For a look at all of today’s economic events, check out our economic calendar.

Stocks Tumble, Gold Dumps , Dollar Jumps Amid Treasury Yield Spike as Powell Signals Inflation is Ahead

A wave of heavy selling pressure and heightened volatility hit the financial markets on Thursday after Federal Reserve Chairman Jerome Powell failed to reassure investors that central bank policymakers would keep surging bond yields and inflation expectations under control.

At 21:00 GMT, March E-mini S&P 500 Index futures were down 1.02%, June 10-year Treasury Notes were off by 0.42% and April Comex gold futures had lost 1.13%.

The major currencies were also lower as the March U.S. Dollar Index soared 0.76%.

Powell Reiterates Fed’s Stance

Powell said the economic reopening could “create some upward pressure on prices,” reiterating that the central bank would be “patient” before changing policy even as it saw inflation pick up in what it expects would be a transitory fashion.

The Fed chief did acknowledge the rapid rise in rates recently caught his attention, but said the Fed would need to see a broader increase across the rate spectrum before considering any action, he said during the Wall Street Journal Jobs Summit Thursday.

Powell said price increases above the Fed’s 2% target for a couple quarters or more would not cause consumers’ long-term inflation expectations to materially change.

“We want inflation expectations to be anchored at 2%,” Powell said. “Inflation is running below 2% and has done so since the pandemic arrived.”

Is the Fed Losing Control of Monetary Policy?

Powell and his policymakers have until March 17 to regain control of monetary policy or they could face a creditability issue with the financial markets that could lead to a surge in volatility.

“With long rates rising in response to his commentary, we are again seeing a market that is taking control of monetary policy from the Fed,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “The Fed has put themselves in a tough situation and the only way out is if inflation does not rise further and does not get to their 2% target. If it does, they have a problem because they will be afraid to confront it with higher rates if they remain so focused on employment.”

Still others see a positive outcome.

“There’s a growing worry that the economy may be running away from the Fed. While the thought of rapid change could be enough to scare investors now, we see higher inflation as a long-term positive for the market,” said Lindsey Bell, chief investment strategist for Ally Invest.

“We’re still seeing historically low levels of inflation, so it would take a lot of change for inflation to get out of control,” Bell added.

What a Difference a Year Makes …

Last year it was bad news was good for stocks and gold. This year, we’re back to good news is bad for those assets. Earlier today, the U.S. reported that weekly jobless claims were better than the forecast, a small sign of an improving labor market. However, with that kind of news, the market moved interest rates slightly higher on expectations of better economic growth. Traders reacted by dumping stocks.

For a look at all of today’s economic events, check out our economic calendar.

Asia-Pacific Shares Tumble on Resurgent Worries Over Rising US Bond Yields

The major Asia-Pacific stock indexes finish lower across the board on Thursday, led by a steep drop in technology shares, fueled by a similar move on Wall Street on Wednesday. The catalyst behind both moves was a rise in bond yields.

During the U.S. session, the 10-year Treasury yield ticked up to 1.47%, pressuring areas of the market with high valuations. It was still off last week’s peak of above 1.61% that roiled stock markets as investors bet on rising inflation.

Rising interest rates disproportionately hurt high-growth companies in both the U.S. and Asia because investors value them based on earnings expected years into the future, and high interest rates hurt the value of futures earnings more than the value of earnings made in the short-term.

In the cash market on Thursday, Japan’s Nikkei 225 Index settled at 28930.11, down 628.99 or -2.13%. Hong Kong’s Hang Seng Index finished at 29236.79, down 643.63 or -2.15% and South Korea’s KOSPI Index closed at 3043.49, down 39.50 or -1.28%.

In China, the Shanghai Index settled at 3503.49, down 73.41 or -2.06% and in Australia, the S&P/ASX 200 Index finished at 6760.70, down 57.30 or -0.84%.

Global Selling Trips Australian Shares

Australian shares fell on Thursday as renewed worries about rising U.S. bond yields soured risk sentiment globally.

The S&P/ASX 200 Index was also weighed down by miners Rio Tinto and BHP Group and supermarket chain Woolworths Group as they traded ex-dividend.

Tech stocks fell 1.5%, tracking a sell-off in U.S. peers. Buy-now-pay-later firm Afterpay slid more than 2%, while Xero Ltd shed 3%.

In economic news, Australia’s January retail sales increased 0.5% month on month on a seasonally adjusted basis, according to data published Thursday by the Bureau of Statistics. That compared against expectations for a 0.6% increase in a Reuters poll.

The country also recorded a trade surplus of 10.142 billion Australian Dollars (about $7.88 billion), higher than expectations in a Reuters poll for a 6.5 billion Australian Dollar trade surplus.

Hong Kong Stocks End Lower on Material, Tech Firms

Hong Kong shares dropped on Thursday, weighed down by losses in material and tech stocks, as equities globally retreated on renewed doubts over monetary support after another rise in U.S. Treasury yields. The sub-index of the Hang Seng tracking tech shares dipped 5.8%, while the IT sector dropped 5.3%, and the material sector ended 6.4% lower.

Japan’s Nikkei Hits 1-Month Low as US Futures Slump

Japan’s Nikkei Index on Thursday dropped to its lowest in one month, as investors sold off heavyweights including SoftBank Group and Fast Retailing, tracking a slump in U.S. futures during the Asian trade.

SoftBank Group fell 5.19% in the wake of news that British supply chain finance firm Greensill Capital, which is backed by the Japanese conglomerate, was in talks to sell large parts of its business.

“There are uncertainties in the move of U.S. bond yields, which has made the market outlook unclear,” said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.

For a look at all of today’s economic events, check out our economic calendar.

Eurozone Retail Sales Figures Deliver More Gloom for the EUR

it was a relatively busy start to the EU Session.

Retail sales figures and January’s unemployment rate for the Eurozone were in focus this morning.

The Stats

Retail sales slid by 5.9% in January, reversing a downwardly revised 1.8% increase from December. Economists had forecast a more modest 1.1% fall.

Year-on-year, retail sales fell by 6.4% across the Eurozone in January, which was worse than a forecasted 1.2% decline. In December, retail sales had risen by an upwardly revised 0.9%.

According to Eurostat,

  • Month-on-month, non-food product sales slid by 12.0%, with automotive fuel sales by 1.1%.
  • There was a 1.1% increase in the sales of food, drinks, and tobacco, however.
  • By member state, Austria (-16.6%), Ireland (-15.7%), and Slovakia (-11.1%) registered the largest falls.
  • Estonia registered the largest increase, rising by a relatively modest 1.7%.

While retail sales figures disappointed, the Eurozone’s unemployment rate held steady at 8.1% in January. December’s unemployment rate was revised down from 8.3% to 8.1%. Economists had based their forecasts on the 8.3% rate.

According to Eurostat,

  • While stable at 8.1%, this was up from January 2020’s 7.4%.

Ahead of today’s key stats, construction PMI figures from Germany had failed to impress. In February, the IHS Markit Construction PMI slid from 46.6 to 41.0.

Market Impact

Ahead of today’s stats, it was a bearish start for the EUR. Early in the day, the EUR fell back from a current day high $1.20663 to a pre-stat low $1.20271.

In response to the stats, however, the EUR moved from $1.20321 to a post-stat high $1.20361 before easing back.

While the retail sales were dire, the revised unemployment rate should provide some support.

At the time of writing, the EUR was down by 0.24% to $1.20324.

EURUSD 040321 Minute Chart

Next Up

Weekly jobless claims and factory order figures from the U.S.

US Stock Market: Response to Rising Yields Lays Groundwork for Volatile Reaction to Friday’s Jobs Report

The major U.S. stock indexes finished sharply lower on Wednesday with the rotation out of the high-flying technology stocks fueling the selling pressure. Although all of the indexes declined during the session, some investors moved money into sectors viewed as more likely to benefit from an economic recovery on the back of fiscal stimulus and vaccination programs.

In the cash market on Wednesday, the benchmark S&P 500 Index settled at 3819.72, down 50.57 or -1.31%. The blue chip Dow Jones Industrial Average finished at 31270.09, down 121.43 or -0.39% and the technology-driven NASDAQ Composite closed at 12997.75, down 361.04 or -2.70%.

Clashing Fundamentals Pressuring Growth Shares

Investors are receiving a dose of so-called positive news being perceived as negative news. Broadly speaking, we can all agree that the successful vaccination rollout and the steadily improving economy are positives, but at the same time, this news is driving up Treasury yields and expectations the Fed may opt to end its loose monetary policy sooner than expected. These conflicting factors are pressuring growth stocks, while driving investors into beat-up value plays.

The price action is essentially the opposite we saw nearly a year ago when the start of the pandemic and lockdowns drove up “stay at home” stocks while crushing the travel and leisure industry.

The thing is, everyone knew it was eventually going to happen, but the pace at which investors expect it to occur is shocking investors into selling aggressively. Generally speaking, everyone is getting rattled by the pace of the interest rate surge… all, except the Federal Reserve.

Someone Has to Be Right

Investors see the vaccine distribution as a positive for the economy and one reason why rates should be going up. The Federal Reserve also acknowledges that vaccinations are having a positive influence on yields. However, Fed policymakers aren’t willing to budge on policy because they are greatly worried about the weak performance in the labor market.

The U.S. economic recovery continued at a modest pace over the first weeks of this year, with businesses optimistic about the months to come and demand for housing “robust,” but only slow improvement in the job market, the Federal Reserve reported.

While vaccine distribution is expected to help the economy, data showed U.S. private employers hired fewer workers than expected in February according to ADP, suggesting the labor market was struggling to regain speed.

Meanwhile, another report showed U.S. services industry activity unexpectedly slowed in February amid winter storms, while a measure of prices paid by companies for inputs surged to the highest level in nearly 12-1/2 years.

The focus for traders now shifts to Friday’s U.S. Non-Farm Payrolls report, which could be a major market moving event.

Treasury Yield Watch

The U.S. 10-year Treasury yield ticked up to 1.47%, pressuring areas of the market with high valuations. It was still off last week’s peak of above 1.61% that roiled stock markets as investors bet on rising inflation.

The higher yields move the worse it may become for holders of high-growth tech companies because investors value them based on earnings expected years into the future, and high interest rates hurt the value of future earnings more than the value of earnings made in the short term.

Depending on how Friday’s jobs report turns out, yields could soar through 1.61% or come crashing toward 1.40%, meaning investors should start preparing for a volatile trading session.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: Economic Data and Bond Yields in Focus

Economic Calendar:

Thursday, 4th March

German IHS Markit Construction PMI (Feb)

ECB Economic Bulletin

Eurozone Retail Sales (MoM) (Jan)

Eurozone Unemployment Rate (Jan)

Friday, 5th March

German Factory Orders (MoM) (Jan)

The Majors

It was another relatively bullish day for the European majors on Wednesday.

The CAC40 and the DAX30 saw gains of 0.35% and 0.29% respectively, while the EuroStoxx600 ended the day flat.

It was a choppy session for the majors, which faced rising Treasury yields late in the European session. News that the U.S would have enough vaccine doses to vaccinate everyone in the U.S before the summer drove yields higher.

Earlier in the session, economic data from the Eurozone had delivered mixed results. While the February PMI numbers were largely better than expected, the Eurozone’s private sector continued to contract.

The Stats

It was a busy day on the economic calendar on Wednesday.  Service sector PMI numbers for Italy and Spain were in focus early in the European session.

Finalized service and composite PMI figures for France, Germany, and the Eurozone also provided the majors with direction.

In February, Spain’s services PMI increased from 41.7 to 43.1. Economists had forecast a rise to 43.0.

Service sector activity also continued to contract in Italy. In February, the Services PMI increased from 44.7 to 48.8, coming in ahead of a forecasted 46.0.

For France, the services PMI fell from 47.3 to 45.6 in February, which was up from a prelim 43.6.

German’s Services PMI fell from 46.7 to 45.7, which was down from a prelim 45.9.

It was a different story for the composite PMIs, however.

An impressive pickup in manufacturing sector activity in Germany led to a rise in the German composite from 50.8 to 51.1. This was down marginally from a prelim 51.3.

For France, the Composite fell from 47.7 to 47.0. This was up from a prelim 45.2, however.

The Eurozone

For the Eurozone, the Services PMI rose from 45.4 to 45.7 in February, which was better than a prelim 44.7.

As a result of better numbers from Italy and Spain, the Composite PMI rose from 47.8 to 48.8, an upward revision from a prelim 48.1.

According to the February survey,

  • The modest fall in activity was closely linked to a decline in new orders, which fell for a 5th consecutive month.
  • In spite of this, new export business increased at its strongest pace for nearly 3-years.
  • For the Eurozone, there was a net increase in employment for the 1st time in 12-months.
  • Input cost inflation was recorded for the 9th successive month and to the sharpest degree since the Nov-2018.
  • As a result, output charges rose for the first time since last February.
  • Optimism hit its highest level in 3-years, supported by the rollout of vaccines and easing of restrictions.

From the U.S

The market’s preferred ISM Non-manufacturing PMI and ADP nonfarm employment change figures were in focus late in the session.

In February, the ISM Non-Manufacturing PMI fell from 58.7 to 55.3. Economists had forecast for the PMI to hold steady at 58.7.

  • The Price Index rose from 64.2% to 71.8%, aligned with a marked pickup in inflationary pressures in other major economies.
  • Other sub-indexes were in decline, weighing on the headline PMI figures.
    • ISM Non-Manufacturing Business Activity Index fell from 59.9 %to 55.5%.
    • The Employment Index fell from 55.2% to 52.7%.
    • Finally, the New Orders Index slid from 61.8% to 51.9%.

The ADP Nonfarm Employment figures for February also disappointed, with employment rising by just 117k in February. Economists had forecast a 177k rise following a 195k increase in January.

The Market Movers

For the DAX: It was a bullish day for the auto sector on Wednesday. BMW (+4.54%), Continental (+4.49%), and Volkswagen (+4.67%) led the way, while Daimler trailed with a more modest 0.94% gain.

It was also a bullish day for the banks. Deutsche Bank ended the up by 1.62%, with Commerzbank gaining 1.02%.

From the CAC, it was a bullish day for the banks. BNP Paribas and Credit Agricole rose by 2.52% and by 2.46% respectively, with Soc Gen rallying by 3.62%.

It was a mixed day for the French auto sector, however. Stellantis NV slipped by 0.22%, while Renault rallied by 5.21%. While Stellantis closed out the day in the red, Stellantis delivered positive earnings and an optimistic outlook on Wednesday that supported the broader auto sector.

Air France-KLM eked out a 0.07% gain, with Airbus SE ending the day up by 1.37%.

On the VIX Index

It was a 2nd consecutive day in the green for the VIX on Wednesday. Following a 3.21% gain on Tuesday, the VIX rose by 10.66% to end the day at 26.67.

Rising U.S Treasury yields delivered the upside for the VIX, as the U.S equity markets responded to vaccine updates from the administration.

The NASDAQ slid by 2.70%, with the Dow and S&P500 falling by 0.39% and by 1.31% respectively.

VIX 040321 Daily Chart

The Day Ahead

It’s another busy day ahead on the European economic calendar. Key stats include retail sales and unemployment figures for the Eurozone, with the ECB Economic Bulletin due out ahead of the numbers.

While we can expect some market sensitivity to the numbers, expect the ECB Economic Bulletin to be the key driver early on.

With the ECB in action next week, the markets will be looking for clues on what to expect at the press conference. Inflation, the economic outlook, EUR strength, and their impact on monetary policy will likely be the main areas of focus.

From the U.S, the weekly jobless claims figures and January factory order numbers will also influence late in the European session.

The Futures

In the futures markets, at the time of writing, the Dow Mini was down by 45 points.

For a look at all of today’s economic events, check out our economic calendar.

The EUR Gives Up Early Gains Amidst another Data Dump from the Eurozone

It was yet another busy morning on the economic calendar, with Service and Composite PMIs from Spain and Italy in Focus.

Finalized PMIs for France, Germany, and for the Eurozone also provided direction.

The Member States

Spain

In February, Spain’s services PMI increased from 41.7 to 43.1. Economists had forecast an increase to 43.0.

According to the February Survey,

  • Business activity and new orders both continued to see marked declines.
  • Job losses continued to plague the sector and the economy, with workloads remaining depressed.
  • Cost inflation accelerated once more, hitting its highest level since last June.
  • In spite of the doom and gloom, optimism hit its highest level in over two-and-a-half years. Hopes that vaccination programs will bring an end to the pandemic supported optimism.

Italy

Service sector activity also continued to contract. In February, the Services PMI increased from 44.7 to 48.8, coming in ahead of a forecasted 46.0.

According to the February survey,

  • Business activity fell at the slowest pace in 5-months, with the level of new business stabilizing.
  • Looser COVID-19 restrictions had led to higher sales in some sectors, supporting new business.
  • Foreign demand for Italian services continued to decline, however, marking a 20th consecutive monthly contraction. The latest fall in new export orders was the slowest since last February.
  • Firms made further cuts to staffing levels, though the latest decline was the slowest in the current year-long sequence of decline.
  • Cost pressures continued to build, with the rate of cost inflation the most marked since last February.
  • In spite of this, firms continued to reduce their average charges.
  • Looking ahead, optimism was the most upbeat since May-2011, supported by hopes of the further easing of restrictions.

France and Germany

For France, the services PMI fell from 47.3 to 45.6 in February, which was up from a prelim 43.6.

German’s Services PMI fell from 46.7 to 45.7, which was down from a prelim 45.9.

It was a different story for the composite PMIs, however.

An impressive pickup in manufacturing sector activity in Germany led to a rise in the German composite from 50.8 to 51.1. This was down marginally from a prelim 51.3.

For France, the Composite fell from 47.7 to 47.0. This was up from a prelim 45.2, however.

The Eurozone

For the Eurozone, the Services PMI rose from 45.4 to 45.7 in February, which was better than a prelim 44.7.

The Composite PMI rose from 47.8 to 48.8, an upward revision from a prelim 48.1.

According to the February survey,

  • The modest fall in activity was closely linked to a decline in new orders, which fell for a 5th consecutive month.
  • In spite of this, new export business increased at its strongest pace for nearly 3-years.
  • For the Eurozone, there was a net increase in employment for the 1st time in 12-months.
  • Input cost inflation was recorded for the 9th successive month and to the sharpest degree since Nov-2018.
  • As a result, output charges rose for the first time since last February.
  • Optimism hit its highest level in 3-years, supported by the rollout of vaccines and easing of restrictions.

Comp PMI Feb

  • Italy joined Germany as the only nation to record modest growth of output during February. Strong manufacturing performances offset ongoing weakness in service industries for both.
  • Ireland recorded the sharpest contraction, followed by Spain and then France.

Market Impact

Ahead of today’s PMIs, the EUR had hit a current day high $1.21079, after having recovered from a pre-stat low $1.20790.

Through the release of the PMIs, however, the EUR slid to a current day low $1.20742 before finding support.

At the time of writing, the EUR was down by 0.04% to $1.20856

EURUSD 030321 Minute Chart

For the European boerses, today’s stats had a limited impact as the markets continued to respond to falling yields.

At the time of writing, the DAX30 was up by 0.90%, with the CAC40 and EuroStoxx600 up by 0.84% and by 0.69% respectively.

Next Up

ISM Non-Manufacturing PMI and finalized Market services and Composite PMIs from the U.S.

U.S ADP nonfarm employment change figures will also draw interest ahead of the PMIs.

Asia-Pacific Markets Post Solid Gains; Aussie Shares Higher after GDP Rose 3.1%

The major Asia-Pacific stock indexes were sharply higher on Wednesday as a private survey showed slowing services sector activity in China last month. Investors likely interpreted the news to mean the Chinese economy is not heating up as previously thought, thereby raising the possibility that current stimulus measures would be extended.

In the cash market on Wednesday, Japan’s Nikkei 225 Index settled at 29559.10, up 150.93 or +0.51%. Hong Kong’s Hang Seng Index is trading 29836.51, up 740.65 or +2.55% and South Korea’s KOSPI Index finished at 3082.99, up 39.12 or +1.29%.

China’s Shanghai Index settled at 3576.90, up 68.31 or +1.95% and Australia’s S&P/ASX 200 Index finished at 6818.00, up 55.70 or +0.82%.

China’s Services Sector Grows at Slowest Rate in 10 Months in February:  Caixin PMI

China’s services sector activity grew at its slowest pace in 10 months in February as firms struggled with sluggish demand and high costs, a private sector survey showed on Wednesday, prompting them to cut jobs.

The Caixin/Markit Services Purchasing Managers’ Index (PMI) fell to 51.5, the lowest since April, from 52.0 in January but remained above the 50-mark that separates growth from contraction on a monthly basis. Investors shrugged off the results from the report, expecting better numbers in the future.

“We expect manufacturing and services PMIs to recover in March, as the COVID-19 situation was quickly brought under control in recent weeks. Beijing may gradually relax some social distancing rules in coming months and some pent-up demand could be released,” Nomura wrote.

China Stocks Gain the Most in 3 Weeks on Growth Optimism

China stocks posted their biggest one-day gain in three weeks on Wednesday, led by banking and commodity shares, as hopes of domestic economic growth offset fears of tighter monetary policy. Some traders also attributed the market strength to bullishness ahead of the annual gathering of the National People’s Congress, which starts on Friday.

China’s top banking watchdog said on Tuesday regulators were studying effective measures to reduce the risk of foreign capital inflows. The remark is interpreted by some as pointing to Beijing’s little willingness to lift interest rates, a move that could invite more inflows.

Larry Hu, an economist at Macquarie Capital Ltd, said that there’s no need to worry about inflation in China. For 2021, we expect China to see reinflation, but not high inflation,” Hu wrote. “The reinflation trend is great news to COVID losers such as financials and industrial companies.”

Australia Shares Climb as Strong GDP Growth Cements Recovery Hopes

Australian shares climbed on Wednesday after a much faster-than-expected economic growth in the final quarter of 2020 cemented hopes of a stronger recovery this year. Data showed the economy accelerated 3.1% in the December quarter, higher than forecasts for a 2.5% rise.

A very low community transmission of COVID-19, coupled with massive and timely fiscal and monetary stimulus, has led to a strong rebound in the economy.

“The big picture is that while the initial recovery through the first half of 2021 may still be subject to air-pockets and jobs vulnerabilities linger…Australia is unambiguously on a surer path to sustained recovery,” Mizuho analysts said in a note.

For a look at all of today’s economic events, check out our economic calendar.

European Equities: Service PMIs from the Eurozone and the U.S in Focus

Economic Calendar:

Wednesday, 3rd March

Spanish Services PMI (Feb)

Italian Services PMI (Feb)

French Services PMI (Feb) Final

German Services PMI (Feb) Final

Eurozone Markit Composite PMI (Feb) Final

Eurozone Services PMI (Feb) Final

Thursday, 4th March

German IHS Markit Construction PMI (Feb)

ECB Economic Bulletin

Eurozone Retail Sales (MoM) (Jan)

Eurozone Unemployment Rate (Jan)

Friday, 5th March

German Factory Orders (MoM) (Jan)

The Majors

It was a relatively bullish day for the European majors on Tuesday.  The EuroStoxx600 and DAX30 both rose by 0.19% respectively, with the CAC40 ending the day up by 0.29%.

Disappointing economic data from the Eurozone failed to peg back the European majors that had kicked off the day in the red.

An easing in government bond yields continued to deliver support, with no major stats from the U.S to rock the boat.

Optimism of a speedy economic recovery remained the key driver, with economies supported by both fiscal and monetary policy and vaccination rollouts.

The Stats

It was a relatively busy day on the economic calendar on Tuesday. Retail sales and unemployment figures from Germany were in focus early in the session.

Later in the morning, prelim February inflation figures for the Eurozone also drew interest.

German Retail Sales and Unemployment

Month-on-month, retail sales fell by 4.5% in January, following an upwardly revised 9.1% slide in December. Economists had forecast a more modest 0.3% decline.

According to Destatis,

  • Year-on-year, retail sales was down by 8.7% in January. In December, retail sales had risen by 2.8%.
  • Compared with Feb-2020, the month prior to the COVID-19 outbreak, turnover was 5.8% lower.

In February, unemployment rose by 9k, partially reversing a 37k fall in January. In spite of the rise, the unemployment rate held steady at 6.0%.

Economists had forecast a 13k fall in unemployment and for the unemployment rate to hold steady at 6.0%.

Eurozone Inflation

The annual core rate of inflation softened from 1.4% to 1.1% in February, according to prelim figures. Economists had forecast for inflation to hold at 1.4%.

The annual rate of inflation held steady at 0.9%, however, which was in line with forecasts.

According to Eurostat,

  • Food, alcohol & tobacco is expected to have the highest annual rate (1.4% compared with 1.5% in January).
  • Services is forecasted to have an annual rate of 1.2% compared with 1.4% in January.
  • Non-energy industrial goods are expected to see its annual rate soften from 1.5% to 1.0%.
  • Energy remained a drag, with an expected annual rate of -1.7% compared with -4.2% in January.

From the U.S

There were no material stats to provide the European majors with direction later in the day.

The Market Movers

For the DAX: It was another mixed day for the auto sector on Tuesday. Daimler rallied by 2.34%, with BMW and Volkswagen seeing gains of 0.29% and 0.76% respectively. Continental saw red once more, however, falling by 0.89%.

It was also a mixed day for the banks. Deutsche Bank ended the day flat, while Commerzbank rose by a modest 0.33%.

From the CAC, it was a mixed day for the banks. BNP Paribas and Credit Agricole rose by 2.68% and by 1.66% respectively, while Soc Gen fell by 0.24%.

It was another bearish day for the French auto sector. Stellantis NV and Renault ended the day with losses of 0.06% and 0.57% respectively.

Air France-KLM fell by 0.96%, with Airbus SE ending the day down by 1.57%.

On the VIX Index

It was back into the green, following 2nd consecutive day in the red, for the VIX on Tuesday. Partially reversing a 16.46% slide from Monday, the VIX rose by 3.21% to end the day at 24.10.

The NASDAQ slid by 1.69%, with the Dow and S&P500 falling by 0.46% and by 0.81% respectively.

VIX 03321 Daily Chart

The Day Ahead

It’s another busy day ahead on the European economic calendar. Key stats include Italian and Spanish service PMI figures for February.

Finalized PMIs for France, Germany, and the Eurozone are also due out.

Barring marked revisions to prelim figures, Italy and the Eurozone’s PMIs will have the greatest impact on the majors.

Expect the stats to draw plenty of interest early in the European session.

From the U.S, the market’s preferred ISM Non-Manufacturing PMI and ADP nonfarm employment change figures will also provide direction later in the day.

Ahead of the European open, service and composite PMI numbers from China will set the tone.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 34 points.

For a look at all of today’s economic events, check out our economic calendar.

Economic Data from Germany Tests EUR Support Ahead of Inflation Figures

It was a relatively busy morning on the economic calendar, with economic data from Germany and the Eurozone in focus.

Consumer Spending

After a string of positive stats from Germany and the Eurozone in recent days, retail sales disappointed this morning.

Month-on-month, retail sales fell by 4.5% in January, following an upwardly revised 9.1% slide in December. Economists had forecast a more modest 0.3% decline.

According to Destatis,

  • Year-on-year, retail sales was down by 8.7% in January. In December, retail sales had risen by 2.8%.
  • Compared with Feb-2020, the month prior to the COVID-19 outbreak, turnover was 5.8% lower.

Unemployment

Unemployment figures from Germany were mixed, following the disappointing retail sales figures.

In February, unemployment rose by 9k, partially reversing a 37k fall in January. In spite of the rise, the unemployment rate held steady at 6.0%.

Economists had forecast a 13k fall in unemployment and for the unemployment rate to hold steady at 6.0%.

Market Impact

In response to the retail sales figures, the EUR slipped from 1.20224 to a low $1.19990 before steadying.

German unemployment figures added further downside pressure, leading the EUR back down from a post-retail-sales high $1.20163 to a current day low $1.19919 upon release of the figures.

At the time of writing, the EUR was down by 0.41% to $1.19984. Earlier in the day, the EUR had struck a pre-stat current day high $1.20504 before hitting reverse.

EURUSD 020321 Minute Chart

In spite of the disappointing numbers, the European boerses recovered from early losses.

At the time of writing, the DAX30 was up by 0.20%, with the CAC40 and EuroStoxx600 up by 0.15% and by 0.14% respectively.

Next Up

Prelim February inflation figures for the Eurozone…

European Equities: Economic Data from Germany and Eurozone Inflation in Focus

Economic Calendar:

Tuesday, 2nd March

German Retail Sales (MoM) (Jan)

German Unemployment Change (Feb)

German Unemployment Rate (Feb)

Eurozone CPI (YoY) (Feb) Prelim

Wednesday, 3rd March

Spanish Services PMI (Feb)

Italian Services PMI (Feb)

French Services PMI (Feb) Final

German Services PMI (Feb) Final

Eurozone Markit Composite PMI (Feb) Final

Eurozone Services PMI (Feb) Final

Thursday, 4th March

German IHS Markit Construction PMI (Feb)

ECB Economic Bulletin

Eurozone Retail Sales (MoM) (Jan)

Eurozone Unemployment Rate (Jan)

Friday, 5th March

German Factory Orders (MoM) (Jan)

The Majors

It was a bullish start to the week for the European majors on Monday.  The EuroStoxx600 rose by 1.80%, with the CAC40 and the DAX30 gaining 1.57% and 1.64% respectively.

Economic data from the Eurozone provided support to the European majors on the day.

The upside ultimately, however, came as a result of a calming across the bond markets at the start of the week.

COVID-19 vaccine news also supported demand for the European majors following last week’s pullback. Johnson & Johnson’s single dose vaccine delivery should bring a nearer end to containment measures.

Disappointing private sector PMI numbers out of China on the weekend and head of the European open on Monday failed to peg the majors back.

The Stats

It was a particularly busy day on the economic calendar on Monday, with manufacturing sector activity and inflation in focus.

Manufacturing PMIs

Spain’s manufacturing PMI rose from 49.3 to 52.9, with Italy’s manufacturing PMI increasing from 55.1 to a 37-month high 56.9. For Spain, it was the highest reading since Jul-2020.

Finalized numbers from France and Germany were also better than prelim figures.

The French manufacturing PMI rose from 51.6 to 56.1 in February, revised up from a prelim 55.0.

German manufacturing sector activity also came in better than initially expected. In February, the PMI rose from 57.1 to 37-month high 60.7, revised up from a prelim 60.6.

As a result of the pickup in member state manufacturing sector activity, the Eurozone’s manufacturing PMI increased from 54.8 to 57.9. This was up from a prelim 57.7/

According to the Eurozone’s finalized manufacturing Market Survey,

  • Operating conditions improved to the greatest degree for 3-years.
  • All 3 broad market groups recorded an improvement in operation conditions.
  • Investment goods producers registered the strongest growth (best since Jan-2018), followed by intermediate goods.
  • Consumer goods recorded relatively modest growth but the most marked since Sep-2020.
  • Manufacturing sector growth was broad-based, with the exception of Greece.
  • Germany and the Netherlands continued to sit at the top of the table, with export gains remaining particularly strong.
  • Austria recorded the best performance in 3-years, whilst France and Italy saw the most marked gains since the beginning of 2018.
  • Spain and Ireland recorded relatively modest growth, however.

Inflation

On the inflation front, Italian consumer prices rose by 0.1%, month-on-month, according to prelim February figures. In January, consumer prices had risen by 0.7%.

The annual rate of inflation, however, ticked up from 0.4% to 0.6% in February. Economists had forecast an annual rate of inflation of -0.1%

In Germany, consumer prices increased by 0.7%, month-on-month, following a 0.8% rise in January. Economists had forecast a 0.5% increase.

According to Destatis,

  • The annual rate of inflation accelerated from 1.0% to 1.3% in February, coming in ahead of a forecasted 1.2%.
  • Prices for services increased by 1.4%, year-on-year, while prices for goods increased by a more modest 1.0%.
  • Energy prices increased by 0.3% after having fallen by 2.3% in January, year-on-year.
  • Food prices rose by 1.4% softening from a 2.2% increase in January.

From the U.S

It was a relatively busy day, with the ISM Manufacturing PMI for February the key stats of the day. Finalized Market manufacturing PMI figures were also in focus though had a muted impact on the markets.

In February, the ISM Manufacturing PMI rose from 58.7 to 60.8 in February, coming in ahead of a forecasted 58.8.

  • The new orders index increased by 3.7 percentage points to 64.8%, with the production index rising from 60.7% to 63.2%.
  • Supporting new orders was a pickup in new export orders. The new export orders index increased by 2.3 percentage points to 57.2%.
  • Labor market conditions across the sector also improved, with the Employment Index rising by 1.8 percentage points to 54.4%.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Monday. Volkswagen rose by 1.54%, with BMW and Daimler seeing gains of 0.68% and 0.562% respectively. Continental saw red once more, however, falling by 0.63%.

It was a bullish day for the banks, however. Deutsche Bank rallied by 2.37%, with Commerzbank rising by 0.52%.

From the CAC, it was a mixed day for the banks. BNP Paribas fell by 0.28%, while Credit Agricole and Soc Gen gained 1.42% and 1.19% respectively.

It was also a bullish day for the French auto sector. Stellantis NV rallied by 3.52%, with Renault ended the day up by 1.37%.

Air France-KLM found even more support, rising by a further 0.90%, with Airbus SE rallying by 4.97%.

On the VIX Index

It was a 2nd consecutive day in the red for the VIX on Monday. Following a 3.25% fall from Friday, the VIX slid by 16.46% to end the day at 23.35.

A rebound across the U.S equity markets supported by a pullback in U.S Treasury yields supported the fall in the VIX on the day.

The NASDAQ and S&P500 rallied by 3.01% and by 2.38% respectively, with Dow rising by 1.95%.

VIX 02321 Daily Chart

The Day Ahead

It’s another busy day ahead on the European economic calendar. Key stats include German retail sales, unemployment, and prelim February inflation figures for the Eurozone.

Expect the stats to draw plenty of interest early in the European session.

From the U.S, there are no material stats to provide the majors with direction.

The lack of stats from the U.S will leave the European majors in the hands of chatter from Capitol Hill.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 38 points.

For a look at all of today’s economic events, check out our economic calendar.

The EUR Hits Reverse in Spite of Impressive Manufacturing PMIs for February

It was a busy morning on the economic calendar, with economic data from France, Germany, Italy, Spain, and the Eurozone in focus.

Manufacturing Sector Activity

It was another positive set of numbers this morning.

Spain’s manufacturing PMI rose from 49.3 to 52.9, with Italy’s manufacturing PMI increasing from 55.1 to a 37-month high 56.9. For Spain, it was the highest reading since Jul-2020.

Finalized numbers from France and Germany were also better than prelim figures.

The French manufacturing PMI rose from 51.6 to 56.1 in February, revised up from a prelim 55.0.

In February, Germany’s manufacturing PMI rose from 57.1 to 37-month high 60.7, revised up from a prelim 60.6.

As a result of the pickup in member state manufacturing sector activity, the Eurozone’s manufacturing PMI increased from 54.8 to 57.9. This was up from a prelim 57.7.

According to the Eurozone’s finalized manufacturing Market Survey,

  • Operating conditions improved to the greatest degree in 3-years.
  • All 3 broad market groups recorded an improvement in operation conditions.
  • Investment goods producers registered the strongest growth (best since Jan-2018), followed by intermediate goods.
  • Consumer goods recorded relatively modest growth but the most marked since Sep-2020.
  • Manufacturing sector growth was broad-based, with the exception of Greece.
  • Germany and the Netherlands continued to sit at the top of the table, with export gains remaining particularly strong.
  • Austria recorded the best performance in 3-years, whilst France and Italy saw the most marked gains since the beginning of 2018.
  • Spain and Ireland recorded relatively modest growth, however.

PMI Table Feb-2021

The details:

  • Both output and new orders drove the manufacturing PMI higher for the Eurozone.
  • In both cases, the upticks were the best since October’s recent peaks.
  • Higher exports, the strongest since Jan-2018, were a key driver to overall new order gains.
  • Input costs rose sharply, with inflation reaching its highest level in nearly a decade.
  • As a result of improving demand, however, firms were able to pass some of the higher expenses to clients.
  • Output prices rose at the sharpest rate since Apr-2018.
  • On the employment front, staffing levels increased for the first time in nearly 2-years.
  • Confidence about the future continued to strengthen, with optimism hitting hits highest ever level in February.

Market Impact

Through the release of today’s stats, the EUR fell from $1.20706 to a current day low $1.20446.

At the time of writing, the EUR was down by 0.21% to $1.20451. Earlier in the day, the EUR had struck a current day high $1.21012 before hitting reverse.

EURUSD 010321 Minute Chart

While the EUR was under pressure, it was a different story for the European boerses, which made further progress following the release of the numbers.

At the time of writing, the DAX30 was up by 1.28%, with the CAC40 and EuroStoxx600 up by 1.64% and by 1.75% respectively.

For the European majors, the early gains came in spite of PMI numbers from China disappointing. While manufacturing sector growth was slower, firms were particularly optimistic about what lies ahead…

Next Up

Prelim inflation figures from Italy and Germany ahead of ISM Manufacturing numbers from the U.S. Finalized Market PMI numbers are also due out of the U.S but should have a muted impact on the European majors.

European Equities: Manufacturing PMIs and Prelim Inflation Figures in Focus

Economic Calendar:

Monday, 1st March

Spanish Manufacturing PMI (Feb)

Italian Manufacturing PMI (Feb)

French Manufacturing PMI (Feb) Final

German Manufacturing PMI (Feb) Final

Eurozone Manufacturing PMI (Feb) Final

Italian CPI (MoM) (Feb) Prelim

German CPI (MoM) (Feb) Prelim

Tuesday, 2nd March

German Retail Sales (MoM) (Jan)

German Unemployment Change (Feb)

German Unemployment Rate (Feb)

Eurozone CPI (YoY) (Feb) Prelim

Wednesday, 3rd March

Spanish Services PMI (Feb)

Italian Services PMI (Feb)

French Services PMI (Feb) Final

German Services PMI (Feb) Final

Eurozone Markit Composite PMI (Feb) Final

Eurozone Services PMI (Feb) Final

Thursday, 4th March

German IHS Markit Construction PMI (Feb)

ECB Economic Bulletin

Eurozone Retail Sales (MoM) (Jan)

Eurozone Unemployment Rate (Jan)

Friday, 5th March

German Factory Orders (MoM) (Jan)

The Majors

It was a bearish end to the week for the European majors on Friday. The CAC40 and EuroStoxx600 slid by 1.39% and by 1.64% respectively, with the DAX30 declining by 0.67%.

Following a string of better-than-expected stats in the week, economic data from France disappointed on Friday.

The downside for the majors, however, came from market fears of a shift in central bank policy rather than weak stats.

A continued rise in government bond yields, fueled by reinflationary fears and the need for action did the damage.

The market angst continued in spite of ECB President Lagarde and FED Chair Powell attempting to comfort the markets in the week.

The Stats

It was a relatively quiet day on the economic calendar on Friday, with the French economy in the spotlight.

In January, consumer spending slumped by 4.6%, month-on-month, partially reversing December’s 22.4% rebound. Economists had forecast a 3.5% decline.

According to Insee.fr,

  • The consumption of manufactured goods tumbled by 12.9%.
    • Durable goods purchases fell by 9.9%, with spending on clothing and textiles sliding by 27.8%.
    • The 27.8% slide in spending on clothing and textiles left spending down by 14.4% year-on-year.
    • Other manufactured goods purchases fell by a relatively more modest 7.7%.
  • Energy consumption rose by 6.3%, however, with food consumption increasing by 1.7%. The upside in energy consumption was attributed to colder weather conditions.

4th quarter GDP numbers were also market negative. According to 2nd estimates, the economy contracted by 1.4%, quarter-on-quarter, revised down from a 1st estimate 1.3%.

Prelim inflation figures were not much better. In February, consumer prices fell by 0.1%, partially reversing a 0.2% rise from January.

From the U.S

It was a relatively busy day, with inflation and personal spending figures the key stats of the day.

Personal spending jumped by 2.4%, reversing a 0.4% decline from December. The numbers supported the more optimistic economic outlook.

Inflationary pressures also picked up in January. The FED’s preferred Core PCE Price Index rose by 1.5%. In December, the index had risen by 1.4%.

The Market Movers

For the DAX: It was a mixed day for the auto sector on Friday. Volkswagen and Daimler saw gains of 1.92% and 1.47% respectively, with BMW rising by 0.90%. Continental saw red, however, falling by 0.04%.

It was a particularly bearish day for the banks, however. Deutsche Bank fell by 2.67%, with Commerzbank sliding by 3.07%.

From the CAC, it was a bearish day for the banks. BNP Paribas slid by 2.06%, with Credit Agricole and Soc Gen falling by 1.57% and by 1.84% respectively.

It was also a bearish day for the French auto sector. Stellantis NV and Renault ended the day down by 0.86% and by 0.62% respectively.

Air France-KLM continued its recovery, rising by a further 1.23%, while Airbus SE slid by 3.05%.

On the VIX Index

It was back into the red for the VIX, delivering a 4th loss in 9 sessions, with the downside coming in spite of the S&P500 seeing red on the day.

Partially reversing a 35.38% jump from Thursday, the VIX fell by a relatively modest 3.25% to end the day at 27.95.

The NASDAQ rose by 0.56%, while the Dow and the S&P500 fell by 1.50% and by 0.48% respectively.

VIX 01321 Daily Chart

The Day Ahead

It’s a busy start to the week. February manufacturing PMI numbers for Italy and Spain are due out.

Finalized PMI numbers are also due out for France, Germany, and the Eurozone.

Barring material deviation from prelims, expect Italy and the Eurozone’s PMIs to have the greatest impact.

Later in the day, prelim inflation figures from Italy and Germany are also due out. Another pickup in inflation and the European majors could come under pressure ahead of the U.S open.

From the U.S, February’s ISM Manufacturing PMI and finalized Market PMI figures are also due out. Expect the ISM figure to have the greatest impact on the European majors.

Ahead of the European open, private sector PMI numbers from China will set the tone. From the weekend, the NBS PMIs disappointed ahead of this morning’s more influential Caixin Manufacturing PMI.

The Futures

In the futures markets, at the time of writing, the Dow Mini was up by 46 points.

For a look at all of today’s economic events, check out our economic calendar.

Asia-Pacific Indexes: Post Weekly Losses as Global Bond Yield Surge Wreaks Havoc

The major Asia-Pacific stock indexes finished lower last week as investors followed Wall Street lower with a selling spree driven by a U.S. Treasury bond yield surge.

Hong Kong stocks posted their worst week in a year, while worries about central bank tightening and new corporate regulations pressured Chinese shares. Foreigners were net sellers of Japanese stocks on the yields rise, but the Bank of Japan took advantage of the stock market rout with an ETF buy for the first time this month.

South Korean shares posted their worst weekly performance in nearly 2-1/2 years as the bond yields surge crushed demand for technology stocks. Australian shares also tumbled on firmer bond yields and a plunge in technology and miners shares.

Cash Market Performance

In the cash market last week, Japan’s Nikkei 225 Index settled at 28966.01, down 1051.91 or -3.50%. South Korea’s KOSPI Index finished at 3012.95, down 94.67 or -3.05% and Hong Kong’s Hang Seng Index closed at 28980.21, down 1664.52 or -5.43%.

In China, the Shanghai Index settled at 3509.08, down 187.19 or -5.06% and in Australia, the S&P/ASX 200 Index finished at 6673.30, down 120.50 or -1.77%.

Hong Kong Stocks Post Worst Week in One Year as Bond Yields Surge

Hong Kong stocks ended sharply lower last week, in line with broader markets, posting their worst week in one year, as a rout in global bonds sent yields flying and dampened appetite for risky assets.

For the week, HSI tumbled 5.4%, while HSCE slumped 7.1%, both logging their steepest drops since the week to March 13, 2020.

Earlier in the week, Hong Kong shares posted their worst daily performance in more than nine months on Wednesday after the city announced a hike in stamp duty on stock trading, prompting huge outflows of mainland cash.

China Shares Slump Most in Seven Months as Tightening Fears Mount

Chinese shares closed lower last week, with the benchmark stock index witnessing its biggest daily drop in seven months, as investors worried about high valuations amid growing concerns of tightening in policies.

China’s benchmark index lost ground over policy-tightening worries, after advancing to a more than 13-year high in February on optimism around the country’s economic recovery. That is despite indications that while the central bank will scale back support for the economy in 2021 and cool credit growth, fears of debt defaults and a derailed recovery will prevent it from tightening any time soon.

Nikkei Drops to Near 3-week Low as Spike in Bond Yields Spooks Investors

Japanese shares slumped last week, while logging their biggest daily decline in nearly a year, after a spike in global bond yields spooked investors already uneasy about the market’s stretched valuation.

Helping to possibly curb the selling pressure, the Bank of Japan bought exchange-traded funds (ETFs) on Friday for the first time this month as Tokyo stock prices slumped, data showed, in a sign the central bank is becoming more flexible with its asset purchases.

The BOJ bought 5 million yen ($47,068) worth of ETFs on Friday, central bank data showed. Some analysts saw the BOJ’s moves in February as a prelude to what may come out of a March review of its policy tools to make its asset-buying program more nimble.

For a look at all of today’s economic events, check out our economic calendar.