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Futures, Global Stocks Extend Gains To End Volatile Week

Futures, Global Stocks Extend Gains To End Volatile Week

S&P index futures ticked higher on Friday, alongside European and Asian stocks, and building on Thursday’s strong gains as bullish investor sentiment got a boost from strong global.

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Futures, Global Stocks Extend Gains To End Volatile Week

S&P index futures ticked higher on Friday, alongside European and Asian stocks, and building on Thursday's strong gains as bullish investor sentiment got a boost from strong global PMI surveys while reflation fears faded. Oil climbed while treasury yields and the dollar were little changed. Dow e-minis were up 150 points, or 0.4%, S&P 500 e-minis were up 18 points, or 0.43%, and Nasdaq 100 e-minis were up 51 points, or 0.4%.

Wall Street’s rebounded on Thursday following a three-day slump after data showed the fewest weekly jobless claims since the recession in 2020. The risk recovery was led by FAAMG gigacaps as inflation fears appear to have now peaked, putting the Nasdaq on course to snap a four-week losing streak as worries over higher interest rates weighed on the tech-heavy index.

“We believe there is still an upside story to be told,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “Beneficiaries of reflation, like financials and energy, still have ‘catch up’ potential, while the relative near-term case for mega-cap tech is less clear.”

The S&P 500 and the Dow were headed for second straight weekly declines, after a volatile week, with euphoria cooling as minutes from the latest Federal Reserve meeting flagged the possibility of a debate at some point on scaling back stimulus measures. Still, better-than-forecast jobless claims data on Thursday buoyed sentiment. Here are some of the biggest Friday movers in the US:

  • Tesla shares dropped after Bank of America cut its price target from $900 to $700.
  • AT&T shares rose 1.4% after an upgrade to buy at both UBS and New Street Research following company’s deal with Discovery to spin off its media business.
  • Datadog shares gain 3.3% premarket after the software company is upgraded to overweight from equalweight at Morgan Stanley, which says the company is serving a critical role in helping companies switch to cloud operating models.
  • Virgin Galactic shares gained 3.3% after being upgraded to buy from neutral at UBS, which says the “price is right” for the space tourism company.
  • Deere & Co gained 2.4% after the farm equipment manufacturer raised its full-year profit forecast.
  • Foot Locker gains 3.4% premarket after reporting comparable sales and earnings for the first quarter that beat the average analyst estimate.
  • Palo Alto Networks’ growth outlook is not fully-reflected in the cyber security firm’s shares, analysts say after the group raised its earnings forecasts alongside quarterly results Thursday. The stock gains 6% premarket
  • Buckle shares rise 9% premarket after the retailer reported first quarter net sales that more than doubled from the prior year period

Bitcoin hovered around $40,000, pausing its attempt to recover from this week’s massive plunge. Cryptocurrency-related stocks Coinbase Global, Riot Blockchain and Marathon Digital Holdings firmed 0.7% and 2%.

European equities rebounded from a modest loss and were near their best levels of the day, up 0.5% as all sectors gained, led higher by consumer products, autos and travel & leisure names. The FTSE MIB outperformed marginally.  Euro zone business growth accelerated at its fastest pace in over three years in May, as a strong resurgence in the bloc’s reopening service industry added to the impetus from an already-booming manufacturing sector, a survey showed on Friday.

With more businesses reopening, Markit’s flash Composite Purchasing Managers’ Index climbed to 56.9 from April’s final reading of 53.8. That was its highest level since February 2018 and comfortably above the 50 mark separating growth from contraction, as well as the more modest increase to 55.1 predicted in a Reuters poll.

“May’s increase in the euro zone Composite PMI reflects the further lifting of virus restrictions in many parts of the region and suggests that the economic recovery is now underway,” said Jessica Hinds at Capital Economics. In Germany, Europe’s largest economy, services activity rose by the most in nearly a year, helped by a loosening of restrictions. But supply bottlenecks in manufacturing led to production problems at a growing number of factories. The lifting of a lockdown in France unleashed a business boom there, with activity surging past expectations to set the stage for an economic rebound.

Here are some of the biggest European movers today:

  • Richemont shares advance as much as 6.4% to a record after fiscal FY results impressed investors, with analysts predicting the Cartier owner will continue benefiting from pent-up demand for jewels as consumers splash out in the pandemic aftermath.
  • Travis Perkins rises as much as 3.3%, hitting the highest intraday since December 2019. The building materials distributor’s sale of its plumbing and heating business will allow it to focus on its core growth drivers with its end- markets in good health, analysts say.
  • PKO advances as much as 3.8% after Poland’s de facto leader Jaroslaw Kaczynski said the next chief executive officer of the state-controlled lender will be picked from among members of its current management.
  • Card Factory tumbles as much as 16% after the U.K. retailer said it plans to use its “best efforts” to raise net equity proceeds of GBP70m to help with prepayments of bank loans.

Earlier in the session, Asian stocks rose capping a weekly gain, as a recovery in the technology sector helped lift shares in Japan and Taiwan. Chipmakers TSMC and Samsung Electronics were among the biggest boosts to the MSCI Asia Pacific Index, lifted by a tech-driven rebound in the U.S. overnight. A drop in U.S. initial jobless claims shifted investor focus back to prospects for a global economic recovery. A gauge of Asian tech stocks was poised for a weekly gain of over 2.5%, clawing back a sizable chunk of its 5.9% slide last week amid fears of inflation sparked by rising commodities prices. “With inflation fears ebbing, equity markets may resume rallying,” Oanda Asia Pacific analyst Jeffrey Halley wrote in a note. “I do not believe the inflation story is over, but I do accept it may be over for now. It shall return, but of one thing I am sure, we do not yet know if it will be transitory or sticky, for the first time in over 20 years.” Taiwan’s tech-heavy benchmark gained to cap a weekly advance of 3%, bouncing back after last week’s 8.4% tumble. Japanese stocks rose, helped by government approval of two additional coronavirus vaccines as well as gains in electronics makers. Indian equities also traded notable higher, helping offset losses in China and underperformance in Hong Kong. Tencent fell as much as 4.2%, dragging down a regional gauge of communications companies, after the internet giant announced plans to sharply increase spending to fend off competition.

Offsetting broader Asian bullishness, Chinese stocks fell, with broad-based declines led by financial and health care stocks. The CSI 300% Index closed down 1%, reversing an earlier rise of 0.6%. Still, the benchmark clocked its second straight week of gains with a 0.5% increase, as investors see shares bottoming out following a technical correction. Financial stocks had their worst day since April 30 while health care shares slid, dragged down by vaccine makers. Materials extended their declines to a third day, the longest streak in two months, reflecting lingering concern over the government’s pledge to curb commodity prices. Chongqing Zhifei Biological Products was the biggest drag on the main gauge, followed by financial service provider East Money Information, Walvax Biotechnology and China Merchants Bank. The earnings recovery story is not sufficient for a strong market rebound in the near term, while the peaking of China’s credit and business cycles will put downward pressure on market sentiment starting this quarter, Daiwa analyst Patrick Pan wrote in a note Thursday. Friday’s drop in stocks came as Chinese bonds advanced, with the yield on 10-year government bonds set for its lowest in more than eight months. Separately, foreign investors sold a net 578 million yuan of A shares via the trading link with Hong Kong, after an outflow of 1.5 billion yuan the previous day. In Hong Kong, Tencent shares fell 3.4%, most since April 7, after the conglomerate’s planned investment ramp-up prompted brokerage CICC to lower its earnings estimates. The Hang Seng Index closed little changed ahead of an announcement Friday of the details of a wide-ranging overhaul of Hong Kong’s equity benchmark

Japanese stocks rose to complete a weekly gain after a rally on Wall Street and a government panel’s approval of two coronavirus vaccines helped pull the market further back from the brink of a technical correction. Electronics makers and service providers were the biggest boosts to the Topix, which capped a weekly advance of 1.1%. Fast Retailing Co. and Tokyo Electron Ltd. gave the most support to the Nikkei 225 Stock Average, helping to pare its drop from a February peak to 7.1%. “Japanese stocks are tracking U.S. equities higher” and Applied Materials’ earnings are helping chip stocks, said Tetsuo Seshimo, a fund manager at Saison Asset Management Co. in Tokyo. Also, “Moderna and AstraZeneca vaccine approval overnight is helping support the Japanese equity markets.” Moderna is considering making its Covid-19 vaccine in Asia and may seek production contracts or license agreements with Japanese companies, the Nikkei reported, citing an interview with Chief Executive Officer Stephane Bancel. A government panel in Japan has approved the use of Moderna and AstraZeneca’s vaccines

In FX, the Bloomberg Dollar Spot Index hovered and the greenback traded mixed versus its Group-of-10 peers. The euro was little changed versus the dollar; it earlier fell and German bonds advanced, sending the 10-year yield to the lowest since Tuesday, after manufacturing PMI for Europe’s powerhouse missed the median estimate. The pound reversed a rally that had followed better- than-expected than U.K. retail sales data, only to recover shortly after PMI data (U.K. retail sales rose 9.2% m/m in April; est. +4.5%; U.K. May Flash Composite PMI 62 vs est 61.9). Australia’s dollar slid under weight of leveraged selling and iron ore’s third-straight decline; the nation’s bonds extended gains, aided by a rally in N.Z. debt that kicked off after the RBNZ kept QE unchanged amid strong long-end auction demand.

In rates, Treasuries were slightly cheaper across the curve with the 10Y Treasury yield near flat at 1.625%, in line with gilts and ~1bp cheaper vs bunds; most curve spreads marginally steeper, within a basis point of Thursday’s close. Long-end lags, with 30-year yields cheaper by around 1bp. Bunds outperforming after May manufacturing PMI fell more than expected. Asia-session futures flows included curve flattener via block trades in TY and US contracts. China’s bonds extended gains, with the yield on 10-year government bonds declining to the lowest level since September, as interbank borrowing costs declined. The yield on 10-year Chinese sovereign bonds fall 2bps to 3.07% after touching 3.06%, the lowest since September; Futures on the notes jump 0.3% to highest since August.

In commodities, Brent oil trimmed its biggest weekly decline since March. Brent oil was heading for the biggest weekly decline since March, with the market bracing for the prospect of more Iranian crude flows as the nation inches closer to a revived nuclear deal. Gold was unchanged trading at $1,878/oz. Copper slipped 0.3% to $10,019 a tonne on the LME, down 2.1% on the week. "It's the potential risk of Chinese authorities clamping down on prices that seems to be the catalyst for the turnaround this week," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen. "The turnaround you could argue was overdue. The market had almost gone vertical during the past month and so we seem to be entering a consolidation phase right now." Hansen said a further leg of the correction could take LME copper down to about $9,600 a tonne.

Aluminium gained 1.3% to $2,428 a tonne as a consultancy forecast that almost 1 million tonnes of smelting capacity in drought-hit Yunnan province in southwest China could be shut temporarily owing to restrictions on electricity supply.

To the day ahead now, and the main highlight will be the release of the aforementioned flash PMIs from Europe and the US. Other releases include UK retail sales for April, US existing home sales for April, and the Euro Area’s advance consumer confidence reading for May. From central banks, we’ll hear from ECB President Lagarde, and the Fed’s Kaplan, Bostic, Barkin and Daly. There’s also an earnings release from Deere & Company.

Market Snapshot

  • S&P 500 futures up 0.24% to 4,164.00
  • STOXX Europe 600 +0.27% to 443.10
  • German 10Y yield fell 1.4 bps to -0.122%
  • Euro little changed at $1.2224
  • MXAP up 0.3% to 204.49
  • MXAPJ up 0.2% to 684.44
  • Nikkei up 0.8% to 28,317.83
  • Topix up 0.5% to 1,904.69
  • Hang Seng Index little changed at 28,458.44
  • Shanghai Composite down 0.6% to 3,486.56
  • Sensex up 1.4% to 50,270.60
  • Australia S&P/ASX 200 up 0.2% to 7,030.26
  • Kospi down 0.2% to 3,156.42
  • Brent Futures down 0.6% to $65.50/bbl
  • Gold spot little changed at $1,877.20
  • U.S. Dollar Index little changed at 89.747

Top Overnight News from Bloomberg

  • One-day swings of 31%. A slump amid a jump in U.S. inflation. Ever more critical regulatory scrutiny. Bitcoin delivered all of these in the past few days, undermining its claimed role as a portfolio hedge rivaling gold
  • Japan’s key inflation indicator showed prices falling for a ninth straight month in April in stark contrast with some other developed nations and supporting the view that the Bank of Japan will keep its stimulus in place for the foreseeable future
  • Brent oil was heading for the biggest weekly decline since March, with the market bracing for the prospect of more Iranian crude flows as the nation inches closer to a revived nuclear deal
  • The U.S. called for a global minimum corporate tax of at least 15%, less than the 21% rate it has proposed for the overseas earnings of U.S. businesses -- a level that some nations had argued was excessive
  • Demand at a key Federal Reserve facility used to control short-term rates surged Thursday to the highest in more than four years, accommodating a barrage of cash in search of a home
  • The number of U.K. cases of a worrying coronavirus variant from India more than doubled for a second week as authorities also monitor a new mutation of the virus, adding fresh doubt to U.K. plans to fully unlock the economy
  • Japan’s second-largest pension fund said it expects to post the best returns since 2001 on the back of the global equity market’s rally and is looking to expand sustainable investing
  • Canadian officials escalated efforts to cool the nation’s booming housing market, moving ahead with tighter mortgage qualification rules after the central bank issued a fresh warning against buyers taking on too much debt.
  • The U.S. called for a global minimum corporate tax of at least 15%, less than the 21% rate it has proposed for the overseas earnings of U.S. businesses

A quick look at global markets courtesy of Newsquawk

Asian equity markets were mixed after failing to sustain the early momentum from the constructive mood on Wall Street, where all major indices finished higher amid a tech-led rebound and as concerns regarding future Fed taper discussions abated. ASX 200 (+0.2%) was initially lifted by outperformance in tech but then faltered due to weakness in the commodity-related sectors, in particular energy names, amid prospects of a return of Iranian oil supply following yesterday's comments from Iranian President Rouhani who suggested an agreement was reached in Vienna for world powers to lift all major sanctions although they are still discussing the final details. Nikkei 225 (+0.8%) took impetus from its US counterparts but with gains capped after soft CPI data and mixed COVID-related headlines including reports that Japan is said to be mulling extending the virus state of emergency in Tokyo and Osaka. Furthermore, Japan approved the Moderna and AstraZeneca COVID-19 vaccines today but may wait before administering the AstraZeneca vaccines due to blood clot concerns. Hang Seng (Unch.) and Shanghai Comp. (-0.6%) gave back early gains with underperformance in the mainland amid China’s ongoing frictions including with the EU after the latter voted to freeze its investment deal with China until Beijing lifts sanctions on EU officials, while MSCI also stated that it is to delete four more securities from the MSCI China All Shares Indexes at the close on June 9th if it doesn't receive OFAC guidance. Finally, 10yr JGBs eventually eked marginal gains as the risk momentum in Asia petered out although gains were limited with price action confined to within this week’s tight range of around 11 ticks and following mixed results at 20yr JGB auction.

Top Asian News

  • RBI Eases India Government Finances With $14 Billion Payout
  • India Central Bank to Transfer INR991.2B Surplus to Government
  • China Resources Said to Consider $2 Billion Supermarket IPO
  • North Korea Strategy Tops Agenda at Biden-Moon Summit Friday

Major bourses in Europe are mostly modestly higher but off best levels (Euro Stoxx 50 +0.4%) following a lukewarm cash open and as Flash PMIs painted a mixed picture. Key themes for the releases were price pressures emanating from demand outpacing supply, with the latter also hindered by shortages. US equity futures meanwhile consolidate with broad-based gains in early European hours following yesterday’s rebound. Back to Europe, the non-Euro bourses lag peers, with the FTSE 100 (Unch) the underperformer as a decline in yields, lower oil, a pull-back in base metals and a firmer Sterling prove to be headwinds for the index, although strong retail sales and PMIs have cushioned the downside. Sectors in Europe are mostly in the green aside from financials amid the lower yield environment, whilst Autos reside as the current winner with BMW (+0.8%) providing positive vibes for the sector after guiding a positive impact of around EUR 1bln as it expects the European Commission to significantly reduce its antitrust allegations against the Co. All-in-all it is difficult to discern a particular theme from a sectoral standpoint. In terms of some individual movers, Richemont (+4.7%) is firmer post earnings after topping forecasts and declaring a dividend. Meanwhile, Lufthansa (-6%) is the Stoxx 600 laggard after its second-largest shareholder KB Holding (12% stake), is reportedly looking to offload over half of its stake at a discount.

Top European News

  • Wealth Fund That Quadrupled Profit Now Pivots With Bet on Europe
  • BlueBay Sees ‘Incredible Value’ in Europe’s Riskiest Bank Bonds
  • UniCredit to Skip Legacy Bond Coupon Payment Due Next Week
  • Euro-Area Recovery Boosted by Services as Industry Loses Steam

In FX, the Buck remains fundamentally, technically and even psychologically weak as the DXY languishes below 90.000, but the index is trying resist another bout of selling pressure that could yet culminate in further depreciation given bearish external factors. The DXY just slipped to a marginal new cycle low at 89.646 vs 89.686 on Wednesday and 89.689 the day before having weathered an earlier attack when the Pound got a belated boost via significantly stronger than expected UK retail sales data and the Euro from really flash French PMIs, though both short-lived at the time. Meanwhile, another lacklustre session for APAC bourses overnight has left the likes of the Yen and Franc with an underlying safe-haven bid to the detriment of the Greenback against the backdrop of firmer bonds and flatter curves ahead of the US Markit PMIs, existing home sales and yet more Fed speak from hawk Kaplan no less than 4 times, plus Barkin and Daly.

  • AUD/NZD/CAD - Not quite all change again, but another swing in the pendulum as the Aussie, Kiwi and Loonie hand back gains vs their US counterpart following firm rebounds yesterday. Aud/Usd is pivoting 0.7750 again with the latest downturn in base metal and other commodity prices overshadowing a decent retail sales beat, while Nzd/Usd has retreated through 0.7200 regardless of a pick-up in NZ credit card spending and Usd/Cad is hovering above 1.2050 in advance of Canadian retail sales.
  • GBP/JPY/CHF/EUR - Sterling has benefited from a 2nd wind regardless of mixed UK PMIs, or perhaps on reflection of the marked acceleration in manufacturing activity to retest resistance above 1.4200 and circa 0.8600 against the Dollar and Euro respectively. Similarly, the Yen is having another look at offers into an effective twin top vs its US rival (108.57 and 108.56 from this Wednesday and last Wednesday respectively) standing in the way of 108.50, but could be stymied by decent option expiry interest between 108.60-45 in 1.2 bn). Elsewhere, the Franc is nestling just shy of 0.8950 and fresh multi-month peaks in wake of a sharp rebound in Swiss ip, while the Euro is still striving to establish a solid platform on the 1.2200 handle following the aforementioned eye-catching French PMIs vs somewhat contrasting German prelim prints compared to consensus and all round beats in the pan Eurozone readings. However, Eur/Usd may also be capped or held back by option expiries into the NY cut given 1.3 bn rolling off at the 1.2200 strike.

In commodities, WTI and Brent front-month futures were initially choppy within USD 1.5/bbl ranges following the prior day’s declines, induced by the simmering down in geopolitical tensions on a couple of fronts. Firstly, Iranian nuclear deal discussions are seemingly nearing an accord whereby the US has reportedly agreed to lift several sanctions against Iran, including restrictions on oil exports. Sources via EnergyIntel suggest that Iran is preparing to hike oil exports to maximum capacity in the upcoming months – in-fitting with reports over the week. According to reports citing the Iranian National Oil Co, the most optimistic scenario suggests that Iran could ramp up production to almost 4mln BPD in three months. Talks are to resume next week, with a possible official announcement also on the cards. “While any announcement confirming the lifting of sanctions would likely hit sentiment further, we believe that this will be short-lived, given that the supply and demand balance remains supportive,” ING said. OPEC+ members will also have to consider any deal when tweaking output quotas as Iran, Venezuela, and Libya is currently exempt from the output restrictions – with the group also poised to meet at the start of June. ING believes that the oil market can handle Iranian oil alongside OPEC+ supply, "We are assuming that Iranian supply returns to 3mln BPD by 4Q21". Sticking with geopolitics, Israel and Hamas have announced a ceasefire mediated by Egypt, whilst offshore platforms in the vicinity are restarting operations as a result. However, source reports earlier in the week suggested that there are concerns that another militant group might provoke the situation even after the two sides agree to a ceasefire in principle. WTI resides just under USD 63/bbl (vs low USD 61.56/bbl), and Brent trades sub-USD 66/bbl (vs low 64.57/bbl). Elsewhere, precious metals have been mirroring Dollar action and have remained within overnight ranges, with spot gold on either side of USD 1,875/oz and spot silver around USD 27.75/bbl. Over to base metals, Chinese iron and coke futures bore the brunt of the losses overnight in a continued move sparked by the Chinese Cabinet’s verbal intervention earlier this week. LME copper is also on the decline and has dipped back below USD 10,000/t as China’s crackdown on price manipulation seeps into LME.

US Event Calendar

  • 9:45am: May Markit US Services PMI, est. 64.4, prior 64.7
  • 9:45am: May Markit US Manufacturing PMI, est. 60.2, prior 60.5
  • 9:45am: May Markit US Composite PMI, prior 63.5
  • 10am: April Existing Home Sales MoM, est. 1.0%, prior -3.7%
  • 12:15pm: Fed’s Kaplan, Bostic and Barkin Speak at Technology Conference
  • 1:30pm: Fed’s Daly Speaks on Wage Dynamics

DB's Jim Ried concludes the overnight wrap

Well after 14 months I’m going to London this morning for the first time since WFH was instigated. Not to the office though but to have an injection in my knee in an attempt to delay microfracture surgery until the end of the golf season. Had you told me back in January 2020 that by May 2021 that I wouldn’t have been in London for 14 months I would have been very concerned about the mortgage payments and I certainly wouldn’t be about to embark on a fresh (but last ever) building works. As an interesting anecdote, we’re finding that it’s a real struggle to get basic building material in the UK at the moment. There is a huge building boom coupled with a global shortage of raw materials. Even basic items like breeze blocks are on a long lead time. We haven’t yet pulled the trigger and it’s tempting to leave it 6-12 months to allow things to calm down.

Such bottlenecks will certainly continue to be the main speed limiters on growth over the next few months as economies increasingly reopen. We’ll get the latest news on the global recovery today with the flash PMIs for May. The April readings were pretty strong on both sides of the Atlantic, with the Euro Area composite PMI at 53.8, the highest since July, while the US composite PMI was the highest on record at 63.5. Expectations going into today have the Euro Area composite PMI climbing to 55.1, with the UK, Germany and France all seeing roughly 2pt increases from last month. On the other hand, the US services and manufacturing PMIs are expected to fall back 0.3pts and 0.4pts to 64.4 and 60.2 respectively. A reminder that our equity strategist is watching carefully for the sign that the ISM is trending back down in the US as that’s his signal for a 6-10% summer correction. The flash PMI number today will give us a few clues on this growth momentum.

Overnight we’ve already seen the PMI readings out of Japan, which actually showed the composite PMI falling to 48.1, down from 51.0 last month and beneath the 50-mark that separates expansion from contraction. Services (45.7) fared worse than manufacturing (52.5), reflecting the recent surge in Covid-19 cases and the extension of restrictions across more regions to deal with that. Australia had a much better performance however, with their composite PMI coming in at 58.1 (vs. 58.9 last month), marking the 9th consecutive month of expansion.

Elsewhere overnight, equity markets have had another mixed performance, with the Nikkei advancing +0.62%, whereas the Hang Seng (-0.30%), the Shanghai Comp (-0.84%) and the KOSPI (-0.29%) have all moved lower. However, the main news is that a ceasefire came into effect 2am local time between Israel and Hamas, bringing an end to the 11-day conflict there that’s seen the worst fighting there since 2014. Meanwhile in the US, S&P 500 futures are pointing +0.09% higher.

These moves follow what was a decent recovery for markets yesterday after a fairly poor start to the week. The S&P 500 (+1.06%) and the MSCI World Index (+1.07%) both advanced after a run of 3 successive declines, helped by decent US jobs data and an improving picture on the pandemic. But to be honest, we can’t help but feel a sense of déjà vu here, as last week both indices saw the same pattern of losses on Monday, Tuesday and Wednesday, before rising again on Thursday and Friday. So if we get another day in the green today we’ll know this is Groundhog Week. Time to get that great Bill Murray film out again.

As mentioned, the mood was helped by positive US data that showed initial jobless claims for the week through May 15 falling to a post-pandemic low of 444k (vs. 450k expected). So a sign of continued improvement in the labour market following last month’s distinctly underwhelming jobs report, and raising hopes that the April report will hopefully prove a blip rather than a trend. Furthermore, Treasury yields fell back and investors marginally downgraded the pace of Fed hikes over the coming years, which helped tech stocks in particular as the NASDAQ (+1.77%) and the FANG+ (+2.38%) outpaced the broader market. Recent cyclical winners were weaker as the drop in yields saw US banks (-0.40%) lag. European equities similarly bounced back strongly with the STOXX 600 up +1.27%, though energy stocks had a weaker performance on both sides of the Atlantic. This was against the backdrop of a 3rd consecutive decline in oil prices that saw Brent crude (-2.33%) and WTI (-2.07%) lose further ground, thanks to Iranian President Rouhani saying that a broad outline had been reached to end oil sanctions. That said, it wasn’t all bad news for commodities, with gold prices up another +0.41% to a 4-month high.

Another asset class that bounced back yesterday was cryptocurrencies, with Bitcoin recovering +4.55% yesterday to move back above $40,000, even if this still left it well beneath its level a week ago. The moves were seen across the sphere of crypto assets, with Ethereum (+9.27%), XRP (+5.51%) and Litecoin (+4.52%) all managing to claw back some of the previous day’s losses. The recovery in cryptocurrencies took a slight hit midday in the US, when the Treasury Department announced that the Biden administration is proposing to improve tax compliance in the nascent market by requiring businesses that “receive cryptoassets with a fair-market value of more than $10,000” to “...be reported on.” This matches the current requirement for dollar transactions. The news caused an -8% drawdown for bitcoin intraday before it regained the majority of those losses by the end of the day. Ahead of the Treasury announcement, Marion Laboure on my team published a note on the issue yesterday, called “Trendy is the Last Stage Before Tacky”, in which she points out that throughout history, governments have not been inclined to give up their monetary monopolies, and as cryptocurrencies begin to seriously compete with regular currencies, regulators and policymakers will crack down. You can read her note here.

In sovereign bond markets yesterday, yields on 10yr US Treasuries fell back -4.6bps to 1.625%, which was actually (and surprisingly) the biggest one-day decline in yields for a month. The drop was driven by inflation expectations as the 10yr breakeven fell (-4.3bps) for a 3rd straight day, having lost -11.4bps over that period – the largest three day drop since early-September 2020. The drop comes after the 10yr breakeven rate hit 8-year highs on Monday. For Europe it was a more divergent picture between core and periphery however, with 10yr bund yields up +0.1bps, whereas southern European countries including Italy (-6.0bps), Greece (-5.9bps) and Spain (-3.6bps) saw reasonable declines.

In terms of the pandemic, a Japanese government panel approved the use of the Moderna and AstraZeneca vaccines, with the two joining the Pfizer/BioNTech vaccine that’s already been approved there. However, it was reported by NTV that the government was also considering an extension of the state of emergency beyond May 31 in areas including Tokyo and Osaka. Separately, Bloomberg reported that the G7 countries would discuss an international system of recognising vaccination certificates, which would help the resumption of global travel again. G7 health ministers are due to meet at Oxford University on 3-4 June, before the leaders gather in Cornwall from 11-13 June. This comes following news late yesterday that EU negotiators have agreed to a plan that would allow travellers to get out of quarantine procedures if they show proof of vaccination. The member states still have to have a formal vote on the plan, which is expected to allow similar guidance for vaccinated visitors from non-EU nations. Lastly, Moderna started to export vaccine doses out of the US, with domestic demand waning. Even so, various US states, including New York and Maryland, have introduced lottery tickets as incentives to getting shots in an effort to increase overall vaccine uptake.

There wasn’t a great deal of other data yesterday, though German producer prices were up by +5.2% year-on-year in April (vs. +5.1% expected), which marked the fastest pace of growth in nearly a decade. Otherwise the Conference Board’s leading economic index in the US was up +1.6% (vs. +1.3% expected).

To the day ahead now, and the main highlight will be the release of the aforementioned flash PMIs from Europe and the US. Other releases include UK retail sales for April, US existing home sales for April, and the Euro Area’s advance consumer confidence reading for May. From central banks, we’ll hear from ECB President Lagarde, and the Fed’s Kaplan, Bostic, Barkin and Daly. There’s also an earnings release from Deere & Company.

Tyler Durden Fri, 05/21/2021 - 07:56

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Industrial Production Decreased 0.1% in January

From the Fed: Industrial Production and Capacity Utilization
Industrial production edged down 0.1 percent in January after recording no change in December. In January, manufacturing output declined 0.5 percent and mining output fell 2.3 percent; winter…

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From the Fed: Industrial Production and Capacity Utilization
Industrial production edged down 0.1 percent in January after recording no change in December. In January, manufacturing output declined 0.5 percent and mining output fell 2.3 percent; winter weather contributed to the declines in both sectors. The index for utilities jumped 6.0 percent, as demand for heating surged following a move from unusually mild temperatures in December to unusually cold temperatures in January. At 102.6 percent of its 2017 average, total industrial production in January was identical to its year-earlier level. Capacity utilization for the industrial sector moved down 0.2 percentage point in January to 78.5 percent, a rate that is 1.1 percentage points below its long-run (1972–2023) average.
emphasis added
Click on graph for larger image.

This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).

Capacity utilization at 78.5% is 1.1% below the average from 1972 to 2022.  This was below consensus expectations.

Note: y-axis doesn't start at zero to better show the change.


Industrial Production The second graph shows industrial production since 1967.

Industrial production decreased to 102.6. This is above the pre-pandemic level.

Industrial production was below consensus expectations.

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The Greenback is in Narrow Ranges to Start the Week

Overview: The foreign exchange market is quiet. The
Lunar New Year holiday shut most Asian markets. That, coupled with the light
news in Europe, have…

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Overview: The foreign exchange market is quiet. The Lunar New Year holiday shut most Asian markets. That, coupled with the light news in Europe, have served to keep the dollar in narrow ranges against the G10 currencies. The Swedish krona, Norwegian krone, and Japanese yen are posting minor gains against the greenback. The New Zealand dollar, which was strongest major currency last week (1.4%) is off by almost 0.5% today, making it the weakest today. RBNZ Governor Orr underscored the recent message that inflation is still too high (~4.7%). Emerging market currencies are narrowly mixed (+/-0.2%). Of note, India reports December industrial production and January CPI shortly.

The few equity markets in the Asia Pacific region that were not on holiday today, including Australia, India, and New Zealand slipped. Political uncertainty in Pakistan saw its stock market tagged for 3%. On the other hand, Europe's Stoxx 600 is trying to snap a three-day fall (less than 0.4%). Of note, real estate is the strongest sector today, rising by more than 1%. US index futures are trading firmly after new record-highs before the weekend. Benchmark 10-year bond yields are 3-6 bp lower in Europe. The 10-year US Treasury yield is off a basis point to around 4.16%. Gold is trading with a softer bias near $2020. Last week's low was around $2015. April WTI set this month's high before the weekend near $77.15. It is approaching the pre-weekend lows slightly below $76. Support is seen closer to $75. 

Asia Pacific

The top two BOJ officials played down speculation that the central bank’s from negative interest rates will signal the start of a tightening cycle, and for good reason. First, inflation is already well off its peak and could easily fall below the 2% target before the April BOJ meeting that is widely expected to adjust policy. Second, despite a shortage of workers, (Japan's working age population peaked nearly 30 years ago) and the gradual opening to foreign workers, wage growth continues to lag inflation. Third, and related, domestic demand is soft. Toward the end of the week, Japan will publish its initial estimate of Q4 GDP. Consumption is likely to have recovered weakly from the contraction in Q2 and Q3 23. In the five years (20 quarters) before the pandemic, Japan's private consumption component in its GDP contracted by an average of 0.2% a quarter. Also, note that although the BOJ set the overnight target rate at minus 0.10%, the effective rate at the end of last week was 0.005%. Governor Ueda is determined to exit the negative interest rate policy for technical and strategic reasons. Arguably, there was windows of opportunity previously, where the macroeconomic setting was conducive to exiting the negative policy rate. 

Most Asian markets were closed today, and China's mainland markets are closed all week for the Lunar New Year holiday. We expect that after the holiday, more efforts to support the economy and fight deflation will be forthcoming. Despite the stimulus in H2 23, the economy does not seem responsive. The assumption that the state-owned banks are just arms of the government is challenged by the same banks not fully passing on the PBOC's lower rates. The one- and five-year loan prime rates will be set on Feb 20. The same state-owned banks have also been reluctant to lend to the property market and enact the support measures Beijing unveiled in 2022. Lastly, consider the offshore yuan. It does not have to but with few exceptions respects the onshore band (2% for the dollar around the reference rate). Why? While the PBOC could intervene there, but when it does it is fairly clear. The last reference rate creates a band of ~CNH6.9640-CNH7.2485. Is it too much to suggest that the same mechanism that keeps the offshore yuan within the onshore band explains a great deal of how the PBOC manages the exchange rate? To paraphrase an old Chinese saying, "kill an occasional chicken to scare the monkeys."  

The dollar edged a little closer to the JPY150 level ahead of the weekend (~JPY149.60) before settling virtually unchanged near JPY149.30. There are around $1.4 bln in options at JPY150 that expire tomorrow. During the six-week decline in the yen, speculators in the futures market have grown their net short yen position by more than 50% to 84k contracts (~$7 bln). The greenback is a narrow range of about a third of a yen above JPY149. The price action looks like a bullish pennant or flag, The Australian dollar's range last week, roughly $0.6470-$0.6540, is the key to the near-term direction. We favor an upside break and watching the possible bullish divergence with some of the momentum indicators but recognize the $0.6555-75 area to be an important hurdle. The Aussie eked out a small gain last week (~0.20%), the first of the year. Speculators in the futures markets added to their net short Australian dollar position for the fourth week in a row. It now stands at about 71.8k contracts (~$7.2 bln), up from 32.3k before the streak began. The Aussie is trading in about a fifth of a cent range above $0.6510.

Europe

The European economic calendar is light this week, and what there is, may be a sad reminder of the Europe's sad state. Eurostat will publish the details of Q4 23 GDP. The initial estimate had the regional economy stagnating after a 0.1% contraction in Q3. The dramatic 1.6% drop in Germany December industrial output (-3.0% year-over-year) underscores the lack of growth impulses to start the new year, and the weakness of what had been the European engine. At the same time, leadership is weak. Among the large members, Italy's Meloni, right-government seems among the strongest, and incidentally, the economy is doing better (but still not well). In 2022, Germany grew by 1.8%. Italy grew twice as fast. Last year, the German economy contracted by 0.3%, while Italy expanded by 0.7%. On the other hand, Italy's budget deficit was about 5.4% of GDP last year, while Germany's was less than 2.5%. Italy's 10-year premium over German narrowed to about 140 bp at the end of January, almost a two-year low, after rising to a nine-month peak last October over 200 bp. It is snapping back this month is near 155 bp. Italy's two-year premium peaked near 95 bp in the middle of last October and fell to almost 45 bp late last month. Last year's low was below 30 bp. It has jumped to about 65 bp now, the most since last November.

The Swiss franc was the strongest G10 currency in Q4 23 as dollar fell across the board. It rose 8.8% and so far, this year, the franc has fallen by about 3.9%. The dollar approached the (50%) retracement objective (~CHF0.8790). Above there is the 200-day moving average (~CHF0.8845) and the (61.8%) retracement near CHF0.8900. The euro is recovering from multiyear lows set against the franc in Q4 23 (~CHF0.9255). It traded up to almost CHF0.9475 last month but pulled back to support near CHF0.9300 earlier this month. There may be potential toward CHF0.9500-CHF0.9550. Switzerland reports January CPI tomorrow. The EU harmonized measure is expected to slip to 2.0% from 2.1%. Its own measure is seen easing to 1.6% (from 1.7%) and the core rate to 1.4% (from 1.5%).

The euro reached a six-day high late in thin Asia Pacific turnover near $1.0805. It was quickly sold to almost $1.0765 before finding a bid in early European turnover. It is the fourth session of higher highs. The pre-weekend low was almost $1.0760, and a break of the $1.0755 area would weaken the fragile technical tone. There are options for about $755 mln euros at $1.08 that expire today. There are large (1.4-1.5 bln euros) at $1.07 that expire tomorrow and Wednesday. Stiff resistance is seen in the $1.0830-40 area. Sterling recovered after breaking down at the start of last week (~$1.2520) but settled back into the $1.26-$1.28 trading range in the past three sessions. The $1.2640 area had capped but, like the euro, set a new six-day high before Europe opened and took sterling down to almost $1.2615. Before the weekend, sterling briefly frayed the $1.26 level. It is an important week for UK data, including the labor market report tomorrow and the January CPI on Wednesday. Soft data may encourage bringing forward the first rate cut to June from August. 

America

Interest rates and expectations are a key force driving exchange rates. The market has gradually reduced the odds May rate cut to about 73% from 90% chance after the strong January jobs growth. It also scaled back the magnitude of Fed cuts by about 50 bp (to ~112 bp) in the past month. Tomorrow's CPI, more than last week's historic revisions, is a key input into the Fed's reaction function. Fed Chair Powell recently indicated the central bank was looking for more confirmation that inflation was on a sustained path back to its target. The January figures will give the Fed that. Ahead of it, the results of the NY Fed's inflation survey are of little consequence.

Canada reported a loss of full-time jobs in January for the second consecutive month. Wage growth slowed. The decline in the unemployment rate to 5.7% (from 5.8%) can be explained by the decline in the participation rate (65.3% vs. 65.4%). The takeaway is that the market boosted the chances of a June rate cut (to ~77% vs. ~67%). Despite the risk-on mood, which lifted the S&P 500 to a new record high, the Canadian dollar found no traction. It fell slightly for the first time in three sessions. The US dollar made session highs near midday in NY ahead of the weekend near CAD1.3480. The greenback is in a narrow 20-tick range above CAD1.3450 so fat today. Nearby resistance is seen in the CAD1.3500 area but the greenback has been turned back from the CAD1.3540 area three times. There are options for about $630 mln at CAD1.35 that expire tomorrow. The Mexican peso weakened after the central bank seemed to prepare the market for a rate cut as early as next month. However, it recovered and returned to pre-central bank levels near MXN17.08. It has edged low today to MXN17.0640. MXN17.00 was tested early last week. Around $580 mln of options expire there on Thursday. The US dollar reached BRL5.0175 at the start of last week. On the pullback, it found support near BRL4.95. It settled last week just above there. There is a band of technical support between BRL4.91 and BRL4.93.

 

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Week Ahead: Will Soft US CPI and Retail Sales Mark the End of the Interest Rate Adjustment and Help Cap the Greenback?

The
markets are still correcting from the overshoot on rates and the dollar that
took place in late 2023. The first Fed rate cut has been pushed out of…

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The markets are still correcting from the overshoot on rates and the dollar that took place in late 2023. The first Fed rate cut has been pushed out of March and odds of a May move have been pared to the lowest since last November. The extent of this year's cuts has been chopped to about 4.5 quarter-point move (~112 bp) from more than six a month ago. The market has reduced the extent of ECB cuts to about 114 bp (from 160 bp at the end of January and 190 in late 2023). The Bank of England is now expected to cut rates three times this year (75 bp), which is nearly 100 bp less than was discounted at the end of last year. The extent of Bank of Canada rate cuts this year has been halved to less than 80 bp from 160 bp in late December 2023. We suspect that the interest rate adjustment is nearly over. A soft US CPI and weak retail sales report next Tuesday and Wednesday could help cap US rates and signal the end of the dollar's New Year rally. 

The UK reports CPI on February 14, and given the base effect (-0.6% in January 2023), even a 0.3% decline in prices last month, the year-over-year rate is likely to rise (to 4.2%-4.3%). However, the bigger story for the UK, the eurozone, and Canada is that inflation rose sharply in the Feb-May period last year, and as these drop out of the 12-month comparisons, the year-over-year rates will fall dramatically. The UK and Japan will report Q4 23 GDP. The UK economy likely contracted slightly for the second consecutive quarter. Japan, the world's third-largest economy, likely returned to growth after contracting at an annual rate of almost 3% in Q3. Consumer spending and capex fell in Q2 and Q3 24. Both likely recovered. The UK and Australia report new labor market figures. In the UK wages are moderating and the economy likely lost full-time positions for the second consecutive month in January. It is difficult to image a worse employment data than Australia reported last month. It lost 106k full-time jobs, which, outside of the pandemic, looks like the worst on record. 

United States:  The data and official guidance have pushed out expectation of the first Fed cut and reduce the extent to this year's cut. The market's confidence (~73%, down from 90% after the employment data) of a May move still seems too high given the apparent momentum the economy enjoys in early 2024, even if we do put too much emphasis on the Atlanta Fed's GDP tracker (3.4%) this early in the quarter. The market has about 4.5 Fed cuts discounted this year, down from more than six cuts as recently as mid-January. The May decision is unlikely to be determined by January data. That counts even this week's highlights of CPI, retail sales, and industrial production.

At his post-FOMC press conference, Fed Chair Powell called attention to "six months of good inflation." This looks to have continued into this year. The headline CPI rate is seen rising by 0.2% (February 13), which, given the base effect (0.5% in January 2023), would see the year-over-year rate fall to 3.0%-3.1% from 3.4%  Yet, the median forecast from the nine economists that participated in Bloomberg's survey (by end of last week) see it falling to 2.9%. The core rate is expected to rise by 0.3% for the third consecutive month and the fifth time in six months. That may be more important that the softer year-over-year rate (~3.7% vs 3.9%). 

January retail sales (Feb 15) may have been dragged down by disappointing auto sales (15 mln SAAR, down from 15.83 mln in December). Consumption would appear be off to a slow start after retail sales rose by an average of 0.2% in Q4 23 after a blistering 0.7% average gain in Q3 23. The median forecast is for a 0.2% decline in headline retail sales (+0.6% in December). On the other hand, industrial production (Feb 15) appears to have accelerated and the 0.3% increase the median in Bloomberg's survey is looking for would be the strongest in six months. However, manufacturing itself may be flat. Other high frequency data points include producer prices (year-over-year rates are below 2%), housing starts and permits (small gains expected), and a number of early regional Fed surveys. Of note, the Empire State Manufacturing Survey crashed in January (-43.7 from -14.5) and a sharp snap back is expected in February. On balance, the data is likely to be consistent with the US economy expanding somewhat faster than what the Federal Reserve believes is the long-term non-inflation pace (1.8%). 

The big outside day for the Dollar Index after the US employment data on February 2 saw follow-through buying at the start of last week. It reached 104.60, the highest level since the middle of last November and spent the rest of the week consolidating above 103.95. A move above the 104.80 is needed to reignite the upward momentum. Despite the stretched momentum indicators and the proximity of the upper Bollinger Band (~104.50), there is little technical sign of a top. That said, given the nearly 4% rally off the late December lows, this is the area where we are beginning to look for a reversal pattern.

Eurozone:  Details for Q4 23 GDP (flat and 0.1% year-over-year) will be released with the revisions on February 14. It may be interesting for economists, but the general thrust is sufficiently known for businesses and market participants. The eurozone economy is stagnating or worse. In the last five quarters through Q4 23, in aggregate, there has been no growth. Still, the details of fourth quarter GDP saps much interest in high frequency data from the end of last year. More importantly is the momentum at the start of the new year and the data so far have been limited to some surveys and a preliminary estimate of January CPI (-0.4% month-over-month and minus 3.2% at an annualized rate in the last three months). There seems to be little reason to expect new growth impulses, leaving this quarter to be flat to +0.1%.

The euro's low for the year was set at the start of last week slightly below $1.0725. The subsequent recovery stalled in the $1.0790-95 area, meeting the (38.2%) retracement objective from the Feb 2 high set shortly before the US January jobs report. The momentum indicators remain stretched, as one would expect, given the five weeks of losses in the first six weeks of the year. And if there is a more of a recovery, the $1.0810-40 area may offer stiff resistance. The 20-day moving average, which the euro has not closed above since January 2 is found at the upper end of that band. Note that there are options for 2.5 bln euro at $1.0725 that expire Monday and options for 1.5 bln euros at $1.07 expire shortly after the US CPI report on February 13.  There is another 1.4 bln euro s at $1.07 that expire Wednesday. 

Japan:  In each of the past six years, the Japanese economy contracted in at least one quarter (in 2018 and 2022 there were two contracting quarters). Last year, it was the third quarter, when output fell by 0.7% (quarter-over-quarter). A stabilization in consumption and a recovery in private investment, both of which fell in Q2 23 and Q3 23, likely helped return the world's third largest economy to growth. Exports also increased. The GDP deflator appears to have peaked in Q3 23 at a 5.3% year-over-year pace. On the back of firmer US Treasury yields and comments by BOJ officials that downplayed the likelihood of a tightening cycle even after negative interest rate policy is jettisoned, the dollar rose to nearly three-month highs against the yen (~JPY149.60). Although Japanese officials have not expressed concern about the price action in the foreign exchange market, the yen's six-week drop is the kind of one-way market that is resisted. The November high was near JPY149.75, in front of the psychologically important JPY150 level. There are $1.4 bln in options at JPY150 that expire shortly after the US CPI report on February 13. A move above JPY150 brings last year's high near JPY152 into view.

United Kingdom: It is an important week for UK data and the jobs report and the CPI, in particular will likely impact expectations for interest rate policy. Average weekly earnings have slowed for four consecutive months through November and look poised to continue to slow as the labor market cools. The key message on UK CPI is that it will fall sharply starting the February report and running through May. In those four months in 2023, UK CPI rose by an average of 1.0% a month. In the last four months, through January, the UK's CPI rose by an average of 0.2% a month. Due to 0.6% decline in January 2023 UK CPI, the 0.3% decline expected for last month's CPI will translate into a small increase in the year-over-year rate. But that is not the signal. Even if UK's inflation averaged 0.4% in the Feb-May period this year, the headline year-over-year rate would still slip below 2% (from 4% in December). The core rate is firmer, but the direction is lower. It peaked at 7.1% last May and finished the year at 5.1%. The UK also reports Q4 23 GDP. Recall that the monthly print showed a 0.3% contraction in October followed by 0.3% growth in November. It is seen contracting by 0.2% in December. That would likely translate to a 0.1% contraction quarter-over-quarter for the second consecutive quarter. Surveys suggest manufacturing remains weak while the services are finding traction. The swaps market has about a 70% chance that the first cut is delivered by midyear. Three cuts and about a small chance of a fourth cut is discounted for this year. 

Sterling broke out of its $1.26-$1.28 trading range to the downside at the start of last week, largely on follow-through selling after the US jobs report on February 2. It bottomed near $1.2520 and recovered to settle above $1.26 for the past three sessions. Sterling's recovery stalled near $1.2645, the (50%) retracement of the losses from February 2 high (~$1.2770). The next retracement (61.8%) is around $1.2675, which is also where the 20-day moving average is found.

Australia: The January employment data will be reported early on February 15. It is difficult to imagine a worse report than December's, even though the unemployment rate held at 3.9% (up from 3.5% at midyear). Australia lost a stunning 106.6k full-time posts, which wiped out half of the increase reported in the Jan-November period (~211k). Part of the reason that the unemployment rate did not rise was that the participation rate fell by a sharp 0.5% to 66.8%. At the same time, other hard data have been poor. Remember December retail sales tumbled 2.7% in the face of expectations of a 0.5% gain. November gain itself was revised lower by nearly as much as economists had forecast a December gain (1.6% vs. 2.0%). Building approvals dropped 9.5%. Here, too, economists (median in Bloomberg's survey) forecast a 0.5% increase. November's 1.6% gain was revised to 0.3%. There may be scope for the market to bring forward the first rate cut by Reserve Bank of Australia to June from August. 

The Australian dollar recorded a new low for the year last Monday near $0.6470, its lowest level since mid-November as it extended the post-US jobs data drop. However, it stabilized and largely traded in a range mostly between $0.6480 and about $0.6540. The upper end of the range corresponds to the (50%) retracement of the decline from the pre-jobs data high a little above $0.6600. The next retracement (61.8%) is near $0.6555, and the 20-day moving average, which the Aussie has not closed above since January 3 is a little higher (~$0.6560).

Canada:  Canada has a light economic diary in the coming days. January existing home sales and housing starts, and Canada' portfolio investment account (December) rarely moves the market in the best of times. In terms of drivers, the 30- and 60-day correlations with the changes in the exchange rate seem to be the general direction of the dollar (DXY) and risk-appetites (S&P 500). The Canadian dollar seems less sensitive to oil and two-year rate differentials (less than 0.2 correlation for both period). The US dollar took out the January high marginally and rose to about CAD1.3545 early last week before consolidating at lower levels ahead of the Canadian employment data reported before the weekend. The Canadian dollar strengthened initially on the news, even though full-time jobs fell for the second consecutive month. The greenback found support ahead of CAD1.3400 and recovered back to set new session highs near CAD1.3480. The risk seems to be on the upside. 

Mexico:  After the January CPI figures and the central bank decision to hold policy steady, there may not be market-moving economic data February 22 with another look at Q4 23 GDP (0.1%), first half of February CPI, and minutes from the Banxico meeting. The central bank raised quarterly inflation forecasts through Q3 but left the Q4 24 projection at 3.5%. The target is 3%, +/- 1%. The dollar initially moved higher in response, but the upticks (to ~MXN17.17) were short-lived. The greenback settled last week below MXN17.10, to post its second consecutive weekly decline. The MXN17.00 area had been approached before Mexico's CPI and central bank meeting. It has not traded below there since January 16, but it could if the US CPI and retail sales data are soft and cap US rates. 

  

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