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Futures Rebound Despite Turkey Slaughter

Courtesy of ZeroHedge View original post here.

Global markets, bond yields slid and the Turkish lira plunged towards a record low against on Monday after President Tayyip Erdogan shocked investors by replacing the country's hawkish central bank governor with a critic of high interest rates, Turkey's 4th new central bank head in 2 years.

However the global weakness took place against a backdrop of a pending short squeeze in the US, and despite the Turkey slaughter, the weakness was faded as the Emini S&P and Nasdaq 100 futures climbed alongside European technology shares on Monday as a drop in Treasury yields boosted pricier parts of the stock market. At 07:00 am ET, Dow E-minis were down 15 points, or 0.05%, S&P 500 E-minis were up 7.5 points, or 0.2% and Nasdaq 100 E-minis were up 104.5 points, or 0.8%.

Kansas City Southern jumped about 17% after Canadian Pacific Railway Ltd agreed to acquire the railroad operator in a $25 billion cash-and-stock deal to create the first railway spanning the United States, Mexico and Canada. Intel, Microsoft Corp and Apple led gains among Dow components in trading before the bell. Big U.S. bank slipped about 1% as yields dropped .

European equities faded an opening gap lower, with the Eurostoxx, DAX and FTSE 100 returning to little changed on the session having seen opening losses of between 0.6%-0.8%. Italy’s FTSE MIB rises 0.2% with local banks up 0.4%.  The Stoxx 600 Index fell 0.1% to 423.11 with 344 members down, 249 up and 7 unchanged, reversing earlier losses. Autos and tech are the best performing sectors; the Stoxx Europe 600 Travel & Leisure Index remained 1% lower but the sector halved its initial slump, with airline and travel stocks falling after restrictions to curb the pandemic were extended in some European countries, while a U.K. government adviser said foreign holidays this summer are "unlikely."

Stocks that have benefited from lockdowns, including online retailers and food-delivery firms, climb on the possibility of extended restrictions in Germany and amid worries over vaccine supplies. Chancellor Merkel proposed keeping Germany’s lockdown in place for another four weeks, while vaccine tensions ramp up between the European Union and U.K. Shares in online grocer Ocado +1.6%, meal-kit maker HelloFresh +2.1%. Online retailers also rise: Zalando +1.5%, Asos +0.7%, Boohoo +0.5%, THG +0.9%

Here are some of Europe's other biggest movers today:

  • Volkswagen common shares rise as much as 12% after Deutsche Bank raised its price target for the share class, citing electric- vehicle plans that sparked last week’s 22% rally. Porsche SE, the holding company in control of 53.3% of common stock, rises as much as 7% after Deutsche Bank increased its PT.
  • Kingfisher shares rise as much as 6.6%. Morgan Stanley said the U.K. retailer’s FY22 consensus profit estimates will probably be increased ~10% after it reported FY results that beat expectations and provided guidance for the year ahead.
  • Richemont shares climb as much as 4.2% amid speculation that Kering may seek to buy the Swiss luxury powerhouse after a report that it rejected an informal takeover offer earlier this year.
  • Infineon shares gain as much as 3.8% after Credit Suisse upgrades the chipmaker to outperform from underperform thanks to the firm’s exposure to electric vehicles.
  • BBVA shares decline as much as 7.7% as lenders with exposure to Turkey fall after the lira plunged following the ouster of the country’s central bank head over the weekend.
  • TeamViewer shares fall as much as 5%, extending Friday’s slump, as analysts trim price targets following a margin guidance update due to its sponsorship deal with Manchester United.

Turkish markets crashed after the dismissal of the nation’s central bank chief. The iShares MSCI Turkey ETF sank about 19% as Erdogan’s decision sparked fears of a reversal of recent rate hikes and capital controls. Circuit breakers were triggered in the BIST 100 Index early although the lira halved opening losses.

“The authorities will be left with two choices, either it pledges to use interest rates to stabilise markets, or it imposes capital controls,” said Per Hammarlund, senior EM strategist at SEB Research. “Given the increasingly authoritarian approach that President Erdogan has taken, capital controls are looking like the most likely choice.”

Euro zone banks exposed to the country such as Spain’s BBVA, Italy’s UniCredit, France’s BNP Paribas, and Dutch bank ING fell between 1.6% and 5.2%.

Earlier in the session, Asian stocks fell as losses in Japan offset gains in China, as investors eyed rising U.S. Treasury yields and semiconductor supply problems. Consumer discretionary and industrial shares weighed most heavily on the MSCI Asia Pacific Index, which slipped 0.2%. Japan’s Nikkei fell 1.5% as retail investors faced potential losses on large long positions in the high-yielding lira. New Zealand and Japan led declines among key national stock gauges. Chinese stocks outperformed, with the SHCOMP rising 1.1%, after People’s Bank of China Governor Yi Gang said the central bank still has room to pump liquidity into the economy.  Shares of Asian shipping line operators jumped after dry-bulk rates rose to the highest level since Sept. 2019 on global recovery in iron-ore demand and economic activities. Baltic Dry Index surged 16.4% last week for its third straight weekly gain. In South Korea, Pan Ocean rose as much as 13%, HMM 9.4%, Korea Line 7.5%

The bond market remains in focus again, with the 10-year U.S. Treasury yield falling back to 1.68% from the highest levels in about 14 months following soothing comments from Federal Reserve officials.  Treasuries advanced, outperforming bunds and gilts in a bull-flattening move lacking a clear driver. TSY yields are lower by up to 4bp-5bp across intermediates and long- end of the curve, flattening 2s10s by more than 3bp, 5s30s by ~1bp; 10-year yields around 1.675%, richer by 4.6bp on the day and outperforming bunds, gilts by ~3bp each. Most of the move occurred during Asia hours, leaving futures steady near highs of the day into early U.S. session. Back-end outperformance is consistent with quarter-end buying and pension fund demand.  Peripheral spreads widened to Germany with Portugal and Spain underperforming.

IG credit issuance slate includes Naver $500m 5Y; desks are calling for as much as $40b+, and moments ago Oracle announced a 6 part deal adding even more rate locks. Treasury auctions resume Tuesday with $60b 2-year note sale, followed by $61b 5-year on Wednesday and the infamous $62BN 7-year auction whose rout started the recent market turmoil on Thursday.

A slate of auctions this week and moves by the Fed to let a key bank capital exemption lapse could stoke further volatility, while Powell comments 3 times this week. Last week’s Treasury selloff served as a stark reminder that investors remain concerned that a stronger economic recovery could lead to inflation. Despite reassuring comments from policymakers, some suspect price pressures could force the Federal Reserve to tighten monetary policy sooner than current guidance suggests.

“Clearly, the market is skeptical that the Fed will be able to keep interest rates at current levels for the next three years,” Diana Mousina, senior economist in the multi-asset group at AMP Capital Investors Ltd., said in a note. “We think that nominal bond yields can still shoot higher in the short-term towards 2% and above on inflation concerns. Markets are likely to worry that this move is permanent, rather than temporary.”

In FX, the tumble in the lira saw the yen firm modestly, with notable gains on the euro and Australian dollar. That in turn dragged the euro down slightly on the dollar to $1.1890. After an initial slip, the dollar soon steadied at 108.80 yen, while the dollar index was down slightly at 91.942. The Bloomberg dollar index gave back Asia’s modest gains. The big highlight of course was Turkey’s lira which weakened as much as 17% after Erdogan fired the central bank chief, while haven currencies like the Japanese yen and Swiss franc led gains in the group-of-10 currency basket. AUD, NOK and GBP lagged in G-10 although ranges are narrow. JPY and CHF outperform with EUR/CHF revisiting last Thursday’s lows.

Also supporting the yen were concerns Japanese retail investors that have built long lira positions, a popular trade for the yield-hungry sector, might be squeezed out and trigger another round of lira selling.  Still, analysts at Citi doubted that the episode would lead to widespread pressure on emerging markets, noting the last time the lira slid in 2020, there was little spillover. “In terms of impact on other parts of the high-yielding EM, we believe that will be quite limited,” Citi said in a note. There was scant sign of safe-haven demand for gold, which eased 0.7% to $1,731 an ounce.

Crude futures push into the green but trade a narrow range. WTI regains a $61-handle, Brent near $64.70. Spot gold drops ~$15, before finding support near $1,730/oz. Most base metals trade well; LME zinc, lead and nickel gain over 1%.

Looking at the day and week ahead, durable goods orders and personal income and spending top a raft of economic data, while more than 20 FOMC speaking engagements including three appearances by Chair Jerome Powell, providing plenty of opportunity for more volatility in markets.

Market Snapshot

  • S&P 500 futures down 0.1% to 3,894.25
  • SXXP Index down 0.2% to 422.70
  • MXAP down 0.2% to 208.03
  • MXAPJ up 0.2% to 689.62
  • Nikkei down 2.1% to 29,174.15
  • Topix down 1.1% to 1,990.18
  • Hang Seng Index down 0.4% to 28,885.34
  • Shanghai Composite up 1.1% to 3,443.44
  • Sensex down 0.6% to 49,576.54
  • Australia S&P/ASX 200 up 0.7% to 6,752.46
  • Kospi down 0.1% to 3,035.46
  • German 10Y yield down 2 bps to -0.32%
  • Euro little changed at $1.1904
  • Brent futures down 0.6% to $64.14/bbl
  • Gold spot down 0.8% to $1,730.46
  • U.S. Dollar Index little changed at 91.96

Top Overnight News from Bloomberg

  • Turkey’s stocks, bonds and the lira tumbled as the shock dismissal of the country’s central bank chief triggered concern the country is headed for a fresh bout of currency turbulence.
  • AstraZeneca Plc’s coronavirus vaccine fared better than expected in a U.S. clinical trial, providing reassurance about its safety and efficacy
  • The European Union’s path to joint fiscal stimulus is looking less assured than its monetary guardians would like, casting further clouds over an outlook already stunted by the bloc’s botched vaccination drive.

A look at global markets courtesy of Newsquawk

Asian equity markets began the week mixed as the region took its cue from the indecisive performance last Friday stateside following bitter US-China talks in Alaska and despite an overnight easing of yields. ASX 200 (+0.7%) was kept afloat with M&A news in focus after Blackstone made an offer to acquire Crown Resorts at a 20% premium which lifted shares in the latter by a similar extent although gains in Australia were capped amid heavy rain and floods in New South Wales which resulted in evacuation orders and pressured insurers. Nikkei 225 (-2.1%) suffered intraday losses of as much as 2% in the aftermath of the BoJ policy tweaks, ban on foreign spectators at the Tokyo Olympics and with auto stocks spooked due to a recent fire at the Renesas chip plant in Naka which the Co. stated could have a very large impact on its supply to automakers, while a firmer JPY also provided headwinds for Japanese markets. Hang Seng (-0.4%) and Shanghai Comp. (+1.1%) were mixed after the Alaska summit failed to reset relations between the world’s two largest economies and with Hong Kong tentative as it braces for IPO activity with Baidu to debut tomorrow, although the mainland was positive amid updates from the PBoC which kept the 1yr and 5yr Loan Prime Rates unchanged for an 11th consecutive month as expected, while there were also recent comments from PBoC Governor Yi that China has ample monetary policy tools and relatively large room for monetary policy adjustments. Finally, 10yr JGBs were higher as they tracked the rebound in USTs and decline in yields, with prices also supported by underperformance in Japanese stocks and the BoJ's presence in the market for over JPY 1.2tln of JGBs heavily concentrated in 1yr-10yr maturities.

Top Asian News

  • CapitaLand to Split Main Businesses in Revamp After Rare Loss
  • Korea Travel App Eyes Dual IPO Listing at $4 Billion-Plus Value
  • China Confronted by Show of Western Unity at Canadian’s Trial
  • Myanmar Junta Expects Asian Nations to Keep Investing After Coup

European equities initially opened the first session of the week mixed across the board (Euro Stoxx 50 -0.1%), but briefly experienced some negative bias in early trade. The mixed lead followed Asia’s similar handover whilst US equity futures similarly vary with the tech-laden NQ (+0.8%) outperforming as yields wane off last week's highs. Back to Europe, sectors opened firmly in the red with Travel & Leisure (-1.2%) the laggard due to the rising COVID infection rates across Europe. Paris has entered a new 4-week lockdown and Germany is reportedly set to extend its lockdown for a 5th month meaning the economic outlook and holiday prosperity has dwindled resulting in the travel & leisure sector being severely impacted this morning. Add to that, the UK's Defence Secretary refrained from ruling out an extension to the ban on foreign holidays in order to control the spread of coronavirus. Meanwhile, Banks (-0.3%) have also seen downside amid a lower yield environment and follow-through from banks with historical exposure to Turkey, such as BBVA (-6.1%) and ING (-1.7%), who have been considerably affected by the surprise sacking of the CBRT governor by the Turkish President. On the upside, Autos (+1.6%) is the notable outperformer which may be in turn due to Porsche (+5.5%) and Volkswagen’s (+5.4%) firmer openings. Elsewhere on the individual movers front, Infineon (+3.3%) trades higher after the Co. announced it expects to reach pre-shut down levels in June 2021 and sees no negative impact on FY revenues amid strong global demand after the Texan deep freeze. AstraZeneca (+1.4%) has shrugged off negative headlines after the positive US COVID vaccine trial findings where it met its endpoint and illustrated a 79% efficacy at preventing symptomatic cases and 100% efficacy vs severe or critical disease and hospitalisation. Residing to the downside is the aforementioned travel names, Ryanair (-3.8%) and Lufthansa (-3.3%) are the distinct underperformers and are feeling the full force of the potentially dampened recovery outlook this summer. Lastly, heading into month-end and following last week moves in equities and bonds, the Goldman Sachs pension model estimates USD 58bln of equities to sell for month & quarter end (vs prev. view USD 65bln). Additionally, despite the revised forecast it would still rank as the 4th largest estimate in absolute USD value over the past three years.

Top European News

  • EU’s Plodding Stirs ECB Concerns as U.S. Delivers Stimulus
  • Suez Shares Rise After Call for Higher Bid Rejected by Veolia
  • Deliveroo Kicks Off $2.5 Billion IPO, U.K.’s Largest in 2021
  • Merkel Seeks Four-Week Lockdown Extension in German Setback

In FX, having extended its post-200 bp rate hike recovery rally to around 7.1867 vs the Dollar, the Lira has been struggling to keep its head above 8.0000 and depreciated to lows circa 8.1745 at one stage following the latest removal of a CBRT Governor under the Presidency of Erdogan who is renowned for his unorthodox beliefs that tightening monetary policy merely heightens price pressures rather than helping to combat above target inflation. As such, Agbal becomes the 2nd Central Bank head to be sacked and after just 5 months in the role in wake of last Thursday’s front-loaded 1 week repo rate increase to 19% from 17% vs 18% almost universally forecast.

  • DXY – Usd/Try aside, currency markets are relatively sedate and orderly as evidenced by the index hugging a tight line either side of 92.000 amidst relative calm in bond land after recent antics and last Thursday’s particularly aggressive bear-steepening that propelled benchmark yields to and through psychological levels. Indeed, the DXY is meandering between 92.155-91.872 and most of the Greenback’s G10 rivals are rangebound awaiting a catalyst to break one way or the other that could come from data, events and/or speakers today, but may be more likely later in the week given up to date and forward looking surveys like the preliminary Markit PMIs and Ifo.
  • JPY/CHF – The Yen and Franc could conceivably be firmer on safe-haven grounds given the aforementioned angst in Turkey that has rekindled investor angst due to credibility concerns, as the former has another look at offers and supply ahead of 108.50, while the latter is back above 0.9300 and 1.1050 against the Buck and Euro respectively in the ongoing absence of any visible intervention via weekly Swiss bank sight deposits. However, the SNB looms and the Bank has reiterated that there is more room on the balance sheet for monetary policy purposes even though currency interventions in 2020 totalled Chf 100 bn vs only Chf 13.2 bn the year before.
  • CAD/GBP/NZD/EUR – All pivoting their US counterpart in narrow confines, with the Loonie eyeing oil prices to see if WTI and Brent form a base and Sterling monitoring the vaccine situation following reports that the EU might block exports of AZN and ingredients to the UK. Elsewhere, the Kiwi appears to be benefiting from relative underperformance in the Aussie via the Aud/Nzd cross rather than anything NZ specific in advance of trade data and PMIs on Tuesday respectively, while the Euro awaits ECB QE updates and speakers for some independent impetus. Usd/Cad is currently straddling 1.2500, Cable 1.3850, Nzd/Usd 0.7150 as Aud/Nzd retreats through 1.0800 and Eur/Usd is rotating around 1.1900.
  • AUD – As noted above, the Aussie is lagging and not really helped by a weaker PBoC midpoint fix for the CNY overnight, but Aud/Usd has bounced from sub-7700 lows alongside Usd/CNH easing back towards 6.5000.

In commodities, WTI and Brent front month futures trade choppy within relatively tight ranges following last week’s notable decline in prices, as traders weigh the demand impact from the renewed lockdown measures in the Eurozone with the fiscal stimulus effects in the run up to next week’s key OPEC+ meeting. In terms of the latest on the demand side, Germany is reportedly set to extend its lockdown for a 5th month as infection rates remain above levels that would overstretch hospitals, according to a draft proposal, whilst reports also state that the EU is said to expected to block the AstraZeneca vaccine and ingredient exports to the UK which could impact 20% of supply. Energy agencies and analysts have previously voiced concern over the fragility of the OECD demand outlook given the risks of intermittent lockdowns. Furthermore, the UK Defence Secretary over the weekend refused to rule out an extension to the ban on foreign travel, which again could hinder the recovery prospects for jet fuel demand. On the flip side, it remains to be seen how OPEC+ could react to these developments, having carefully manoeuvred away from a market disappointment at the prior meeting. On that noting, relatively stale data but nonetheless, OPEC+ February compliance reached a record 113% (OPEC 124% and Non-OPEC 94%) due to Saudi's unilateral cut, according to sources cited by Argus. Saudi Aramco also reported earnings over the weekend which highlighted the impact of last year’s oil rout, albeit again this is backward looking and cannot provide much in the way of an outlook in this every-changing environment. Futures have gained some traction in recent trade – WTI trades on either side of USD 61.50/bbl (USD 60.35-61.85/bbl intraday range) while its Brent counterpart sees itself just above USD 64.50/bbl (USD 63.45-64.85/bbl intraday range), with risk events ahead including a slew of central bank speakers and a potentially interesting ECB PEPP release. Elsewhere, spot gold and silver are softer as yields pull back. Spot gold in the grander scheme remains within tight ranges and still influenced by the recent USD 1720-1730/oz support zone. In terms of base metals, LME copper trades on either side of USD 9,000/t and modestly softer amid the risk tone across Europe. Overnight, attention was on iron ore futures as the Dalian contract slumped over 6% and coking coal also slipping some 7% amid reports of a pollution notice doing the rounds in China’s steel industry regarding its steel-making city Tangshan, which could threaten 30-50% of output. Goldman Sachs expects iron ore prices to contract 15-20% in H1 2022, with the 3-month, 6-month and 12-month forecasts at USD 135/t, USD 115/t and USD 100/t.

US Event Calendar

  • 8:30am: Feb. Chicago Fed Nat Activity Index, est. 0.71, prior 0.66
  • 10am: Feb. Existing Home Sales MoM, est. -2.9%, prior 0.6%
  • 10am: Feb. Home Resales with Condos, est. 6.5m, prior 6.69m

DB's Jim Reid concludes the overnight wrap

While we fire up our abacus after its weekend slumber we’ll keep the monthly survey open for another couple of hours this morning. Amongst other questions, click here to rate the Fed and the ECB over the 12 month pandemic, whether the Fed will hike more or less than the market predicts, give your opinion as to whether you perceive the AZ vaccine to be as safe as Pfizer’s and also whether you are more or less healthy after a year of the pandemic. All help greatly appreciated. Results out tomorrow.

It’s been an interesting weekend with the highlight being Turkish central bank governor Naci Agbal surprisingly being replaced by Presidential decree. The Lira opened up last night as much as -17% down. As we type it is -10.32%. Agbal only lasted 4 months but this tenor was associated with an +18% rally in the Lira as rising interest rates, and with it inflation fighting policies, had attracted in investors. This all follows a 200bps hike on Thursday, double the consensus expectations. Maybe this is the most high profile victim of higher US yields seen so far.

The new central bank governor, Sahap Kavcioglu, said last night that the CBT will use monetary-policy tools effectively to deliver permanent price stability while adding that the bank’s rate-setting meetings will take place according to schedule. This likely eliminates the risk that markets might see a change in interest rates this week. The next rate setting meeting of the CBT is on April 15 given the present schedule. For a quick reaction to what has happened see our strategists’ piece last night here.

Asian markets have started the week on a weaker footing with the Nikkei (-1.82%), Hang Seng (-0.23%) and Kospi (0.17%) all trading lower. Chinese markets are an exception though with the CSI (+0.76%) and Shanghai Comp (+0.94%) both posting strong gains. Futures on the S&P 500 are currently at +0.02% after fluctuating between gains and losses but those on the Nasdaq are up +0.50% while European futures are pointing to a weaker open. Expect lots of chatter about where Turkey exposures are in the continent. Yields on 10y USTs are down -4.5bps bps to 1.678% with 10y real yields being down -3.4bps and 10y breakevens down -1.5bps. Japan (-2.5bps), Australia (-4.7bps) and New Zealand’s (-7.1bps) 10y bond yields are also trading lower.

In terms of markets it’s all about yields at the moment as last week saw the 7th successive weekly rise in US Treasuries yields – the longest streak since Jan/Feb 2018. Markets continue to be torn as to how much we should be worried about it. With the S&P closing the week only a fraction off Wednesday’s fresh all time highs then it’s clear that we’re coping for now. However there’s no doubt this is becoming complicated. When former US Treasury Secretary Summers says, as he did over the weekend, that the US faces the worst macroeconomic policy in 40 years one has to listen whether you agree or not.

A slight surprise on Friday was the announce of the reinstatement of the supplementary leverage ratio (SLR) for bank holdings of bank reserves and Treasuries after an emergency rule runs out at the end of this month. Yields spiked a few basis points higher on the news but there has been talk that the fear of this has been part of the reason yields have been on a relentless march upwards recently. There has been a fear of bank balance sheet deleveraging on this which has led to selling of the long end and has helped drive bills into negative territory. Deep down it’s another “too much cash in the system“ problem. People more expert on this than me suggest that after a period of consultation a fix will be found. Nevertheless, with all this in mind this week’s auctions will be a good litmus test of how comfortable markets are with bond market risk at the moment. Purely for bonds we have $60 billion 2-year tomorrow, $61 billion 5-year (Wednesday) and $62 billion 7-year notes (Thursday) to at least monitor. The bad 7-year auction at a similar time last month was a bit of a warning sign for demand at the then prevailing levels so this might be one to watch.

Elsewhere with the major central bank meetings now out of the way, market attention over the week ahead will likely turn back to the pace of the economic recovery, with a focus on the release of the flash PMIs for March (Wednesday), as well as the potential for increased pandemic restrictions as the global case count has begun to rise again. Other events in focus will include Fed Chair Powell and US Treasury Secretary Yellen testifying before congressional committees (Tuesday and Wednesday), Powell speaking at a BIS event today, as well as an EU leaders’ summit at the end of the week, where the pandemic and the vaccination programme will top the agenda.

In more specific detail on the PMIs, in recent months there’s been a divergence in the indicators, with Europe lagging behind the US, and the services sector lagging manufacturing. Indeed, the Euro Area composite PMI has been beneath the 50- mark for 4 successive months, whereas the US composite PMI rose to 59.5 in February, its highest level since August 2014. With restrictions beginning to tighten in Europe again whilst the stimulus checks arrive in the US, it’ll be interesting to see if this divergence widens further over the coming weeks and months. Also watch out for the Ifo business climate indicator from Germany (Friday).

From central banks, the main highlight will be Fed Chair Powell’s appearance tomorrow and Wednesday before the House Financial Services Committee and the Senate Banking Committee on the CARES Act. He’ll be doing this alongside Treasury Secretary Janet Yellen. Markets will be paying close attention to see if Powell has any further commentary on the Fed’s reaction function, particularly since their dot plot last week showed a majority of the FOMC keeping rates on holding through the end of 2023, even as they projected above-target inflation. Also of interest will be if Powell has any comments on the recent rise in yields, with those on 10yr US Treasuries rising to their highest levels since January 2020 in the week just gone.

Towards the end of the week, EU leaders will be gathering in Brussels for their latest summit, in which Covid-19 is expected to feature heavily on the agenda. The EU have been criticised for the slow pace of their vaccination programme, which has lagged behind the UK and the US, and a number of countries temporarily suspended the AstraZeneca vaccine following reports of blood clots last week. Commission President von der Leyen even refused to rule out using Article 122, which would in theory allow the EU to take control of the production and distribution of vaccines, potentially placing export controls on vaccines that had been destined elsewhere such as the UK. Separately on the pandemic, German Chancellor Merkel will be speaking with state leaders today as they decide their next steps to deal with rising caseloads. The country’s lockdown restrictions currently expire on March 28. Stricter restrictions are predicted with Bloomberg last night suggesting another 4-week extension to April 18th being likely. Across the other side of Atlantic, Massachusetts said that it will be easing restrictions further today with indoor and outdoor stadiums, including Fenway Park, allowed to reopen at 12% capacity, and the numbers allowed at public and private gatherings will also increase.

Recapping last week now and risk markets hit a bit of a snag as bond yields, particularly in the US, continued to surge higher. The S&P 500 lost -0.77% over the course of the week (-0.06% Friday), though it did reach a record high on Wednesday just after last week’s FOMC meeting. Small caps fell further as the Russell 2000 lost -2.77%, but is still up over +15.8% YTD compared to the S&P’s +4.2% gain. Tech stocks more or less moved in-line with the S&P as the NASDAQ composite fell -0.79% over the course of the week, though large cap tech stocks actually recovered versus their cyclical peers, with NYFANG index down just -0.51%, while bank stocks on both sides of the Atlantic saw their winning runs ease slightly. US Banks fell back -0.92% and their European counterparts lost -0.53%, though both are up +23.9% and +20.0% respectively YTD. The STOXX 600 outperformed US stocks overall, but the index was largely unchanged on the week (+0.06%). Oil prices saw a strong pullback, which weighed on energy stocks. There was no direct catalyst, but Brent (-6.78%) and WTI (-6.39%) crude both fell.

US 10yr yields rose 4 out of 5 days last week to finish +9.6bps higher (+1.3bps Friday) at 1.721% – its highest closing level since mid-January of last year. It was the seventh weekly rise in yields, which remains the longest streak since Jan/Feb 2018. The move at the long end saw the 2y10y yield curve steepen another +9.4bps to 156.8bps its steepest level since July 2015. Much of the move came following Wednesday’s FOMC meeting as the market repriced real rate and inflation expectations. Meanwhile core rates in Europe rose in a more moderated fashion. UK gilts rose +1.6bps to 0.84% as 10y bund yields increased +1.2bps to -0.29%.


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