Bonds rally across the boards as yields tumble on renewed conerns about global growth. The latest catalyst is German manufacturing deepening into recession. All currencies down vs USD except for JPY. Germany's 10 year bund yield retest zero% and their US counterpart break the Jan low to hit 2.48%--lowest since Jan 2018. UK gilt yields are at their lowest since Sep 2017. Ashraf tweeted that falling yields combined with the 2nd consecutive drop in oil leaves no choice but for renewed selling in equity indices, thus helping the existing Premium trades.
The US dollar erased its post-FOMC declines against the euro, pound and commodity currencies on Thursday. One of the catalysts was investors returning to US equities in the hopes that low rates will spur growth and profits. The S&P 500 opened lower then found support at the old quadruple top of 2816 and then ripped higher, finishing up 31 points to a new 2019 high.
The biggest dollar move was against the pound but that was mostly a story of Brexit worries. The low of the day came ahead of May's meeting with EU leaders and request for an extension. There were murmurs about France rejecting a deal and the low was 1.3004. Once the meeting got underway the leaks displayed a more-constructive tone with several options for conditional and unconditional Article 50 extensions. The situation will change as the meeting wraps up but the EU's aim is either a very short extension – as little as two weeks – in order to get the deal through parliament. If that fails, they want an extension through year end, presumable for time for May to resign and Conservatives to find a new leader; or to hold a general election.
The better tone helped cable rebound to 1.3109, a bounce of more than 100 pips from the lows.
Upcoming Friday data include: Canadian CPI and retail sales. Both will be closely watch and could push the BOC towards cutting rates. The Canadian 10-year note is trading at 1.67%, that's 7 basis points below the BOC's overnight rate in a troubling sign of inversion.
|0.6%||0.1%||Mar 22 12:30|
The message confirmed from the FOMC there will not be any rate hike rates this year ... unless there is a shocking surprise in growth. The other key development is the Fed announcement to halt the process of uwinding its balance sheet by end of September. The US dollar slumped after the Fed statement, taking out some important levels, especially as the 10-year yield posted its biggest daily decline since May 2018. Aussie is up further on an unexpected decline in the jobless rate. The Premium EURUSD short was closed for 220 pip gain, while 8 of the remaining 9 trades are in the green.
The Federal Reserve delivered a dovish surprise that sent the US dollar sharply lower. The chatter before the announcement was that the Fed would keep a rate hike this year on the table but the dot plot median scratched both 2019 hikes while leaving only one in 2020.
That sparked a first leg of USD selling. The second wave of USD selling emerged in the press conference. A dovish shift based on soft growth abroad, especially in China and Europe, along with tariff risks wouldn't have been a huge surprise. Powell certainly highlighted that, but he also spoke about US-centric risks including a slowdown in business investment and consumer spending. That was a more morose outlook than anticipated and sent the dollar to the lows of the day.
As the US dollar sank it broke some notable levels. EUR/USD rose above the late-Feb top to the highest level since Feb 3. The kiwi also broke the late-Feb high and is now flirting with the best levels of the year. USD/JPY fell to a three-week low.
Perhaps the most-notable was WTI crude oil as it rallied above $60 and the 50% retracement of the Q4 breakdown. Crude was also lifted by a surprise drawdown in US weekly inventories. The Premium long in US oil at 54 remains open.
In Asia-Pacific trading, the kiwi gave back some of its gains on a report showing Q4 y/y growth at 2.3% compared to 2.5% expected. Calls for an RBNZ rate hike continue to grow louder.
In Australia talk of an RBA rate cut softened after the Feb jobless rate fell unexpectedly to 4.9% from 5.0%, while employment rose to 4.6K vs exp 15K and previous 38K.
|4.6K||14.8K||38.3K||Mar 21 0:30|