US equities were on the mend, having sprung a couple of small leaks after financial stocks came under pressure over concerns about potential losses from exposure to a liquidated investment fund.
The bond market ignored the headline "hair on fire" melodrama as US10Y yields rose again, another 3bps to 1.71%. Oil prices gushed 1% even as the container ship that spent a week sideways in the Suez Canal found itself back on the straight and narrow – with thanks, it seems, to a Super Moon’s tidal force.
US equity gauges recovered nicely and proved resilient despite the quarter-end rebalancing. And as the contagion risk of the forced liquidation behind block sales in single name stocks lessens, investors feel less distracted – especially as the news quickly becomes tail-end fodder with the market moving to bigger fish to fry. And with the Fed dove's plumage on constant display, perhaps it’s a full-on pivot to hopefully much-improved data for March, which should start coming down the pipe this week and light the touch paper for a robust set of data into Q2.
After a couple of quiet weeks on the US data front, fasten your seatbelt as things are sure to get a little more interesting in the coming days.
With Spring in the air and President Biden expected to formally unveil a $3trn infrastructure plan Wednesday, just as the acceleration in activity from stimulus checks hitting doormats and feeding into the alt-data, it could provide a smoother and lengthier runway for risk to initially take flight.
But spending the money is the easy part – the more difficult decision is how to pay for it. And with all roads intersecting at "tax hike junction", Wall Street won't be enamoured, so all that’s yummy around the infrastructure deal will need to be taken with a pinch of the tax man’s salt.
Last week was characterised by wild intraday volatility in the crude price, with the entire week almost unchanged but close to a $5/bbl intra-week range. Well, it was no rest for the weary on Monday as the whipsaw was on full force again, illustrating how fragile and the testy sentiment is.
Still, into the Asia open, optimism for an extension of production curbs at this week's OPEC+ meeting appears to be working in favour of today's price action. OPEC+, having maintained production cuts at higher prices last month, seems less likely to open the taps at current levels
Time to recheck the dipstick and top up on oil?
Oil is also powering ahead as energy traders look to President Joe Biden to outline his infrastructure spending plans this week, which could supercharge an already accelerating US recovery.
Noisy markets not for the faint of heart
While there’s been plenty of noise to keep the fast money moving – and undoubtedly create conditions that aren’t for the faint of heart – Ever Given in the Suez is perhaps something of a volatility trigger, although the knock-on effect is relatively short-term and localised. Maybe more in focus are continuing lockdowns, including Manila and likely Mumbai, plus the upcoming OPEC+ meetings on 31-Mar/1-Apr where the pre-meeting assumptions are coalescing around producer caution in any decisions around bringing back production to this fragile market – albeit the continued rise in the frac count and higher US rig count should be serving as a warning to them in terms of price/market share.
I suspect markets will continue a two-pronged trade view in FX: to stay long USD vs vulnerable low-yielders where a dovish central bank is likely to keep rate divergence in play; and to stay positioned for the global recovery via only selective high beta FX funded out of EUR, CHF or JPY and avoiding the US dollar with the US yields set to move higher.
Higher yields and a stronger US dollar are entirely reasonable assumptions, given the US economy is well on its way to digging itself out of the pandemic. Massive fiscal stimulus is now literally hitting doormats, and the signs are that President Biden has an enormous infrastructure plan for later this year. Why wouldn't yields rise?
EURUSD is still wilting around its lows for the year so far, with Covid-19 headlines and EU recovery fund concerns in play. Germany's constitutional court has blocked Germany's ratification of the Next Generation EU fund until it has considered a challenge to its constitutional legality. And EURGBP has moved to a fresh YTD low this morning, echoing the continued divergence in Covid-19 related headlines.
The Malaysian Ringgit
The Ringgit improved off monthly lows after the government released better than expected trade data. With oil showing some signs of recovering from the EU lockdowns, it's adding a modicum of support. Bonds have sold off sharply. While stretched absolute yields could offer value to select "real" local money investors with lower liability hurdles, I still think foreign investors will remain wary as the easing cycle is over and should not be considered a reliable source of inflows.
I don't have any news on the FTSE World Government Bond Index review, which will decide whether Malaysia will remain on the watch list. If MGSs stay on the list, it shouldn't rock the boat, but it will likely help the MYR a bit if removed. However, with the market turning into a better seller of bonds, any MYR bounce could be fleeting.
The Thai Bhat
USDTHB remains bid with foreign investors reducing holdings of local bonds and stocks – this despite the effort to rekindle reopening plans by reducing days spent under quarantine requirements in some tourist provinces. Investors remain worried that another holiday season could go up in dust if the government doesn't ease the tight and confusing entry requirement certificates.
Of course, higher US yields are providing the sour eye-candy. Gold suffered the double whammy indignity amid quarter-end reallocation flows starting to come to market. As US cash equities open, gold broke below the previous lows around $1,720 amid quarter-end reallocation hit the market. The following support is around $1,700 then $1,680.
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Despite much uncertainty about the potential impact of a new coronavirus variant, investors were quick to rush to safe havens