Daily Market Pulse

Calm over bond markets and sharp gains for global equities

6 minute read


The greenback found a solid demand against a basket of major currencies on Monday. The U.S. dollar climbed 0.3% even with a calm over Treasury bond markets and sharp gains for equities. The S&P added more than 2%, recording its best day since June of last year. The strong PMI reading provided support to the USD and suggested that the U.S. manufacturing sector is close to fully recovering the output lost last year to the pandemic. Moreover, business expectations about the year ahead jumped to a level exceeded only once in the past six years, buoyed by stimulus and post-pandemic recovery hopes as life continues to return to normal amid vaccine rollouts. Looking ahead, Fed Governor Brainard will make comments throughout the day, where comments on the bond market may come up.


The common currency failed to take advantage of the positive Manufacturing PMI reading and dropped 0.18% against the U.S. dollar on Monday. The eurozone’s manufacturing economy performed strongly in February as operating conditions improved to the greatest degree for three years. This was highlighted by the PMI index which rose to 57.9, up from 54.8 in January and better than the earlier flash reading. The index stands above the 50.0 mark that separates growth from contraction for an eighth successive month. It is worthwhile noting that Germany and the Netherlands, continued to lead the way in terms of overall growth. Looking ahead, the market will get data on eurozone inflation, as well as unemployment and retail sales from Germany.


The British pound was flat against the U.S. dollar on Monday, albeit the U.K. Manufacturing PMI data were revised higher for February. The seasonally adjusted PMI rose to 55.1 in February, up from 54.1 in January and above the flash estimate of 54.9. The PMI has signaled growth for nine months in a row. There is some optimism in the market, with the U.K. administering more than 21 million vaccine doses, outperforming many developed countries. Today, no material data will be published, leaving market players early waiting for tomorrow’s U.K. annual budget.


The USD/JPY pair notched its highest levels since mid-August, with the Japanese yuan sliding 0.24% for the fifth trading session in a row. Much of this fall is due to mixed economic data published yesterday. Capital spending fell 4.8% year-over-year in Q4, up from the 10.6% fall in Q3, but below the consensus of -2.0%. This was weaker than the market expected and suggests a big downgrade in Q4 GDP. On the other hand, the JPY declined even after the relatively strong PMI data which revealed that the country’s manufacturing PMI increased from 49.8 in January to 51.4 in February. This was the first time that the PMI has been in the expansion zone of 50 and above. Looking ahead, the Service PMI survey is expected today.


The Loonie jumped as much as 0.73% against its U.S. counterpart on Monday as pressure on riskier assets due to the recent jump in bond yields faded and data showed narrowing in Canada's current account deficit. Canada's current account deficit narrowed to $5.73 billion in the fourth quarter of 2020 from a revised $8.3 billion deficit in the third quarter, on a lower trade deficit on goods. The CAD’s leap was also due to the latest PMI data, which highlighted another solid improvement in the overall health and resilience of Canada's manufacturing sector. An improving domestic demand picture, greater purchasing activity, and a sustained period of employment suggest firms expect greater output in the months ahead. Today, Canada will provide the Q4 GDP figure and should drive some attention.


The Mexican peso recovered some lost ground against the greenback, with the currency closing 1.15% up on Monday. However, further gains were capped after official data showed that the monthly trade balance posted a deficit of USD 1.2 billion in January, below the median market expectations. Manufacturing PMI survey showed a mixed reading, with figures showing that Mexican manufacturers continued to lower production, employment, input purchasing, and stocks due to ongoing declines in sales. However, firms are starting to see the light at the end of the tunnel, with business sentiment hitting a one-year high. The day ahead, a combination of higher oil prices and unpopular government policies (for investors) should hinder a clear path for the MXN.


The Chinese yuan started the week printing soft gains (+0.13%) against the greenback after PMI data revealed a further, albeit softer, improvement in the health of China's manufacturing sector in February. Notably, companies recorded slower rises in both output and new work for the third month running as pandemic weighed on export sales and supplier performance. However, business confidence improved over hopes of global economic recovery in the months ahead. Earlier today, according to Bloomberg, Asian markets slipped after China’s top banking regulator commented he’s “very worried” about risks emerging from bubbles in global financial markets and the nation’s property sector, sparking fresh concerns about further tightening in China.


Yesterday, the USD/BRL pair continued to trade in an upside trend, with the Brazilian real touching its weakest level since November 5. The BRL retreated 0.7% as the country registered a worsening in the Covid-19 cases, with a 7-day moving average of deaths standing at 1,205 per day. The state government of São Paulo tightened restriction measures across the state. Manufacturing PMI data showed that the manufacturing sector in Brazil has regained momentum after a stuttering start to 2021, but the speed of recovery remains slower than in the second half of last year. Looking ahead, the BRL’s price should also continue to reflect expectations of more fiscal expansion and higher interest rates in 2021. It is expected the approval of a four-month extension of the emergency aid, which will jeopardize the already fragile fiscal sustainability in Brazil, raising local risk premia.


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