Daily Market Pulse

Hedge fund’s default sparks few jitters in markets

5 minute read


The greenback began the week on a right footing, gaining 0.13% against a basket of major currencies. The USD was supported by optimism about the economy as the number of people receiving vaccination shots hit 94 million people, outpacing the U.K. and Europe’s campaign. Meanwhile, U.S. bank shares fell amid warnings of potential losses from the hedge fund's default on margin calls after Credit Suisse and Nomura told shareholders their businesses face “significant” losses. On that note, the greenback also drew some safe-haven bids as investors sold-off their positions in the equity market. Looking ahead, Redbook retails sales report and this month’s consumer confidence figures highlight the economic agenda.


The common currency dropped 0.23% against the U.S. dollar on Monday, erasing recent gains from last Friday as the prospect of tougher Covid-19 measures to curb new infections in France and Germany dulled the short-term outlook for the European economy.  French President Emmanuel Macron is locking down several regions including the Paris area, only essential businesses and schools will stay open. It is a busy day ahead on the economic front, with inflation numbers from Germany and Eurozone Industrial and Consumer Sentiment for March. Retail sales figures from Spain will also drive attention.


The British Pound closed 0.17% down after the greenback hit its strongest level since November last year as the currency drew some safe-haven bids on concerns about the potential fallout of a hedge fund's default on margin calls. Elsewhere, providing support to the Pound, England’s stay-at-home lockdown order ended yesterday with people allowed to meet up outside in groups of six for the first time in nearly three months - the first in a series of steps to reopen the country and the economy. According to the Bank of England, the business reopening will bounce the economy back as consumers spend savings that they have accumulated under lockdown measures.


The Japanese yen began the week on the wrong foot (-0.14%), with the USD consolidating the recent gains. The yen is among the worst-performing currencies so far this quarter, down 6% against the dollar. The recent economic data also did not help the JPY. Japanese retail sales fell 1.5% for the third straight month in February as households kept a lid on expenditure amid the Covid-19 emergency, underscoring the fragile nature of the economy’s recovery from last year’s slump. Yet yesterday, Japan’s jobless rate remained steady at 2.9% in February, while the availability of jobs declined from the previous month. Today, in the absence of material stats, the JPY may be driven by movements in the U.S. bond markets.


The Canadian dollar inched down 0.16% against a stronger greenback on Monday as the default of the Archegos family office created a few jitters in markets more broadly, offsetting higher oil prices. Although the successful rescue of the big ship blocking the Suez Canal is bearish for the future oil prices, now there are speculations that Russia would support stable oil output from OPEC+ ahead of a meeting with the producer group on Thursday. Much of the speculation is due to worries over the near-term recovery in demand, amid renewed lockdown measures in Europe particularly. Today’s calendar brings Payroll employment numbers.


The Mexican peso started the week sliding 0.13% down against the greenback after the government admitted on its website that the real Covid-19 death toll is more than 322K people, 60% more than the official test-confirmed number. Also, the oil-linked MXN reflected the successful rescue of the container ship stranded in the Suez Canal, which led the oil prices to drop by 1% in the overnight trading session. Elsewhere, the bill which would reform the country’s hydrocarbon law sent to congress last Friday is still seen as an internal risk, as it has the potential to stop investment in the country. Looking ahead, investors and traders will wait for the Fiscal Balance for February later today.


The Chinese yuan started the week on the wrong foot after the Chinese yuan eased (-0.43%) against the greenback as the good progress in the U.S. vaccine rollout boosted the USD. Meanwhile, another near-term market focus is the FTSE Russel’s review on adding the Chinese Bond Index (WGBI) in its flagship bond index. If approved, this would set the stage for billions of dollars of inflows into China and give important support to the CNY. Looking ahead, manufacturing and non-manufacturing PMIs will be published today, and market forecasts suggest an upbeat reading for March, following the strong manufacturing activity in January and February.


Brazilian real weakened 0.44% against the U.S. dollar as three ministers announced their exit from Bolsonaro’s government on Monday. The Defense Minister, along with the Foreign and Health ministers submitted their resignation amid controversy over the government’s problems securing more Covid-19 vaccines and growing pressure to address the pandemic. Meanwhile, recent discussions between the executive and some parliamentarians have brought up the possibility of impeachment to the fore. This political risk was triggered after the approval of the controversial new federal budget, which circumvents the fiscal rules. Today, the IGP-M inflation index for March might add fuel to the current inflationary pressure.


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