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U.S. Treasury is the major protagonist

USD

It was for the second consecutive week that the scale of the U.S. Treasury sell-off was the major protagonist in the markets after a week in which Fed Chair Powell expressed little concern over higher U.S. yields. As a consequence, shares and currencies around the world continued trading lower while the U.S. dollar saw a strong bid. Once again, policymakers and the market will focus on February inflation numbers, with the Consumer Price Index and Producer Price Index due, on Wednesday and Friday, respectively. Other than that, it’s a quiet week for economic news, and the passage of the $1.9 trillion economic stimulus plan is already seen as assured. Key figures coming up:

  • On Monday (03/08): Wholesale Inventories (Jan)
  • On Tuesday (03/09): NFIB Business Optimism (Feb)
  • On Wednesday (03/10): Consumer Price Inflation (Feb) | Monthly Budget Statement (Feb)
  • On Thursday (03/11): Jobless Claims | Job Openings (JOLTS) (Jan)
  • On Friday (03/12): Producer Price Inflation (Feb) | University of Michigan Consumer Sentiment (Mar)

EUR

Last week, the PMI figures occupied center stage.  While the manufacturing sector continued to deliver, the service sector woes left the Eurozone Composite at 48.8 in February. A continued contraction highlighted some uncertainty towards the economic recovery. At the same time, the jump in U.S. yields has also put pressure on the Euro, which led the European Central Bank (ECB) to act or at least respond with a clear message. It is a busier week ahead, with German industrial production figures due out on Monday ahead of finalized 4th quarter GDP numbers for the Eurozone on Tuesday. Among releases from Spain, Italy, France, and Germany, the ECB monetary policy decision and press conference on Thursday will be the main event. Key figures coming up:

  • On Monday (03/08): Germany Industrial Production (Jan)
  • On Tuesday (03/09): Germany Trade Balance (Jan) | Italy Industrial Production (Jan) | Eurozone GDP (Q4) | Eurozone Employment (Q4)
  • On Wednesday (03/10): France Industrial Production (Jan)
  • On Thursday (03/11): European Central Bank Policy Meeting
  • On Friday (03/12): Germany Consumer Price Inflation (Feb) | Spain Retail Sales (Jan) | Spain Consumer Price Inflation (Feb) | Eurozone Industrial Production (Jan)

GBP

The Pound continued to outperform its peers last week, with the Sterling trading at the strongest level since April 2018. This week starts with Britain exiting from the country’s third lockdown. Schools are to reopen and outdoor meetings with one person from another household will be allowed again. The rapid U.K. vaccination process continues to be crucial support for the GBP price action. Remarks from BoE Governor Bailey, scheduled for Monday, will be watched for clues about an appetite for negative rates in the UK as the central bank’s commitment to yield control after recent intervention in the bond markets. Wrapping the week up, markets will get the full range of production numbers, along with January’s GDP on Friday. Key figures coming up:

  • On Monday (03/08): BoE Gov Bailey Speaks | BRC Retail Sales Monitor (Feb)
  • On Wednesday (03/10): RICS House Price Balance (Feb)
  • On Friday (03/12): Trade Balance (Jan) | GDP (Jan) | Industrial Production (Jan) | Manufacturing Production (Jan)

JPY

Last week, the Japanese Yen continued to struggle badly as rising U.S. yields prevailed as the main handicap, capping any JPY’s attempt to move up. In February, the manufacturing sector returned to expansion, with the PMI rising from 49.8 to 51.4. On the other hand, the services sector continued to contract, with the PMI standing at 46.3. The upcoming week kicks off with Bank Lending and Trade Balance on Monday. Then, the attention will turn to the second estimated GDP numbers for the fourth quarter on Tuesday. At the end of the week, BSI Large Manufacturing Conditions Index numbers for the first quarter will draw interest. Key figures coming up:

  • On Monday (03/08): Bank Lending (Feb) | Trade Balance (Jan) | Economy Watchers Current Index (Feb)
  • On Tuesday (03/09): GDP (Q4 final) | Machine Tool Orders (Feb)
  • On Wednesday (03/10): Producer Price Inflation (Feb)
  • On Thursday (03/11): BSI Large Manufacturing Conditions (Q1)

CAD

The Loonie’s gains over the last week were due to the latest PMI data, which highlighted another solid improvement in the overall health and resilience of Canada's manufacturing sector. Moreover, surging oil prices provide important support to the CAD. Looking ahead, the interest rate meeting is being held at the Bank of Canada and will be closely watched amid growing concerns over rising bond yields. The central bank has pledged to keep interest rates at 0.25% until excess capacity is eroded, which at its last meeting the bank didn’t expect to see until 2023. Therefore, any surprise decision should be expected on Wednesday. Key figures coming up:

  • On Wednesday (03/10): Bank of Canada policy meeting
  • On Thursday (03/11): Deputy Gov Lawrence Schembri Speaks
  • On Friday (03/12): Employment Report (Feb)

MXN

Although oil prices traded higher last week, the commodity-linked Mexican peso failed to enjoy this as the MXN has been facing pressure from concerns over government intervention in local energy markets. In the next few days, a bill that would strengthen the dominance of Mexico’s state-owned electricity company is expected to become law. The measure would also limit the participation of private investors in the energy sector. On the economic front, on Tuesday Mexico will update inflation readings for February. Then, the market’s focus will turn to industrial production on Friday. Key figures coming up:

  • On Monday (03/08): Consumer Confidence (Feb)
  • On Tuesday (03/09): Consumer Price Inflation (Feb)
  • On Friday (03/12): Industrial Production (Jan)

CNY

Although last week’s stats were skewed to the negative, they had a muted impact on the markets, as investors were focused on the annual meeting of the National People’s Congress. In February, the market’s favored Caixin manufacturing PMI fell from 51.5 to 50.9, with the services PMI falling from 52.0 to 51.5. The upcoming week will see important numbers, which will provide further clues to assess the Chinese economic recovery. China’s trade balance numbers on Monday will come under scrutiny after recent signs of supply delays hampering trade flows and curbing exports. Inflation numbers are meanwhile expected to remain subdued on Tuesday. Key figures coming up:

  • On Monday (03/08): Trade Balance (Feb)
  • On Tuesday (03/09): Consumer Price Inflation (Feb) | Producer Price Inflation (Feb)  
  • On Thursday (03/11): New Loans and Money Supply (Feb)
  • On Friday (03/12): FDI (Jan)

BRL

The Brazilian real remained rather fragile and volatile against the U.S. dollar, with the BRL depreciating almost 2% over last week and more than 9.5% since the beginning of the year. Last week, senators approved the new emergency package bill while the government temporarily increased a tax (CSLL) on the banking sector to fund the tax relief on diesel and domestic gas. Elsewhere, Brazil is registering successive record highs in new cases and deaths due to Covid-19 while President Bolsonaro continues to criticize the restrictions imposed by local governors. Inflation figures on Thursday are the main week’s event on the economic front. Key figures coming up:

  • On Monday (03/08): Brazil Central Bank Focus Market Readout 
  • On Tuesday (03/09): Service Sector Growth (Jan)
  • On Wednesday (03/10): Foreign Exchange Flows
  • On Thursday (03/11): IPCA Inflation (Feb)
  • On Friday (03/12): IBC-Br Economic Activity (Jan) | Retail Sales (Jan)

Quick Insights

USD: Policymakers and the market will focus on February inflation numbers

USD: Policymakers and the market will focus on February inflation numbers

EUR: The ECB monetary policy decision and press conference on Thursday will be the main event

EUR: The ECB monetary policy decision and press conference on Thursday will be the main event

GBP: This week starts with Britain exiting from the country’s third lockdown

GBP: This week starts with Britain exiting from the country’s third lockdown

JPY: The Japanese Yen should continue to struggle badly if rising U.S. yields prevail

JPY: The Japanese Yen should continue to struggle badly if rising U.S. yields prevail

CAD: Any surprise decision should be expected from the Monetary Policy meeting

CAD: Any surprise decision should be expected from the Monetary Policy meeting

MXN: The new energy bill that would strengthen the dominance of Mexico’s state-owned electricity company is expected to become law

MXN: The new energy bill that would strengthen the dominance of Mexico’s state-owned electricity company is expected to become law

CNY: China’s trade balance numbers will come under scrutiny

CNY: China’s trade balance numbers will come under scrutiny

BRL: The Brazilian real remains rather fragile and volatile against the U.S. dollar

BRL: The Brazilian real remains rather fragile and volatile against the U.S. dollar

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