Tuesday March 2nd, 2021

Equity markets mixed, oil prices dip, US$ and US yields higher as risk-off sentiment returns. The US$ index retests 1-month highs as markets focus on the Fed’s openness to higher US yields, while safe-haven buying increases on US stimulus, covid concerns and China’s “bubble” comment. President Biden holds a virtual lunch with top lawmakers as he presses his US$1.9T stimulus plan forward, keeping on track for March 14th deadline. The US is expected to announce sanctions on Russia for Navalny poisoning as soon as today. In other news, the BBC reports Dr Walensky the head of the CDC who warns Covid-19 variants pose ‘real threat’ to vaccine progress, saying about 70,000 new cases a day had been recorded last week – “a very high number”. Sino/US tensions continue as the US administration says it will use “all available tools” to fight China’s unfair trade practices. Meanwhile, China’s top banking regulator said they are studying effective measures to manage capital inflows to prevent global turbulence from affecting its domestic market. The regulator expressed wariness of the risk of bubbles bursting in foreign markets. CNY weakened 0.15% vs US$ on the comments, while Asian currencies weakened 0.3% on average. Trading currencies remain mixed with NZD down 0.1%, MXN & JPY are down 0.15%, ZAR weakens 0.3%, while AUD rallies 0.25%, NOK higher 0.35% vs US$. Intraday no key US data releases, so markets will remain focused US Stimulus updates, Fed Brainard speech and US yields.

Oil prices slip as weak Chinese factory activity increases concern that oil demand may ease. Adding to the pressure on oil prices is Thursday’s OPEC meeting where its members are expected to boost output levels from April. C$ strengthened initially with oil prices and found further support from an increasing optimism for an improving Canadian vaccination rollout. The US Fed’s openness to higher US yields and the prospect OPEC will increase oil output will likely put pressure on C$ moving forward. Intraday markets will focus on Canadian GDP for direction. Bias to buy US$ on dips.  Support at 1.2620, Resistance resets at 1.2715.

Euro continues to edge lower towards 1.2 amid higher US Yields and EU covid lockdowns. Central banks are diverging on the direction of yields with the Fed seeing rising yields as a sign of growth vs the ECB voicing concerns for its impact on the EZ economic recovery. Stronger US yields will likely strengthen the US$, weaken the Euro and would be perceived as a positive for the ECB. Adding pressure to the Euro, Germany is expected to extend lockdown measures to the end of March, while France is considering new restrictions. Bias remains Euro will continue to see short-term selling. Support lowers to 1.1950 with Resistance lowering to 1.2080. EURGBP holds steady as both currencies weakened equally vs US$. Overall bias remains for further short-term weakness in EUR/GBP as the vaccination & economic rebound story continues to favour GBP. Support holds 8600, with resistance at 8735.

GBP falls below 1.39 amid a stronger US$ and nervousness ahead of the UK‘s budget. Safe haven US$ buying from higher US yields and worries over China’s “bubble” comments. Markets are focused on the UK’s budget out March 3rd, the Chancellor will give details on the fourth self-employed grant, the furlough scheme and the stamp duty holiday. Any hike in corporate taxes could be seen as risk to companies as they struggle to rebuild in a post-pandemic environment. UK vaccinations continue to drive forward, but comments on the rise of covid-variants have increased some caution to markets.  Support resets at 1.3855 while resistance at 1.3970.