Curve flattening trades pressed longer dated Treasury rates lower again Thursday after Fed Chair Powell did not change his tune regarding the view on inflation, that it should be temporary, and that an accommodative stance is still necessary.
The curve collapsed to 108 bps, having retreated from 116 bps early in the week. It too was the narrowest since February and is in from the 157 bp gap from March 31. Elsewhere the BoJ did the expected and kept policy settings unchanged for now, but cut back its growth forecast for this year. JPN225 share average dipped below the psychologically key 28,000 mark as tech shares tracked declines on Wall Street overnight, while a continued surge in coronavirus infections dented investor sentiment. Weakness in chip-related shares also helped to bring down the USA500 & USA100 .
European stock markets struggled yesterday, Gilts sold off and Bunds pared gains as BoE’s Saunders added to comments from Deputy Governor Ramsden suggesting asset purchases may have to end earlier than previously expected. At the same time, the Delta variant and concern over the fall out from devastating floods in Germany in recent days could also weigh on the GER30 today.
Mixed earnings, uncertainties over inflation and Covid, along with current richly priced valuations prompted some profit taking.
FX markets: EURUSD has dropped to 1.1806, while GBPUSD eased to 1.3810. NZD up 0.6% at $0.7020 after consumer prices rose far faster than expected, bringing forward markets’ rate hike expectations to August. USOIL stayed under pressure drifting below $71.00 barrier. Gold on the other hand hit a 1-month high of $1,834.3, supported by a dovish Fed.
Today – In Europe, Eurozone May trade and June CPI are due. US releases Retail Sales and Michigan Index reports.
Biggest FX Mover @ (07:00 GMT) NZDJPY (+0.88%). NZD=IS the biggest mover amongst majors in the Asia session, and so far, however the rally seems to run out of steam as fast MAs flattened along with RSI at 55. MACD’s signla line remians negatice while Stochastics gives mixed signals at OB area.
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Andria Pichidi
Market Analyst
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