Daily Market Pulse

Jerome Powell and Janet Yellen speak on the pandemic response


The Dollar Index which tracks the dollar against a basket of major currencies retracted 0.32% in the first trading session of the week. Meanwhile, the yields continued to retreat from the fresh cycle highs, with the benchmark 10-year pulling back below 1.7%. The yields’ decline gave equities room to rally, with the Nasdaq and S&P 500 indexes jumping 1.71% and 0.70%, respectively. Today, market participants’ eyes will be on Washington as U.S. Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen speak on the pandemic response. Yellen is expected not only to highlight the improved economic outlook but also the need for more spending while Mr. Powell is set to repeat that the central bank will not act on forecasts of inflation. On that note, any surprise over there can set the market’s tone.


The Euro started the week on the right foot, strengthening 0.24% against the greenback. However, rising Covid-19 cases in Germany have led Chancellor Angela Merkel to impose a nationwide lockdown for four more weeks. During Easter, all stores will be shut for five days, except for a brief respite for food stores. Additionally, although vaccine diplomacy between the EU and the U.K. is progressing, the fact the EU is far behind the U.S. and the U.K in its vaccination campaign will continue to weigh on the single currency. Today, Italian Industrial Sales and Orders for January will be released, but the out-of-date numbers should have a muted impact on the market.


The British Pound fell 0.06% against the USD as the virus resurgence fears pushed U.K. PM Boris Johnson to keep the lockdown measures. The number of cases in the United Kingdom has begun to rise sharply again in recent days. Tough new lockdown restrictions on social gatherings across England are to be announced on Wednesday. On the economic front, earlier today, official data showed that the Labor Force Survey measure of employment was 147K lower in the three months to January than in the previous three months, better than the consensus, -167K. Also, the headline, three-month average, unemployment rate fell to 5.0% in January, from 5.1% in December, below the consensus, 5.2%. The fresh numbers suggest that the labor market is no longer deteriorating, as the furlough scheme is continuing to give firms a virtually cost-free way to retain staff that currently are surplus to requirements. Investors will fully digest the report, which may support the GBP.


The Japanese yen rose 0.07% against its U.S. rival while the Japanese shares index fell 2.07% after Japan’s index of coincident economic indicators fell to 90.3 in January from a preliminary estimate of 91.7, while the index of leading economic indicators slipped to 98.5 in January from a preliminary reading of 99. The first measures current economic conditions, the latter is a composite index based on 12 economic indicators, that is designed to predict the future direction of the economy. Today, traders and investors will dig deep into the Bank of Japan Monetary Policy Meeting Minutes while waiting for the PMI reports tomorrow.


The Loonie lost some ground (-0.16%) against its U.S. counterpart on Monday as crude oil, one of Canada's major exports, inched down 0.23% ahead of a speech on Tuesday by the Bank of Canada Deputy Gov. Toni Gravelle. The outlook for the currency is positive, as Canada might benefit greatly from the gradual reopening of the U.S. economy. Canada sends about 75% of its exports to the U.S., including oil. Elsewhere, Canadian government bond yields have been catching up with the U.S.’s yield performance. The Canadian 10-year yield hit a 14-month high last Thursday, which lent support to the Loonie.


The Mexican peso edged 0.24% up against the greenback, however, further gains were capped after a plunge in the Turkish lira by 15%, which triggered fears across the emerging market currencies. Looking ahead, market participants will wait for the Jobless report on Wednesday. The Mexican labor market has been on the mend in recent months. Coupled with lower interest rates and low inflation, this has supported a decent private consumption recovery over the last few quarters. But Wednesday’s data might confirm that the recovery in the job market has stalled. The numbers might highlight that the pandemic and the economic recovery are inextricably linked.


The Chinese yuan continued to move sideways, closing flat against the U.S. dollar for the third trading session in a row, on Monday. While Chinese shares dropped as much as 1.8%, extending losses from this year’s peak to more than 14%. In general, the appetite for Chinese assets seems lower, after Western nations imposed sanctions on Chinese officials over human rights abuses in Xinjiang. The United States, the European Union, Britain, and Canada are seeking to punish Beijing for the mass detentions of Muslim Uighurs in the Xinjiang region of the country's northwest, where the U.S. says China is committing genocide. China’s ambassador to the EU warned the bloc not to interfere in its national security affairs, saying sanctions could fuel a confrontation. Beijing has denied that any personal freedoms have been restricted and has touted the benefits to people living in the region.


The impact of a plunge in the Turkish lira was felt across the emerging markets, which led the Brazilian Real to drop 0.26% against the U.S. dollar on Monday. Most emerging market currencies weakened on the news as investors sought the safety of the greenback. Domestically, elevated worries about the government’s handling of the pandemic and higher inflation expectations also put additional pressure on the BRL. According to the Focus Market Readout, market players raised the inflation estimate for the year from 4.60% to 4.71%, raised their Selic forecast to 5% at the end of 2021, and started to estimate lower GDP growth of 3.22%. Today, the FGV Consumer Confidence report, as well as Copom meeting minutes will drive attention.


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