Flash PMIs in focus today

Fed Chair Jerome Powell and Treasury Secretary Janet Yellen stuck to the script in their testimony to the House Financial Services Committee yesterday in a hearing on the economic response to the coronavirus crisis. Powell noted that while there was a recovery in the manufacturing sector, it was more uneven in services and that while inflation would rise this year, it would subside in 2022. Yellen said that fiscal support would help the economy get back to full employment next year, noting there were still “deep pockets of pain” in the economy. Both will testify before the Senate Banking Committee today. Separately, the Fed announced that it would launch a Financial Stability Climate Committee, which will focus on assessing and addressing banks’ resilience to climate change.
US new home sales fell to a 9-year low in February as bad weather weighed on sales and supply remained limited. The number of new homes sold fell -18.2% m/m but prices increased 0.9% m/m
Unemployment in the UK declined to 5.0% in the three months to January, better than the 5.2% expected. The extension to the furlough scheme has helped keep unemployment contained despite extended lockdowns, but the scheme will expire in September.
Japan’s Jibun manufacturing PMI rose to 52.0 in March from 51.4 in February, but the services PMI remained in contraction territory at 46.5.

Today’s Economic Data and Events

11:00 UK CPI (Feb) forecast 0.5% m/m and 0.8% y/y

13:00 Eurozone flash composite PMI (Mar) forecast 49.1

13:30 UK flash composite PMI (Mar) forecast 51.4

16:30 US durable goods orders (Feb) forecast 0.5% m/m

17:45 US flash manufacturing PMI (Mar) forecast 59.5

17:45 US flash services PMI (Mar) forecast 60.1

Fixed income

Rising anxiety over increasing Covid-19 cases in Europe and parts of Asia helped to bolster the case for haven assets overnight and benchmark government bond markets caught a substantial bid. Bonds rose across geographies with yields on USTs, bunds and gilts all falling. The UST curve extended its bull flattening move with yields on 2yr USTs holding flat while the 10yr UST yield fell more than 7bps by the close to 1.6206%.
Inflation breakevens also fell back as Fed chair Jerome Powell again used his testimony to the House financial services committee to downplay inflation fears, saying that any price rises would be “neither particularly large nor persistent.”
Emerging market bonds in general saw a positive moves overnight although a few standouts remain at risk. Turkish bonds continue to reel from the surprise dismissal of the previous CBRT governor and yields added more than 50bps on the 10yr to close at 18.21% while South African yields were also higher by a comparatively more muted 5bps to 9.345%.
The Islamic Development bank is pricing a 5yr sustainability sukuk at midswaps +39bps. Size will likely be determined by the order book.

The dollar rose on a strong risk-off move across markets with trade exposed currencies taking the brunt of the sell-off. The DXY index added 0.7% to settle at 92.336. The Euro closed down 0.7% at 1.1849 while GBPUSD was off by 0.8% at 1.3752. USDJPY pushed lower as investors sought safety.
The standout underperformer was NZD which fell below 0.70 against the USD for the first time since November. Changes to housing regulations along with a risk off move combined to sink the Kiwi by almost 2.3%. AUDUSD was also caught up in the selling, falling by almost 1.6% to 0.7624 while CAD depreciated by around 0.5% against the dollar.

Equities

Risk-off tone saw equity markets around the world falter yesterday, with case rises in Europe and elsewhere jeopardising the global recovery from the pandemic crisis. Travel and oil firms were especially affected, given concerns that summer leisure travel would be impacted once again.
In Europe, the DAX managed to close flat, but the FTSE 100 (-0.4%), the CAC (-0.4%) and the composite STOXX 600 (-0.2%) all closed lower.
In the US the news of the USD 3tn infrastructure stimulus plan did little to boost markets, and all three major indices closed lower. The tech-heavy NASDAQ was the biggest loser (-1.1%), with the S&P 500 and the Dow Jones down -0.8% and -0.9% respectively.
In China, the Shanghai Composite continues to fall, down -0.7% in trading this morning and down -4.9% from its level a month ago.
Dubai will see logistics firm Tristar Transport IPO next month, which would make it only the second IPO in three years. The company expects to raise USD 120-160mn through the listing.

Commodities

Oil prices fell sharply overnight with both Brent and WTI down by around 6%. Brent futures settled at 60.79/b while WTI has now firmly pushed below USD 60/b and closed at USD 57.76/b. News that more of Europe will be placed in lockdown is weighing on the near term demand outlook while a disruption to the Suez Canal may offer some immediate resistance to the selling pressure.
Data from the API showed a rise in US crude stocks of 2.9m bbl last week although they were broadly offset by a draw in gasoline inventories of more than 3.7m bbl. Official EIA data will be released later this evening.