The US Treasury 10Y yield hit 4% for the first time since 10 November. In the US ISM manufacturing PMI survey, prices paid rose a second month to 51.3 in February from 44.5 in January, above the breakeven 50 level for the first time since September. Given the concern that US disinflation might be losing momentum, markets are wary that prices paid may rise in the ISM services survey tomorrow. Although services prices paid decreased to 67.8 in January from 68.1 in December, the PCE deflator index steepened 0.6% MoM from 0.1%.
Earlier, the drop in the US Conference Board’s consumer confidence index to 102.9 in February from 107.1 in January was not as weak as it looked. The weaker sentiment came mainly from a fall in expectations (how consumers feel) to 69.7 from 77.8. The well-being of consumers was better reflected by the improvement in the present situation index to 152.8 from 150.9. For the first time since June, more than 50% of the respondents felt that jobs were plenty. For the next six months, more than 70% of the respondents felt that employment and income prospects would stay the same. Today, consensus expects US initial jobless claims to rise to 195k in the 24 Feb week from 192k the previous week. However, claims have surprised in the past two weeks by falling instead.
The higher US bond yields brought the S&P 500 and Nasdaq Composite indices lower by 0.5% and 0.7%, respectively. Having given back some 50% of this year’s gains, S&P and Nasdaq are at critical support levels around 3950 and 11400, respectively. Investors are wary that Fed Chair Jerome Powell will tell US lawmakers that US interest rates need to be “higher for longer” this year at his semi-annual testimony to the Senate Banking Panel on 7 March. Fed Presidents John Williams (New York) and Neel Kashkari (Minneapolis) favoured raising this year’s Fed Funds Rate target to 5.4% from the 5.1% pencilled last December. Like James Bullard (St Louis) and Loretta Mester (Cleveland), Kashkari was open to a 50 bps hike to 5-5.25% at the FOMC meeting on 22 March after the smaller 25 bps hike on 1 February.
The USD did not benefit from the higher US yields or weaker US equities. However, we prefer to view the DXY’s fall to 104.5 on the first day of March as the start of a possible consolidation after the solid 2.7% rebound to 104.9 in February. Like the Fed, the European Central Bank and the Bank of England are also looking at more hikes after this month’s meeting. However, the ECB may signal smaller moves after its third 50 bps hike expected on 16 March. The BOE could, after two 50 bps hikes, downsize first to 25 bps on 22 March. Consensus sees the Bank of Canada becoming the first major central bank to pause its hiking cycle on 8 March.
Regarding levels, the DXY index is consolidating between 103.8 and 105.9, flanked by its 20- and 50-day moving averages (MA). Several DXY components are trapped between the 20d and 100d MAs, i.e., EUR/USD 1.0490-1.0680, USD/JPY 133.90-136.80, and USD/CHF 0.9290-0.9440. GBP/USD’s range is tighter at 1.1980-1.2140, defined by its 50d and 100d MAs. USD/CAD is above 1.35, where its 20d, 50d, and 100d MAs are converging, but its upside appears capped around 1.37 or December’s highs.
Quote of the day
“At this stage, I would caution against suggesting either that we are done with increasing the bank rate, or that we will inevitable need to do more.”
BOE Governor Andrew Bailey
2 March in history
Moldova joined the United Nations in 1992.
Topic
Explore more
E & S Macro StrategyThe information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.