Newsquawk EU Mid Session : Dollar resurgent in the Fed aftermath, but debt extends declines - 17th June 2021

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Analysis details (11:22)

EQUITIES

Europe bourse trade mostly lower in the aftermath of the hawkish Fed announcement yesterday, albeit losses in the region are marginal (Euro Stoxx 50 -0.2%). US equity futures meanwhile hold onto a bulk of the post-FOMC losses with marginal underperformance seen in the tech-laden NQ amid the rates environment. Back to Europe, sectors are mostly lower with no real theme nor bias. Banks outperform amid favourable yields, in turn pressuring Tech towards the bottom of the bunch. Travel & Leisure names see tailwinds amid reports that the UK may allow fully vaccinated people to travel to amber list countries without needing to quarantine. Basic Resources are the clear underperformers on the back of the continuing decline in base metal prices. As such, the IBEX (+0.2%) nursed its initial losses on the back of a strong performance in its heavyweight sectors – the Banks and Travel & Leisure names, whilst the FTSE 100 (-0.5%) narrowly underperforms the region as gains in the banking sector fails to offset losses in the mining names. In terms of individual movers, Airbus (+1.3%) is firmer as the UK and US reached an accord on the Airbus/Boeing (-0.4%) dispute whereby the sides will not impose tariffs related to this dispute for five years, in a deal that seemingly echoes that made between the US and the EU.

FX

DXY - The Dollar index is as good a proxy as any for gauging currency market perceptions and general sentiment in wake of the June FOMC meeting that threw few surprises in terms of policy settings, but was accompanied by more upbeat SEP forecasts, dot plots bringing forward rate hike projections and ended with Fed chair Powell announcing that the eagerly awaited and much hyped talk about when to talk about tapering has now officially started. In response, the DXY shot up through 91.000 having struggled to break free from restraints around the 90.500 level for several sessions and has subsequently extended beyond Wednesday’s best (91.408) to 91.840, so far, while firmly breaching technical resistance in the form of the 200 DMA (91.511) in the process. Ahead, jobless claims and the Philly Fed survey provide the first post-FOMC macro releases as the process of weighing substantial progress towards employment and inflation targets begins in earnest.

CHF/NOK/BRL - Also looking for direction and independent impetus from latest Central Bank guidance, but getting mixed messages as the SNB stood pat and effectively delivered a repeat statement on FX interventions having retained a highly valued classification for the Franc. However, the Norges Bank nailed down September as the month to raise its depo rate and the path was adjusted accordingly, with Governor Olsen subsequently underscoring that this might result in 2 hikes before the end of 2021 followed by 1 per quarter through H1 next year. Meanwhile, the BCB stuck to its 75 bp consecutive meeting tightening trend last night and indicated that it plans to make it 4 in a row after a tweak to the language regarding normalisation to remove the word ‘partial’ (in view of the unwinding already undertaken to lift the SELIC closer to neutral). Usd/Chf is hovering around 0.9135, Eur/Nok circa 10.1600 and Usd/Brl closed above 5.0500 compared to just under 5.0000 at one stage pre-Fed and BCB.

NZD/AUD - The Kiwi and Aussie have both been trying hard to swim against the tide with assistance coming via significantly stronger than expected data in the form of Q1 GDP and May jobs respectively, but Nzd/Usd has faded from a fraction above 0.7100 to test support/underlying bids around 0.7050 and Aud/Usd is skirting 0.7600 compared to 0.7646, with dovish comments from RBA Governor Lowe taking some shine off the outstanding labour report.

CAD/EUR - No such props for the Loonie or Euro to lean on, so both are making way or yielding to the almost universal Greenback revival, as Usd/Cad rebounds over 1.2300 and Eur/Usd recoils to sub-1.1950 lows to leave hefty option expiry interest between 1.2000-1.1985 (1.7 bn) behind, barring a major change in trend.

JPY/GBP - Both narrowly mixed against the Dollar, but well off pre-FOMC levels with the Yen consolidating within a 110.82-54 band and Sterling striving to contain losses beneath 1.4000 with external help from the Eur/Gbp cross that has pulled back considerably further from 0.8600+ to probe 0.8550. Note, Usd/Jpy be drawn to 1 bn option expiries at the 110.50 strike, though 1.4 bn from 110.25 to 110.20 appear safe in the run up to the BoJ on Friday.

EM - A sea of red vs the resurgent Usd, but the Rub is going against the bearish grain and a cordial enough encounter between Russian President Putin and his US peer yesterday, while the Try will be seeking some sort of support if not salvation from the CBRT at noon – preview on the Headline Feed at 7.22BST, and for the BoJ tomorrow at 10.19BST.

FIXED INCOME

Debt futures are still attempting to draw a line in the sand, but with varying degrees of success depending on relative closing times and considering whether individual Central Bank policy makers are likely to follow the FOMC down a more hawkish path. Bunds, Gilts and US Treasuries all carved out new recovery highs earlier, at 172.25, 127.29 and 131-24+, but have waned again, with the 10 year UK bond and Short Sterling strip looking especially vulnerable after breaching 127.00 to trade at 126.91 (3 ticks away from Fib support) and extending declines amidst more pronounced bear-steepening (to -8 ticks in Mar23 at worst). Ahead, initial jobless claims, the Philly Fed business survey and leading index provide post-Fed pointers as markets really start to assess whether substantial progress towards twin policy remits is being made.

COMMODITIES

WTI and Brent front-month futures have been clambering off their post-Fed lows with the former back on a USD 72/bbl handle (vs low 71.33/bbl) and the latter within reaching distance of the USD 74.50/bbl mark (vs low 73.55/bbl). Fundamentals for the oil complex remain bullish as demand is expected to surge in the summer whilst the taps will remain controlled by OPEC+ on the supply side. Sticking with supply, an Iranian deal seems more out of reach than what had initially been expected, with the outstanding sticking points likely to take negotiations past the domestic elections on June 18th and closer to the expiry date of the IAEA/Iran agreement on June 24th – although the agency has been hinting at a possible extension to the monitoring deal. Nonetheless, desks have noted that the return of Iranian oil has been priced into the markets, but a deal remains in the balance. In terms of metals, spot gold and silver remain suppressed by the rampant Dollar and elevated yields, with the yellow metal probing USD 1,800/oz to the downside ahead of its 100 DMA at USD 1,795/oz. Spot silver drifts meanwhile dipped under USD 27/oz. In terms of base metals, LME copper remains under pressure with the 3M back under USD 9,500/t amid the firmer Buck, mild risk aversion, and the ongoing China crackdown against unfavourable prices. Finally, steel-making raw materials in China consolidated overnight following the hefty losses in the prior session.

17 Jun 2021 - 11:21- Research Sheet- Source: Newsquawk