Stock market rally pauses, dollar falls for third day
The rally in global stock markets took a pause overnight, as investors weigh latest news on Covid-19 cases versus vaccines and upcoming corporate earnings. Also, expectations for inflation are at the highest level since 2013, fueling concerns that increasing bond yields may eventually impact equity valuations. The dollar is slightly lower with safe havens Swiss franc and Japanese yen as leaders. The UK pound rallied to a near three-year high. US 10-yr Treasuries are holding steady at 1.15%, oil prices are soft at 57.80 $/bbl and gold firmed for the third day, but remains within a month-long downtrend.
February 9, 2021
EUR/USD 1.2097 GBP/USD 1.379 USD/CAD 1.2753 AUD/USD 0.7719 USD/JPY 104.59 USD/CNH 6.427 USD/ILS 3.2507 USD/MXN 20.1014 USD/CHF 0.8935 USD/INR 72.8775 USD/BRL 5.4139 USD/SGD 1.3280 USD/DKK 6.1474 USD/SEK 8.3376 USD/NOK 8.4735
The dollar is broadly lower against its peer currencies in-line with a pause by investors, particularly in “reflation trade” positioning. Reflation trades favor assets likely to benefit from rising economic growth and inflation. Such reflation will be characterized by steepening global yield curves and ‘risk-on’ investor sentiment, increasing demand for ‘risky’ stocks (foreign to outperform overvalued US stocks), commodities, and foreign currencies (a lower dollar).GBP
The UK pound rallied to its highest level in nearly three years. Demand for the currency was in-line with broad weakness in the US dollar and as investors have now effectively priced out negative interest rates by the Bank of England. Friday’s UK GDP data will be watched closely for signs of growth, as the UK has underperformed most other developed economies.EUR
The euro is higher by 0.40% overnight amid optimism that Premier-designate Mario Draghi will drive much-needed structural reforms in Italy as he forms a new government. Yields on 10-year Italy government bonds fell to all-time low at 0.51%. An analyst from Natwest Markets said “Draghi could be a regime changer for Italian politics [there have been 66 governments in Italy since 1945], being both pro-EU and pro-reform.”CADAfter an initial rally overnight, the Canadian dollar dropped slightly with little news to affect the currency. Soft oil prices were tempered by firm gold prices in their impact on the loonie. Canadian bond yields are moving at a similar upward pace as are US Treasuries: Canadian 10-yr yield at 1.00% is up from January’s low at 0.79%, while UST are at 1.15% from a low at 1.01%.ASIA/PACIFIC
The Chinese yuan is slightly lower versus the dollar after the PBOC stated in its quarterly report that it was committed from making “sharp turns” in its monetary policy.
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