None of the G10 Peers Did Worse than the JPY

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Markets

The violence to which ties were sold in Asian business yesterday declined slightly in European and US business hours. The Japanese 10y yield remained marginally above the 0% + 25 bps upper limit for most of the day yet, even as the BoJ offered an unlimited buy of bonds twice. Previous yields in the US jumped nearly 14 bps at some point before pairing gains as the session evolved to around 6 bps (2y, 3y). Bidding measures of the double ST bond auction have eased. The $ 50bn 2y auction followed while both the 2y and the $ 51bn 5y received the highest yield since early 2019. Yields below the curve ended the day up to 4.5 bps lower. There was a similar flattening in Germany with changes ranging from +1.8 bps (2y) to -1.9 bps (30y).

In FX space, commodity currencies including the NOK and kiwi dollar were under pressure as the broad commodity accumulation went upside down for the day (e.g. Brent oil down 7%). However, none of the G10 peers did worse than the JPY. USD / JPY rose to an intraday high of more than 125. The pair closed at 123.86 eventually, still the highest since the end of 2015. DXY (trade-weighted dollar) tested the YtD highs but could not force a break higher. The USD also dominated the euro for much of the day. But the common currency straightened and limited losses from EUR / USD to just below 1.10. EUR / GBP jumped from 0.833 to near 0.84. BoE Governor Bailey explained the softened tariffs leadership against the backdrop of increased uncertainty. Migratory bets were marginally reduced. UK yield fell as much as 10 bps at the long end.

A new round of ceasefire negotiations between Ukrainian and Russian negotiators begins today in Turkey. An FT report yesterday, suggesting that Russia is abandoning some requirements, has helped shape sentiment in late U.S. business and may also explain the rather optimistic equity mood this morning. Core links are constantly being discarded. US short-term yield increases more than 6 bps. FX markets trade quietly. The Japanese yen strengthened slightly to USD / JPY 123.55. Japanese Finance Minister Suzuki has received orders from PM Kishida to devise measures to mitigate the impact of high energy prices, which are being exacerbated by the declining yen.

The economic calendar is only becoming moderately interesting today. US Conference Board consumer confidence is expected to fall to its lowest level since February last year (107). The indicator is strongly influenced by the current excellent shape of the labor market. However, war and inflation-driven uncertainty are likely to have affected the March reading further. We do not expect it to materially affect the prevailing market trends. Markets have fully accepted the idea of ​​the Fed’s front-loading policy action, supporting both yields and USD. While they also expect the ECB to fall in line (four 25-bps hikes discounted from Q1 2023), uncertainty about the war keeps the euro at bay. This may remain the case for the time being.

News Headlines

U.S. President Biden yesterday proposed to Congress a $ 5.790 billion budget plan for fiscal year beginning Oct. 1. The final approval is with congressional lawmakers. The proposal seeks a a record $ 2013 billion in military spending in 2023. At the same time, to curb the budget deficit, the proposal aims to raise taxes for the wealthiest individuals and companies. According to the White House, the budget deficit would decline to 5.8% of GDP this year and remain below 5.0% over the next decade. The budget sees the debt held by the public decline to 101.8% by the end of 2023. However, debt is still expected to rise in the coming years to reach 106.7% of GDP by 2032.

The ECB and the National Bank of Poland have agreed to set up a new interchange line, which will remain in place until 15 January 2023. Under the new exchange line, the NBP will be able to lend up to € 10 billion from the ECB in return for zloty. The ECB is also extending existing temporary rap lines with non-euro central banks to the same date. Euro liquidity lines address potential liquidity needs in non-eurozone countries given the uncertainty of a Russian invasion of Ukraine and a risk of regional spread. These liquidity lines were scheduled to expire in late March 2022 because they were originally intended to address potential euro liquidity caused by malfunctions due to the coronavirus (COVID-19) pandemic.

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