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·         US Dollar Index struggles for direction just below 91.00 ahead of ISM

The greenback meets strong resistance in the vicinity of the 91.00 neighbourhood when tracked by the US Dollar Index (DXY) at the beginning of the week.

US Dollar Index looks to yields, data

Following Friday’s strong advance, the index finds some resistance to extend the move higher and potentially re-test the key barrier at 91.00 the figure on Monday.

The recent recovery in the dollar came in tandem with the sharp bounce in yields in the US bond market, where the 10-year reference managed to briefly visit the area above 1.55% for the first time since February 2020 (February 25).

Key events in the US this week: ISM Manufacturing PMI (Monday) – ADP Report, ISM Non-Manufacturing, Fed’s Beige Book (Wednesday) – Initial Claims, Powell’s speech (Thursday) - Nonfarm Payrolls (Friday).

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating? Future of the Republican party post-Trump acquittal.

US Dollar Index relevant levels

At the moment, the index is gaining 0.01% at 90.89 and a breakout of 90.97 (weekly Feb.26) would open the door to 91.05 (weekly high Feb.17) and finally 91.60 (2021 high Feb.5). On the other hand, the next support emerges at 89.68 (weekly low Feb.25) seconded by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018).

·         Risk currencies recover from Friday carnage as bonds regain composure

The Australian dollar and other riskier currencies rebounded against the U.S. dollar on Monday, as a sell-off last week in global bonds on worries about eventual monetary policy tightening appeared to have eased for now.

The British pound drew additional support from bets of a faster vaccine-led economic recovery, while resurgent risk appetite pushed the safe-haven Japanese yen to a six-month low versus the dollar.

The Aussie jumped 0.6% to $0.7754 in the Asian session on Monday, following a 2.1% plunge on Friday.

The Reserve Bank of Australia will hold its monthly policy meeting on Tuesday, and markets are widely expecting it to reinforce its forward guidance for three more years of near-zero rates, while also addressing the market dislocation.

The New Zealand dollar strengthened 0.6% to $0.7270, recovering some of Friday’s 1.9% slide.

Sterling rose 0.4% to $1.3972 as investors bet a swift vaccination program would help lift the British economy from a deep coronavirus-driven recession.

British finance minister Rishi Sunak is set to announce an extra 1.65 billion pounds ($2.30 billion) to fund the country’s vaccination roll-out as part of his annual budget statement on Wednesday.

The euro gained 0.2% to $1.20910, after dropping 0.9% at the end of last week, the most since April.

Against the yen, the dollar hit a six-month high of 106.70 before erasing gains.

The dollar index was little changed in Asian trade after posting its biggest surge since June on Friday.

U.S. bond yields slid sharply on Monday, with the benchmark 10-year U.S. Treasury yield falling about 5 basis points to 1.403%, off Thursday’s one-year high of 1.614%.

Currency markets have taken their cues from the global bond market, where yields had surged last week in anticipation of a swift economic rebound and on bets that global central banks will need to tighten policy much earlier than they have been forecasting.

Equities and commodities also sold off last week as the debt rout unsettled investors and lifted demand for safe-haven currencies, including the U.S. dollar.

** Federal Reserve Chair Jerome Powell, who last week repeated the U.S. central bank would look through any near-term inflation spike and tighten policy only when the economy was clearly improving, will speak on the economy at a Wall Street Journal jobs event on March 4. ** 

Positioning flows indicated dollar net short positions rose last week after falling to the lowest level since mid-December the previous week.

In crypto-currency markets, bitcoin rose 2% to $46,155.72 but was still well off a record high of $58,354.14 hit on Feb. 21.

  

·         Analysts at BofA noted the bond bear market was now one of the most severe on record with the annualised price return from 10-year U.S. govt bonds down 29% since last August, with Australia off 19%, the UK 16% and Canada 10%.

The rout owed much to expectations of faster U.S. growth as the House passed President Joe Biden’s $1.9 trillion coronavirus relief package, sending it to Senate.

BofA’s U.S. Economist Michelle Meyer lifted her forecast for economic growth to 6.5% for this year and 5% next, due to the likelihood of the larger stimulus package, better news on the virus front and encouraging data.

U.S. virus cases were also down 72% since a Jan. 12 peak and hospitalisations are following closely behind, BofA added.

·         Markets selloff from rising bond yields on global economic recovery is good for Japan: Jesper Koll

WisdomTree Investment’s Jesper Koll says the current risk-off scenario in markets is not causing the Japanese Yen to strength because Japan has been actively investing in global markets, hence putting a bid on the dollar.

 

·         No sign of a ‘taper tantrum’ yet: DBS

DBS Group Research’s Taimur Baig believes the current status of the market is down to the overall pace of the recovery.

 

·         Covid-19 Vaccine Rollouts:

 

Global daily statistics

COVID-19 infections are still rising in 58 countries. There have been at least 114,127,000 reported infections and 2,635,000 reported deaths caused by the new coronavirus so far.

Vaccination

So far 102 countries have begun vaccinating people for the coronavirus and have administered at least 239,531,000 doses of the vaccine.

Gibraltar leads the world and has administered enough vaccine doses for 53% of its population, assuming every person needs two doses.

Deaths from COVID-19 in the United States fell for a third straight week last week, as cases and hospitalizations both showed steep drops.

Deaths linked to COVID-19 fell 37% in the week ended Feb. 21 to 13,636, according to a Reuters analysis of U.S. state and county reports.

The country reported more than 491,000 new cases last week, but that was down 23% from the previous seven days. New cases have fallen for six straight weeks and are down 72% from their peak in early January. Compared to the previous week, new cases rose in only seven out of 50 states.

 

·         Some local Beijing communities start giving elderly COVID-19 shots

 

·         Philippines starts coronavirus vaccinations but supply, demand uncertain

 

·         China’s factory activity expands at slowest pace in 9 months, private survey finds

China’s factory activity expanded at the slowest pace in nine months in February, as weak overseas demand and coronavirus flare-ups weighed on output, adding pressure on the country’s labor market, a business survey showed on Monday.

The slowdown in the manufacturing sector underscores the fragility of the ongoing economic recovery in China, although domestic Covid-19 cases have since been stamped out and analysts expect a strong rebound in full-year growth.

The results back an official survey released over the weekend showing China’s factory activity expanded at the weakest pace since last May.

February also saw the Lunar New Year holidays, when many workers return to their hometowns, although this year saw far fewer trips amid coronavirus fears.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 50.9 last month, the lowest level since last May.

A sub-index for production fell to 51.9, the slowest pace of expansion since April last year, while another sub-index for new orders fell to 51.0, the lowest since May.

Export orders shrank for the second month. Factories laid off workers for the third month, and at a faster pace, with Wang noting “companies were not in a hurry to fill vacancies.”

 

·         Analysts from HSBC this week forecast that China’s economy would grow 8.5% this year, leading the global recovery from the pandemic.

 

·         China says underpricing rare earths will lead to race to bottom

China’s rare earths are underpriced due to vicious competition and face low resource utilisation, which would lead to a race to the bottom, the country’s industry minister said on Monday.

“Our rare earths did not sell at the ‘rare’ price but sold at the ‘earth’ price... because of competitive bidding, which wasted the precious resource,” Xiao Yaqing from the Ministry of Industry and Information Technology (MIIT) said during a news briefing.

Threats from China, the world’s top producer of rare earths - a group of 17 minerals used in military equipment, consumer electronics and electric vehicles - to curb exports of the materials to the U.S. has left Washington scrambling for alternative supplies.

The country’s rare earths exports hit a five-year low in 2020 amid the pandemic-stricken overseas demand and rising supply in domestic industries.

 

·         Netanyahu says Iran 'clearly' behind blast on Israeli-owned ship

Prime Minister Benjamin Netanyahu blamed Iran on Monday for a blast aboard an Israeli-owned ship in the Gulf of Oman last week but sidestepped a question on whether Israel would retaliate.

 

·         Myanmar protesters march again after bloodiest post-coup unrest

Protesters marched in Myanmar on Monday in defiance of a crackdown by security forces that killed at least 18 people a day earlier, as calls grew for a more united international response after the worst violence since a coup one month ago.

 

·         Oil prices rebound as U.S. House passes huge stimulus bill

Oil prices rebounded more than $1 on Monday after the U.S. House of Representatives passed a huge stimulus package, although a drop in China’s February factory activity growth capped gains.

Brent crude futures for May rose $1.07, or 1.7%, to $65.49 per barrel by 0410 GMT. The April contract expired on Friday.

U.S. West Texas Intermediate (WTI) crude futures jumped $1.01, or 1.6%, to $62.51 a barrel.

Front-month prices for both contracts touched 13-month highs last week, slipping back on Friday along with wider financial markets following a bond rout amid inflation fears.

The U.S. House passed a $1.9 trillion coronavirus relief package early on Saturday, lifting investors’ risk appetite and Asian stock markets. The package will now move to the U.S. Senate for further deliberation.

The approval of Johnson & Johnson’s COVID-19 shot also buoyed the economic outlook.

Manufacturing data from top Asian oil importers were mixed, however, as China’s factory activity growth slipped to a nine-month low in February, while manufacturing in Japan expanded the fastest in more than two years.

Crude supplies going into top importer China are expected to ease in the second quarter as the oil price rally cooled demand. Preliminary data also showed that South Korea’s February imports are down 14.7% from a year earlier.

 

·         OPEC+ MEETING ON FOCUS (4 March, 2021)

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, will meet on Thursday and could discuss allowing as much as 1.5 million barrels per day of crude back in the market.

 

Reference:  CNBC, Reuters