U.S. Stocks Shrugged Off The Apparent Risk-Off Tone From Fixed Income

Fixed income is noticeably stronger, with Treasuries recovering all of the losses related to the Fed’s SLR decision on Friday afternoon.

And why not? Stock’s should see a bounce when US stimulus cheques arrive, delayed tax refunds finally paid, and hopefully, better weather. Taken all together, it suggests there is a US spending spree bonanza in the making.

In recent trading, however, pops like this have been taken as a selling opportunity so that fixed income price action, especially into the New York open, will be crucial.

US Equities are trying to shrug off last weeks risk-off tone from fixed income. is broadly unchanged, a little lower, but the has a decent session with the futures up 0.6% so far.


Negative sentiment from the change at the Turkey central bank spilt over into G10 with risk-sensitive pairs under pressure. tested Friday’s lows again, but 1.1870-80 holds stubbornly, at least for now. Undeniably, the US is doing a better job vaccinating the population. Hence, the economic outlook is much brighter than the other side of the pond; hence, the EUR/USD downside momentum could be here to stay.


Oil prices continued to trade softer today. Iranian production and exports are gradually rising. The saw oil rigs jump +9 to 318 as the industry got back to work after the cold snap and resumed its upward trajectory. And the US’ industry response to higher prices is a key input into Saudi thinking as it seeks to manage OPEC+ production volumes returning to the market, so it’s creating a little consternation on the street knowing Russia and Saudi despise even giving up a sliver of the pie to US shale.

The renewed COVID lockdowns in Europe are certainly negative for demand, but a ” look through ” for oil traders as many jurisdictions have not loosened very much since late 2020, so the incremental loss is minor.

The timing of last weeks drop in and -7% lower suggests that April WTI contract rollovers played some part (Mar. 22 expiry). This is despite numerous adjustments to USO fund methodology last year to reduce market impact.

These changes included shifting fund exposure into longer-dated contracts (30% 2nd month, 15% in each of 3rd-5th months, 15% 7th month, and 10% 13th month), extending the roll period from 4 to 10 days, and expanding the mandate into other related commodity contracts after a similar episode last year.

Much damage will have been done to confidence in the safety of” carry trades” and it will take time to restore. The gains from roll returns can get quickly erased by such sharp declines. In addition, Bloomberg reported that certain strategies trigger a liquidation order beyond a -3% daily move which likely compounded the sell-off.

Europe Today

Reopening names under pressure due to patchy vaccination rollout, Turkish equity markets retreat on currency volatility 

European equity markets are lower to start the week, with Asian equities mixed. is under pressure, with major autos taking a hit after Renesas warned of chip shortages following a factory fire. Mainland China markets are outperforming along with Taiwan and Australian benchmarks.

Over the weekend, PBoC’s Yi Gang said they have ample room for monetary policy adjustment. The mention of supporting carbon-neutral policy would indicate a more relaxed stance towards liquidity.

Reopening names should be under pressure early in Europe as delays to the vaccine roll out persist.

The Turkish equity market is down 7.5% and is back haze of volatility after President Recep Tayyip Erdoğan replaced Central Bank of Turkey Governor Agbal with Sahap Kavcioglu. For context, the market had been warming up to a more normalized monetary policy since November. This move is a big blow to these hopes.

Central bankers dominate this week’s macro calendar with several Fed policymakers speaking (including Fed Chair Jay Powell) and remarks from the ECB, BoJ, BoE, and BoC heads. Flash PMIs, US and , final , orders and are notable data releases. Bond markets are also eyeing $180 bn in Treasury note auctions.


March will see US stimulus cheques arrive, delayed tax refunds finally paid, and hopefully, better weather. Taken all together, it suggests there is a US  spending spree bonanza in the making.

With risk trading soft, is trading sideways as both USD and CHF are in demand. My preference is to trade the USD from the long side, expecting EUR/USD to eventually trade through the 1.1840-70 area that has been the base for some time as the US economy is about to open up in a big way and well ahead of Europe as the latter continues to trail on the vaccination front.

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