Sentiment Improving But Still Fragile

March 26, 2021

• Demand for the 7-year Treasury bond auction wasn't as weak as the previous one, but not yet strong.
• Comments by Fed officials Bostic and Evens stuck to the dovish script.
• EU leaders said that AstraZeneca must first deliver the committed vaccines to the region before exporting
• SARB kept rates on hold, as expected, but with no dissenting doves
• A PBoC paper stressed the challenges for the country to reach its growth target

Equities across the APAC region closed the week on the front foot, following the U.S. close higher on positive vaccine distribution news. The Nikkei and Shanghai Comp were both +1.5%. Oil resumed its journey higher as the container stuck in the Suez Canal showed no sign of moving (Brent is back to $63). Treasury yields were higher following the poor 7-year note auction yesterday, leaving the 10-year yields at 1.65%. The dollar is mostly weaker, down about 0.5% against commodity currencies (NOK, AUD, MXN) but slightly stronger against the yen. TRY is underperforming, with USD/TRY back above the 8.0 mark.

AMERICAS

Demand for yesterday's much-awaited 7-year Treasury bond auction wasn't as weak as the previous one, but it was far from strong. The sale came in at 1.3%. Foreign buyers (proxied by indirect bidder) came in at 57.3%, well below the recent historical average but far better than the 38.1% in the previous auction. Yields are a few basis points higher across the longer part of the curve after the auction. The 10-year yield is up about 4 bps over the last two sessions, flat on the week and 10 bps below the cycle high of 1.75%.


Comments by Fed officials Bostic and Evens stuck to the dovish script. Bostic (Atlanta Fed President) said clearest: "Let me say unambiguously that I am not at the moment thinking we will need to remove policy accommodation soon." He pushed back against inflation risks and noted the uneven economic recovery in employment. Chicago Fed President Evans also noted the transitory nature of current price pressures. He said, "I suspect that it might be 2024 before we actually raise our interest-rate target."

Initial jobless claims fell to the lowest levels since the start of the pandemic. The March figure fell to 684K, lower than the 730K expected and well below the upwardly revised 781K from February. The regional breakdown showed that much of the surprise was down to Illinois and Ohio. Despite some discussion by the Department of Labor about fraudulent claims, the numbers suggest an improving outlook for the U.S. labor market ahead. About 13.3 mln Americans are still on one of the emergency employment programs. Separately, the third revision of Q4 GDP was 0.2 ppt higher at 4.3% q/q, but this is too backward-looking to be of any relevance.

EUROPE / MIDDLE EAST / AFRICA

After a reportedly tense meeting, EU leaders said that AstraZeneca must first deliver the committed vaccines to the region before exporting. Spearheaded by EC president von der Leyen, the group looks ready to take some action, though it's yet unclear what this will be. It's probably safe to assume that any new measure will center around AstraZeneca. The latest numbers show that the EU exported 77 mln doses of the vaccine, more than the 62 mln given internally. 


UK retail sales came in close to expectations at -3.7% y/y, after an extremely depressed -5.9% January reading. But with restrictions easing and the vaccine delivery program's success, we assume this reading will start to improve fast. We are counting on the release of pent-up demand from UK households that have increased savings throughout this period.

The South Africa Reserve Bank (SARB) kept rates on hold 3.50%, as expected, but its model sees the rate rising already this year. Also note that this decision was unanimous, in contrast to two dissenting votes favoring a cut in the last meeting. The bank's model forecast shows two 25 bps hike this year, starting in the second and fourth quarter of the year. So they pushed back the second hike by one quarter, in line with the reduced core inflation forecast for 2021. Higher energy prices led the bank to revise its headline CPI forecast for 2021 from 4.0% to 4.3%, close to the mid-point target of 4.5%. It also increased the growth forecast for the year by 0.2 ppt to 3.6% due to a better global outlook.

ASIA

A report published by the PBoC yesterday stressed the challenges for the country to reach its growth target. The report claims that the government's counter-cyclical efforts won't be enough to bring GDP above potential, which it envisions to be in the range of 5.0-5.7% until 2025. This, of course, falls short of the official target of "above 6%." Officials also sound a bit more dovish in its latest statement, saying "no sharp turn" in policy will be forthcoming. We still think officials will focus on deflating the risk of bubbles in the equity and real-estate sectors, so some form of gentile tapering is in the cards this year. Still, none of this should deviate too far from the current accommodative stance. The yuan continues to weaken against the dollar gradually, but the moves have been in line with the broader trend in the DXY.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

This browser is not fully supported by our public website and may not display or function as expected for this reason. Please note, the Infuse Portal and BBH client applications fully support the IE 11 browser.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com


captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction