Russell Shor

China’s industrial production came in at 2.4% y/y. This is higher than the previous 1.3% but slightly lower than the 2.6% expected. Its retail sales printed at 3.5% y/y, a significant improvement from the previous months -1.8%. Fixed asset investment grew 5.5% y/y YTD, higher than the 5.1% for December.

The last three trading sessions has seen the US 02-year decline from 5.076% to 4.055%. Today’s trading is especially frenetic after weekended endeavours by regulators to stave off a bank run and prevent contagion from the SVB failure. Over the same period money has rotated into gold as a safe haven.

Chair Powell’s testimony in front of the Senate and House was hawkish and aggressive. Higher for longer and faster were introduced. The market briefly priced in a possible 50bps hike for March. However, the failure of Silicon Valley Bank, lower wage inflation and the uptick in the unemployment rate has the market rethinking this. Moreover, tomorrow sees inflation data – the next piece in the puzzle. Tune in to listen…

USDOLLAR’s correlation coefficient with the real rate is 66%. As long as yields decline and markets reassess the Fed’s actions for March, the dollar is likely to be influenced to a large degree.

NFP Live Trade - 10 March 2023

FXCM’s USBANKS basket dropped yesterday. The basket was down around 9.6% for the day. Shares in JPMorgan Chase and Wells Fargo were down 5% and 6%, respectively.

There is a certain resiliency in the stock market. The SPX500 has charted a higher trough followed by a higher peak. This is an uptrend. The stochastic is a momentum-based indicator. That it has fallen through the 70 level denotes that the SPX500 has lost momentum.

The Bank of Canada kept rates at 4.5%. This was in line with market expectations and its previous communication. By the middle of the year, the BoC expects inflation to moderate to 3%. It will continue to monitor the economy and is prepared to increase rates if needed.

The 2s-10s yield curve has been inverted for 9-months and is currently at -107 bps. The last time the yield curve was this far into inversion territory was in the early 1980s. An inverted yield curve often forewarns of an economic recession, as it suggests that investors expect short-term interest rates to fall, and normalise the curve. This can be a signal that the economy is headed for a downturn.

A break below will be because of greenback strength as opposed to a deterioration in the euro. Rather, the ECB continues with its own hawkish rhetoric and the ECB will hike by 50 bps next Thursday. However, it’s all about greenback strength at the moment and data out of the United States

The dollar jumped on a hawkish testimony from Fed Chair Jerome Powell before the Senate Banking Committee. He said that “inflationary pressures are running higher than expected at the time of our previous Federal Open Market Committee” and that recent economic data is “stronger than expected.” This is in contrast to his comments in February when he spoke of the disinflationary process.