2022/03/10 (017) Column

China 10Y Bond Yield Hits 11-Week High
Oil Extends Decline After Wednesday’s Selloff
US Stocks End in Negative Territory In Spite Of US Budget
EURUSD Fell Below 1.10 As Market Digest ECB Monetary Policy Decision


China 10Y Bond Yield Hits 11-week High
China 10 Year Government Bond Yield breathly increased to a 11-week high of 2.897%, tracking a pickup in the US treasury yields as traders anticipate a looming policy tightening cycle after an alarmingly high US inflation data in February. The US annual inflation rate accelerated to 7.9% in the month, the highest print since January 1982, with the biggest effects of the war in Ukraine and the consequent surge in energy costs coming later. In China, however, the PBoC recently cut several key short- and medium-term interest rates as growth momentum in the world’s second-largest economy has been slowing since early 2021. Beijing last week announced a GDP growth target for 2022 around 5%, the lowest reading in 30 years, amid COVID-19 flare-ups, the regulatory tightening effects, and unemployment concerns.

Oil Extends Decline after Wednesday’s Selloff
WTI crude futures fell below $106 per barrel on Thursday, remaining highly volatile after losing over 12% in the previous session in its biggest one-day drop since November, after the Kremlin pledged to fulfil its contractual obligations. Investors reevaluated the extent of potential supply constraints after Russian President Putin ensured that Russia, responsible for 7% of global oil and 1/3 of Europe’s gas, would continue to meet its energy sale commitments. Elsewhere, UAE called on its peers to raise output levels to ease the global energy crunch. OPEC and Chevron had already said there is no shortage of oil and Iraq insisted there is no need to ramp up production more than planned. US oil futures hit their highest level since 2008 at above $130 per barrel early this week, as the Russian invasion and ensuing sanctions exacerbated supply chain problems created by the pandemic.

US Stocks End in Negative Territory
Major US stock indices closed lower on Thursday, after having booked significant gains in the prior session, as investors swung back to a risk-off mood amid the war in Ukraine, rising inflation, and prospects of higher interest rates. The annual inflation rate in the US accelerated to 7.9% in February of 2022, the highest since January of 1982 but matching market expectations. Higher price figures came along with a disappointing US jobless claims report, which in turn, eased some concerns about an aggressive monetary tightening. The Dow lost 113 points to close at 33,173, while the S&P 500 and the Nasdaq 100 dropped 0.4% and 1.1%, respectively. Goldman Sachs fell over 1% after becoming one of the first major investment banks to exit Russia, where it has an estimated USD 940 million in total exposure. On the other hand, Amazon shares gained 5.4% after announcing a 20-for-1 stock split and a USD 10 billion buyback.

US Budget Deficit Narrows Less than Expected
The US budget deficit narrowed to USD 217 billion in February of 2022 from the USD 311 billion gap in the same period last year, well above market expectations of a USD 49.5 billion deficit. Still, it was the highest deficit since July of 2021. Receipts totaled USD 290 billion, 17 percent lower than the record high for a February posted in 2021, as a result of the economic recovery efforts from the pandemic. At the same time, outlays were down by 9 percent to USD 506 billion as a result of lower unemployment compensation and less pandemic benefits. The total deficit for the first five months of the fiscal year totaled USD 476 billion, the Treasury said.Euro Loses Steam after Lagarde Conference The euro fell to below $1.10, as investors digest the latest ECB monetary policy decision. President Lagarde said during the press conference that the quicker winding-down of ECB asset purchases can be described as a normalization process due to high inflation not as a tightening or acceleration. The ECB said it may end asset purchases in Q3 as surging inflation more than offset concerns about Russia’s shock invasion of Ukraine. The bloc’s inflation is already running at record highs and is now likely to be more persistent on the back of higher commodity prices and a tight labor market. Meanwhile, market participants await European Union leaders to unveil the bloc’s policy response to Russia’s invasion of Ukraine.