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DJ Dollar May Rise on Higher Yields After Data, But Not For Long -- Market Talk

· 02/05/2021 07:51

1251 GMT - The dollar may rise in tandem with U.S. Treasury yields if data Friday show strong U.S. jobs growth in January. but the currency's gains should prove temporary, Societe Generale says. Another jump in yields could lead to a further dollar short squeeze where investors are compelled to close earlier bets on the currency falling after sharp appreciation, SocGen currency strategist Kit Juckes says. While 10-year Treasury yields push higher, Treasury Inflation-Protected Securities are marking time, he says. "That's one reason I think the medium-term dollar outlook remains negative, regardless of the U.S.'s strong economic performance." The dollar index drops 0.1% to 91.4320. January's U.S. non-farm payrolls report is due at 1330 GMT. (renae.dyer@wsj.com)

1244 GMT - New corporate bond sales have gotten off to a blazing start this year, a move reminiscent of the race to raise funds in debt markets after the global financial crisis of 2008, LBBW says. Companies borrowed some EUR47 billion from euro debt market investors in January, marking a 23% increase from the previous month, which was already elevated, and hitting the highest level in more than a decade. "The only other January with a larger volume of new issues (EUR58.3 billion) was in 2009, when the primary market picked back up with recovery effects after the slump during the 2008 financial crisis," the German bank says. (lorena.ruibal@wsj.com)

1203 GMT - Risk assets like corporate bonds are set to remain in demand, though signs of overheating are emerging in some markets, LBBW says. In this persistently low-interest environment, credit remains in favor mainly due to lack of other alternatives to generate income. But strong liquidity from central banks may have led to more speculative investments. "The more speculative the investment of this money becomes, the more risk there is of bubbles forming and at least temporary setbacks in the capital markets," the bank says, adding that it will continue to slightly underweight credits for tactical reasons for the time being. (lorena.ruibal@wsj.com)

1142 GMT - Higher U.S. sovereign debt yields could lead investors to cut risk on fear of a premature tightening of financial conditions, Mark Dowding, chief investment officer at BlueBay Asset Management, says. "We...are wary that a move in U.S. yields beyond 1.25% in the coming week or two could lead investors to turn more defensive," he says. Running a portfolio which is long in risk assets and short in rates has some intrinsic appeal at the moment, though investors need to be cautious that an "exogenous risk-off event could see equity and bond yields recorrelate," he says. (lorena.ruibal@wsj.com)

1133 GMT - The reduced chance of U.K. negative interest rates should allow sterling to extend recent gains, particularly against the dollar, MUFG Bank says. In the Bank of England's policy statement Thursday, it told lenders to prepare for negative rates but said that shouldn't be taken as a sign it would cut rates below zero. "The meeting was more hawkish than expected and certainly reinforces our view of potential GBP outperformance," MUFG analyst Derek Halpenny says. There is greater scope for GBP/USD to rise than for EUR/GBP to fall as EUR/USD is unlikely to weaken much further, he says. GBP/USD rises 0.1% to 1.3685. EUR/GBP drops 0.1% to 0.8750 after earlier reaching its lowest level since mid-May at 0.8738, according to FactSet. (renae.dyer@wsj.com)

1124 GMT - The resilience of Germany's industrial sector softened somewhat at the end of the fourth quarter, Katharina Koenz at Oxford Economics says. Factory orders dropped 1.9% on month in December, driven mainly by weakness in orders from eurozone countries, as lockdowns restricted activity in most members of the bloc aside from the Christmas break, Koenz says. The only bright spot was orders from non-euro area countries which rose 0.5%, proving that external demand remains resilient, she says. Koenz says the drop in December is in line with Oxford Economics's view that the industrial sector will lend much less support to the German economy in the first quarter, and that gross domestic product will contract moderately. (maria.martinez@wsj.com)

1104 GMT - The yield on the U.K. 10-year benchmark sovereign bond hits a 10-month high Friday, as investors price in a vaccine-fueled economic recovery following higher inflation forecasts by the Bank of England. Policymakers' projection Thursday of inflation rising slightly above the 2% target in 2022 and 2023 triggered a selloff in gilts, driving yields higher. The move was accelerated by the central bank's resistance to the prospect of negative rates. The 10-year gilt yield trades last at 0.484%, its highest level since March 2020. (lorena.ruibal@wsj.com)

1100 GMT - The disappointing December reading of German manufacturing orders can be treated as a sign of normalization rather than a fundamental turnaround in industrial recovery, HSBC economist Christian Fuertjes says. German industrial orders plummeted by 1.9% on the month in December, as weak eurozone demand put an end to a streak of seven consecutive monthly gains. "Given the impressive pace at which German industrial orders recovered from their unprecedented collapse in March and April due to the COVID-19 pandemic, a set-back almost seemed inevitable," the economist says. January data will show how German manufacturing copes with the challenges of potentially shaky demand due to lockdowns and a still fragile supply chain situation, he says, expecting a significant slowdown. (maria.martinez@wsj.com)

1059 GMT - The safe-haven dollar's recent resilience to positive market sentiment will be tested at 1330 GMT Friday when January's U.S. non-farm payrolls report is expected to show a return to jobs growth, HSBC says. "Today looks set to be an important signal for whether FX is truly getting over its risk on, risk off fixation and moving back to the more traditional world of interest rates and yield differentials as the key anchor for currency movements," HSBC's Dominic Bunning says. The dollar's recent appreciation, despite stock market gains, reflect higher U.S. Treasury yields on economic recovery hopes, he says. HSBC expects non-farm payrolls to rise 125,000 in January after falling 140,000 in December. The dollar index drops 0.1% to 91.4330. (renae.dyer@wsj.com)

1045 GMT - Anglo American stands out from its mining peers owing its exposure to platinum group metals and diamonds, which is attractive in the near term and offers more compelling growth, Berenberg says. The bank says it sees Anglo American as a defensive pick versus Rio Tinto and BHP, but that it prefers Rio Tinto over BHP in the near term on dividend upside. Berenberg initiates Anglo American with a buy recommendation and target price of 2,000 pence, while Rio Tinto and BHP are both placed at hold, with target prices of 6,000 pence and 2,000 pence, respectively. (sabela.ojea@wsj.com; @sabelaojeaguix)

1036 GMT - Corporate debt denominated in pounds is increasingly being driven by U.K. sovereign debt yields, Bank of America says. "Gilt yields jumped higher yesterday on the relative hawkishness of the [Bank of England rate] decision, a timely reminder for investors that rates are driving credit yields a lot more now," says the bank's European credit team. Currency-hedged investors can still find "best-in-class" yields at the front-end of the sterling credit market. For euro investors looking at sterling opportunities, the segment between 10-year and 15-year part of the curve, in the A-rated category, offers a attractive post-hedging yield pick-up of about 60bp, they say. In the BBB segment, investors will find the best sterling opportunities in 5-7 year maturities, analysts say. (lorena.ruibal@wsj.com)

1032 GMT - The Norwegian krone rises against the euro as oil prices jump on global economic recovery hopes and supply curbs by major producers. EUR/NOK falls 0.3% to a two-week low of 10.2911, according to FactSet. The rollout of vaccines has improved the global economic outlook while OPEC and its allies decided to maintain their supply-tightening policy Wednesday. "The Norwegian Krone typically trades as a function of oil prices and that suggests it should outperform as oil prices steadily rally as they fully price the re-opening of the global economy," Nordea Asset Management analyst Sebastien Galy says. Higher crude prices should also support other oil-related currencies, he says. USD/RUB falls 0.6% to 75.0622 and USD/CAD drops 0.3% to 1.2792. (renae.dyer@wsj.com)

(END) Dow Jones Newswires

February 05, 2021 07:51 ET (12:51 GMT)

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