Bond yields rose yesterday as equities were well bid, jobless claims were better than expected and the ECB disappointed some investors by not looking extremely dovish. In the US, the yield on the 10-yr rose to 2.74% whereas in Europe, the yield on the 10-yr Bund rose 4 bps to 1.65%. 2s/10s were basically unchanged. Peripheral Euro-area bonds were well bid early in the session but looked to be giving back much of the day’s gains towards the end of the session.
S&P 500 hit yet another record high lifted by uplifting jobless claims figures and tail wind from Fed’s Beige book. The development in Crimea was largely shrugged off. European equities ended the day in the black but softened during the afternoon following ECB and Crimean headlines.
Asian equity markets this morning are up across the board while Russian equities are starting on a week footing.
ECB came, saw and did nothing
ECB kept the power dry at their monthly meeting. No cut in rates and no liquidity infusion as some investors had expected. If anything, Mr Draghi indicated that economic key figures need to worsen further for the ECB to ease more but at the same time was open about rates staying low for prolonged period of time.
Situation in Crimea takes a turn for the worse
Just when you thought the tension in Ukraine was diminishing, the local Crimean parliament decided to push for a referendum to secede from Ukraine and join Russia. At this time, it is not clear whether Russia stands behind this wish or it is the locals pushing the agenda as they feel the time is right but this could potentially be a trigger for more disturbances. The referendum date has been set for the 16th of March but the Ukrainian parliament is calling the referendum unconstitutional. The hryvnia fell close to 5% on the news but other markets largely ignored the news which we think is probably not a smart move at this junction. Much can still happen.
Fed’s Plosser doesn’t want to be a hedge fund manager
In London yesterday, Fed’s Plosser noted that Fed and other central banks have become “highly interventionist” and that investors pay too much attention to central bank actions. Central banks should get back to basics focusing on keeping inflation and inflation expectations low and in that way promote economic growth not “manipulate asset prices and financial markets”. Plosser is a voting member this year but has long been at best lukewarm towards Fed bond buying.
Fed’s Dudley acknowledge Fed may have to change policy wording
As unemployment drops close to the 6.5% threshold previously highlighted by the FOMC as key in policy setting, Dudley now joins Yellen in calling for a change of the wording. Might happen at the FOMC meeting March 19. Dudley was comfortable with the market pricing of first rate hike in H2 of 2015 so look for a clarification with emphasis on inflation and no change.
The real test of Greece
Piraeus Bank, the biggest Greek bank, is preparing to issue a €500m senior unsecured bond and a separate €1.8bn stock offering according to FT. Stress tests out Thursday revealed the four biggest banks needed €6.4bn in fresh capital according to Blackrock who did the calculations for the Greek central bank. Troika calculations however say the number is closer to €8-9bn. Let’s see how investors react.
Payrolls day
Today, the big event will be the payrolls figures. We expect yet another weak jobs report with a 130k gain in nonfarm payrolls as bad weather likely continued to restrain hiring in early February. The consensus is 149k with the +/- 1 std. dev. range at 127-171k. The unemployment rate should be unchanged at 6.6% after three straight declines, with both weaker growth in the labour force and employment according to the household survey after strong January increases.
Nordea