Wall Street is off to a positive start as the Nasdaq makes a comeback as restrictive measures derail the reopening trade and after ECB delivered on its pledge to ramp up the pace of purchases with the Pandemic Emergency Purchase Program. Global bond yields are lower across the board with the 10-year Treasury yield lower by 3.2 basis points at 1.689%.
US stocks are rising following some calm in the bond market while shrugging off the Treasury Department’s sanctions on Chinese individuals.
Financial markets are bracing for a wrath of Fed speak that includes three appearances for Fed Chair Powell. Today’s comments from Powell mostly focused on how central banks can innovate in the digital age. Powell stated the obvious in that the US would not be the first with a central bank digital currency (CBDC). Cryptocurrency traders rejoiced in Powell’s comment that crypto is essentially a substitute for gold rather than the dollar.
Bitcoin also received some positive comments from Indian finance minister Nirmala Sitharaman. She stated that the ministry does not plan to abolish Indian innovations associated with Bitcoin and its underlying blockchain technology. India is taking back its harsh stance for cryptocurrencies and that should alleviate some short-term regulatory fears. Bitcoin is down slightly as it appears to be stuck in a consolidation pattern.
Turkey’s currency crisis emerged over the weekend after President Erdogan sacked central bank Governor Naci Agbal. Agbal was one of the main reasons investors had restored confidence in holding Turkish assets. He raised interest rates 875 basis points since November and helped stabilize the lira.
Turkey will now have a fourth central bank chief in just three years. The new governor, Sahap Kavcioglu, focused his first comments on fostering economic stability with lower borrowing costs, which happens to be in-line with President Erdogan.
The lira in early trade fell as much as 17% to the dollar, credit default swaps surged the most on record, and the stock index slumped over 6%. The crisis in Turkey will likely be isolated, so the rest of the emerging market FX should not have to worry about contagion fears. Turkey will be forced to impose capital controls to stabilize markets, but that could be a lesson in futility. The Turkish central bank will likely deliver rate cuts and calls for a 9 handle with the lira against the dollar will become the consensus in FX.
US and allies are poised to deliver coordinated sanctions on China over human rights violation claims with Uyghur Muslims. Politico reported that sanctions will vary amongst the US, Europeans, and Canadians. The expected sanctions come after last week’s first face-to-face meetings with the Biden Administration and Chinese officials in Alaska. China Foreign Ministry Chunying noted “it was a timely and useful dialogue that enhance mutual understanding.” The tense talks between the world’s two largest economies were hailed as useful but will likely be dragged out as both sides try to secure allies.
The Chicago Fed National Activity Index plummeted into negative territory as the auto industry continues to struggle to get their hands-on computer chips. The February headline reading came in at -1.09, much worse than the +0.72-consensus estimate and revised higher 0.75 reading.
The housing market is still strong but is showing signs of cooling. Existing home sales fell to a six-month low, low inventories and rising mortgage rates will likely counter each other later this year. Inventories posted a record decline of 29.5%.
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