Asian markets kicked off the week on a mixed note, as news of fresh Covid infections in China overweighed the trade data revealing a strong 60% YoY jump in Chinese exports in February.
Investors also didn’t know what to do with the strong US jobs data. On one hand, the strong figures mean there is light at the end of the Covid tunnel and combined efforts start translating into better economic fundamentals. On the other hand, a too rapid recovery increases the risks of overheating in the economy.
A single month figure is of course not enough to conclude that there is a ‘substantial’ progress in the US jobs market, but it clearly is a sign that things are going in the right direction. The stronger the jobs figures, the more relaxed the Fed will be faced with the rising sovereign yields, as the policymakers will consider that the economic fundamentals improve in line with their goals and the improved economic outlook should require less monetary support, less debt purchases and therefore translate into higher sovereign yields.
As such, Friday’s figures revived the inflation expectations again, spurred the Fed hawks and boosted the US yields and the dollar appetite. The United States 10-Year yield spiked to 1.60% before stabilizing a touch below this level.
The EURUSD slipped below the 1.19 mark as GBP/USD tipped a toe below the 1.38 mark for the first time in three weeks.
Equities gained following the strong US jobs figures, although gains were uneven across the major US indices. The S&P500 and the Dow rose as a kneejerk reaction to the data, while Nasdaq first fell then soared on solid dip-buying interest to close the session 1.55% higher.
The market reaction was encouraging, as it showed investors are willing to learn again how not to get upset with good data.
The negative divergence in Nasdaq futures compared to SPX and Dow, on the other hand, suggests the continuation of the reflation trade in New York following Friday’s strong jobs figures and ahead of Wednesday’s inflation read – which should confirm faster-rising consumer prices in February.
In the commodity space, WTI crude trades a touch above $67 per barrel, as the barrel of Brent hit $70 for the first time in more than a year following an attack on Saudi’s Ras Tanura terminal, the world’s largest oil facility capable of exporting nearly 7% of the global oil supply. Of course, the attack has a negative impact on short-term oil supply and gives a further support to the oil bulls who are already in charge of this market after OPEC+ last week decision to maintain the production cuts untouched for another month. But the latest gains due to Ras Tanura attack could remain short-lived.
Gold remains bid below the $1700 mark, yet the prospects of a further rise in US yields will likely dampen the bulls’ appetite in gold and keep the short-tern tendency skewed to the downside.