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G10 Macro Rates Market Analysis – Weekly Review – 15th February 2021

Monday, February 15, 2021

With the Pacific G10 Macro Rates Team 
Last week’s strong uptick in European cpi did not follow on in the USA or China as their same measure came in lower than expected. However, this did not fear the market as more positive news came from many corners: including strong Norwegian and UK Q4 GDP data, with the chief economist of the BoE referring to the UK economy as a “coiled spring”; US Jobless claims hinting at a more positive outlook; higher oils prices (currently viewed as a predictor of stronger future growth); Macro prudential restrictions were reintroduced by the RBNZ to dampen the hot NZ mortgage market; and BUBAs Weidmann forecasting German HICP strengthening to 3%.

These positive economic nuances along with the USA treasury auctioning its longer duration bonds, as it does every 2nd week of the month, saw global yields move higher, trying to discount the supply and pricing in the better economic outcomes. Even the Fed Chair’s dovish speech - US labour market far from strong, and new lockdowns in both Auckland and the state of Victoria in Australia could not hold yields down.

In Japan, the Nikkei is now above its ‘90s high in USD terms. The BoJ’s reflation process is finally having an effect, therefore at some stage change should be expected. BoJ board member Nakamura-san gave a speech outlining his own views supporting more flexibility on the Bank’s ETF purchases. With holdings now amounting to 7% of the TSE, flexibility infers buying less, unless of course the economy weakens. This change combined with the expected widening of the 10y yield target band alludes to a form of BoJ taper.

It was the political arena that provided the week’s entertainment with Mitch McConnell, the most senior Republican, speaking on how bad Trump was, only to vote against convicting him in impeachment proceedings. Additionally, in Italy, M5S – the once fiercely anti-establishment party – endorsed the exact opposite in a Draghi led government. Whilst good for short term stability in Italian politics, this move is reminiscent of the UK Liberal-Democrat party’s U-turn on student financing. It is also worrying for those who wonder which party the orphaned voters will now turn to, the ground for political popularism in Italy remains fertile.

North America
US: January core CPI dropped to 0.0% MoM (0.2% exp., 0.1% rev.) and 1.4% YoY (1.5% exp., 1.6% rev.) The University of Michigan sentiment measures were lower than expected and 1yr inflation expectations higher at +3.3% (3.0% rev.) with the longer term at +2.7% (2.7% rev.) Initial claims, the high frequency measure of the US jobs market, was notable as it was weak but the previous week’s data revised higher, so it was taken as positive news..

Canada: Jan Manufacturing PMI was expansionary at +54.4 (57.9 rev.) Jan employment figures were shockingly weak at -212.8k (-40.0k exp., -62.6k rev.) pushing the unemployment up rate to +9.4% (8.9% exp., 8.6% rev.) along with a drop in the participation rate to +64.7% (64.9% exp., 64.9% rev.) there was no optimism hiding in the data. This move was driven by lockdowns in Ontario and Quebec, so the market ignored the data and priced in higher forward rates.

Eurozone: Italian industrial production and French December industrial and manufacturing production was very weak, reflecting COVID restrictions. German industrial production also disappointed, albeit less so.

Sweden: Sweden’s Riksbank kept policy rates unchanged, at 0.0% (0.0% exp., 0.0% rev.) and downplayed any thoughts of a brighter outlook. The unemployment rate was stable at +4.6% (4.6% rev.)

Norway: Norwegian January core CPI surprised higher at +0.1% MoM (-0.2% exp., -0.1% rev.) and +2.7% YoY (2.4% exp., 3.0% rev.) and 4Q GDP was, much like eery other Q4 GDP, stronger than expectations +1.9% QoQ (1.3% exp., 5.2% rev.)


December wages were weak -3.2% YoY (-4.8% exp., -2.2% rev.) reflecting lower overtime and bonus payments and economic surveys pointed to a weaker outlook. However, machine tool orders continued their uptick at +9.7% YoY (9.9% rev.)


December construction contracted by -2.9% MoM (0.5% exp., 1.9% rev.), however industrial and manufacturing production expanded. Services expanded strongly, at +1.7% MoM (1.0% exp., -3.4% rev.) and Q4 GDP was, like everywhere else, better than expected at + 1.0% QoQ (0.5% exp., 16.0% rev.)


Australia: February inflation expectations move higher to +3.7% (3.4% rev.)

New Zealand: Consumer inflation expectation rose to +1.89% (1.59% rev.) and retail spending dropped a little at -0.4% MoM (-0.6% rev.) Manufacturing PMI rose strongly to +57.5 (48.7 rev.) while the ANZ Truckometer took a summer break, dropping to -3.8% MoM (0.4% rev.). The NZ data is gradually painting a picture of growth that, all else equal, will force the RBNZ’s hand into a rate hike at some point.

 For further information on the Pacific G10 Macro Rates team, their experience and strategy please see below  

Read the Strategy Information Sheet

IMPORTANT INFORMATION: Issued and approved by Pacific Capital Partners Limited, a limited company registered in England and Wales, authorised and regulated by the Financial Conduct Authority . The information contained herein is not approved for use by the public and is only intended for recipients who would be generally classified as investment professionals. Information or opinions contained in this article do not constitute an offer to sell or a solicitation, or offer to buy, any securities or financial instruments or investment advice or any advice or recommendation.

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