US Open Note – Bond yields bounce up; dollar in positive mood as stock futures lack energy

European stocks extend rally; Italy plans additional borrowing

Despite the vaccine jitters with AstraZeneca, stocks in Europe headed gradually for another bullish but softer session, with the pan-European STOXX 600 index marking a fresh record high at 437.64.

The conflicted debates over the approval of the EU recovery pandemic fund, which are currently taking place in national parliaments, is another serious headache for the European Union, though the Italian Prime Minister and former ECB chief, Mario Draghi brought some light into the challenging conditions today after announcing plans for additional borrowing worth 40 billion euros to cover consumers’ and businesses’ needs and calm the persisting protests. The government is also set to lift some curbs in several regions as the resurgence of virus infections is diminishing again. On the other hand, talks between the German chancellor and state leaders, which were initially scheduled for Monday, have been canceled, making investors wonder whether an agreement, either positive or negative, has been already settled before the lockdown measures expire on April 18.

The 10-year Italian bond yield picked up gains on the news, reaching a one-month high of 0.75%, although the ECB downplayed the concerns about the rising yields. The German equivalent climbed to -0.28% but maintained its almost two-month-old sideways trajectory.

In the FX space, the euro was struggling to defend this week’s bullish run above the 200-day simple moving average (SMA) and the 1.1900 level against the US dollar. Euro/pound was almost in the same situation, stuck around the key resistance of 0.8670 following the marginal pickup above the 50-day SMA, while euro/yen was also in a stalemate at the top of its uptrend around 130.47.

US producer prices move up; US Treasury yields rebound

Turning to the US, producer prices for March followed China’s equivalent measures higher, printing a stronger growth than analysts projected. The inflation fear factor, however, seems to be largely priced in despite the Fed verbally intervening over the past three weeks to remind markets that any price increase will likely be transitory. Hence, the data did not inflame the greenback but have likely enhanced its positive momentum. Besides, with the US outperforming other economies in terms of vaccines and stimulus, there is little to hurt the dollar for now.

Dollar/yen managed to survive yesterday’s downfall below the upper line of a broken ascending channel, which acted as strong support in March, with the pair aiming to re-enter the 110.00 area. The dollar’s rebound, however, ruined gold’s efforts to finalize a bullish double bottom pattern, sending the precious metal back below the neckline of $1,745.

The mood in stock markets was mixed ahead of the US open as futures tracking the S&P 500 and Nasdaq 100 were facing soft downside pressures, whereas Dow Jones futures were claiming a small share of gains. Perhaps the volatility in stocks could intensify next week when the biggest US banks kick the earnings season on Wednesday.

Canada jobs data beat estimates

In other important headlines, the Canadian jobs report for March beat estimates decisively, showing an employment expansion of 300k versus 100k expected and a decline in the unemployment rate, which fell from 8.0% to 7.5%. Still, the upside surprise barely moved the loonie, pushing dollar/loonie by a few pips down to a three-day low of 1.2540.


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