Markets
US equities retreated in a less than stellar start to the week, as the performance was broadly risk-averse. All 3 major indices closed lower in a defensive tape where only REITS could eke out small gains, and small caps underperformed. Lack of catalysts weighed on conviction with the market looking to sit during the Fed blackout period.
Not much on the horizon outside of earnings (16% of SPX report this week) with a very light econ calendar for the most part before Thursday’s employment claims and home sales releases, while no Fed speakers scheduled as we enter a quiet period ahead of the April meeting.
Japanese shares fell sharply, weighed down by worries that possible reintroduction of COVID-19 emergency measures in the country’s biggest cities would slow the economic recovery.
US Treasury Yields Heading Higher
There was a big back-up in UST yields on Monday, despite the weakness of equities. Yields continue higher Tuesday. The US 10y yields were last at 1.615% from 1.58% at Friday's close and last Thursday's low of 1.52%.
The whole move up was led by real rates, to -0.73% now from -0.81% early Monday. As reals rose, break evens dropped back. The 10-year break even is down 2bp in the last day or so. The Treasury market seems to lurch from auction fear to auction fear. Some $24 bn of 20y Treasuries are to be sold on Wednesday.
Forex
GBP outperformed on Monday since trading towards 1.3810-15 early in Asia. Cable steadily accelerated before pausing ahead of the 1.4000 resistance as optimism regarding the UK economy reopening for the summer continued to buoy sentiment against the backdrop of a weaker USD.
Yuan Watch
USD/CNH took another leg lower through 6.50 and has stabilized around 6.4900 into the London open. With Treasury yields creeping higher and equities lower in the US session, there may not be much downside room in the short term, and the pair may bounce a bit.