US 10-Year Yield Is Set to Revisit 4.5%, ING Financial Says

Economic

Summary:

Derivatives trading showing move to prepare for higher yields.

In the world’s biggest bond market, there’s a growing sense that the benchmark 10-year yield is set to revisit the 4.5% level last seen in November before a massive year-end rally kicked in.

A key US job-market report Friday is the next hurdle for investors, who have been ratcheting back expectations for the degree of Federal Reserve policy easing they see this year, given the economy’s resilience and sticky inflation. They’re also starting to anticipate fewer rate cuts in the coming cycle, which is guiding 10-year Treasury yields up as well, according to ING Financial Markets.

Overall, the “no landing” view on the economy is beginning to take hold in the bond market, says Michael Darda at Roth MKM.

Source: Bloomberg

The 10-year Treasury yield has risen about 14 basis points this week to around 4.34%, after reaching 4.43% Wednesday, the highest since November. In the options market, traders were targeting a move to almost 4.5% by the end of this week, with trades in derivatives Wednesday generally skewed toward hedging against higher yields.

It’s “tough to stand in the way of the 10-year heading to 4.5%,” Padhraic Garvey, head of global debt and rates strategy at ING Financial Markets, said in a note dated April 3.

For investors, the 4.5% level is significant psychologically, with some seeing it as an area where they’d step in to put money to work. The yield is up more than 40 basis points from the end of 2023.

Data Wednesday showed US companies boosted hiring last month by the most since July and some wage gains accelerated. Government figures to be released Friday are projected to show an increase of about 213,000 nonfarm jobs last month, following a 275,000 gain in February.

CPI Ahead

Potentially even more crucial for the path of yields, next week brings data on March core consumer prices, which are forecast to have risen at a 3.7% annual pace, compared with February’s 3.8% level.

Forecasts for the US CPI, “if confirmed, would suggest that the US is not a 3% inflation economy but is in fact closer to being a 4% one,” Garvey and his colleagues wrote.

Fed officials in March lifted their outlook for the long-run policy rate to 2.6% from the 2.5%, according to the median projection. They also maintained their outlook for three rate cuts this year. Swaps traders currently put roughly even odds on an initial Fed cut in June, and pricing suggests they see a chance of fewer than three reductions this year.

Treasury yields dipped in early trading Thursday, suggesting some investors were taking the latest increase in yields as an opportunity to buy.

Michael Gladchun at $335 billion asset manager Loomis, Sayles & Co. is in that camp. He and his colleagues expect three to five Fed rate cuts this year, helping push the 10-year yield down to the 3.8% to 3.9% range in about six months.

As yields “have backed up again up towards the high levels, we have been buyers of the dip,” said Gladchun, a co-portfolio manager for the firm’s active US Treasury strategies and also co-leader of the US yield curve sector team.

Source: Bloomberg

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Zi Cheng

Economic

Swiss inflation unexpectedly eased — vindicating the central bank’s surprise interest-rate cut last month and suggesting more might be coming.

Consumer prices rose 1% from a year ago in March, the statistics office said Thursday. That’s the lowest reading in 2 1/2 years. Economists had predicted an acceleration to 1.3%.

Source: Swiss Federal Statistical Office

The Swiss National Bank wrong-footed investors last month by reducing its key rate. It was the first such step by a Group-of-10 central bank since the global inflation shock, with outgoing President Thomas Jordan saying he sees “very little risk” that price gains will rebound past the 2% upper end of the institution’s target range.

Still, in its most recent forecast the central bank had projected a slight quickening in inflation over the second and third quarters. According to economists, this is mainly due to rent hikes.

The Swiss franc fell to the weakest level against the euro since June after the data. It has weakened almost 1% since last month’s surprise rate cut, extending the biggest depreciation among G-10 peers.

It was trading 0.6% weaker at around 0.98 per euro as of 9:48 a.m. in Zurich.

“The decline of the inflation rate is surprising as the exchange rate depreciated in the last few months,” said Karsten Junius, chief economist and head of economic and strategy research at Bank J. Safra Sarasin in Zurich. “It makes another rate cut in June and September extremely likely. It confirms that risks to the inflation target are on both sides of the corridor, and that further rate cuts are needed to balance these risks.”

The March slowdown in Swiss inflation was primarily due to holiday lets, cars and private means of transportation, according to the statistics office. The so-called core gauge, which strips out volatile elements like energy and food, also decreased.

“The decline was broad-based, meaning that inflationary pressures are falling faster than expected in Switzerland,” said Maxime Botteron, an economist with UBS Group AG in Zurich. “That said, the impact on the monetary policy outlook should be limited. We still expect the SNB to lower its policy rate by 25 basis points both in June and September.”

SNB Vice President Martin Schlegel said last month that almost all of Switzerland’s consumer-price growth is due to rising prices for services. Still, he maintains that price stability is ensured over the medium term.

Data from the surrounding euro area showed prices there rose an annual 2.4% last month. Based on the European Union’s harmonized measure, Switzerland’s gauge came in at 1.1%.

Source: Bloomberg

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Chandan Gupta

Traders' Opinions

Forex

Unraveling EUR/USD Trend

Exploring recent market movements, the EUR/USD exchange rate exhibited softness following a decline in March's inflation data. However, it's essential to acknowledge prevailing inflationary trends that could mitigate any potential weakness in the currency pair.

Inflation Data Insights

According to Eurostat, the Eurozone's Consumer Price Index (CPI) for March recorded a year-on-year decline to 2.4% from February's 2.6%, falling below market expectations of 2.5%. Core inflation also witnessed a dip to 2.9% from 3.1%, below market forecasts of 3.0%. While these figures prompted a retracement in EUR/USD rates, detailed analysis suggests that any weakness attributed to inflation may be limited.

Analysts' Perspectives

Commentary from analysts at Commerzbank sheds light on the inflationary landscape in the Eurozone. They note a significant rise in core inflation since the year's onset, indicating a robust upward trend in the core index. The diminishing impact of energy prices, coupled with substantial wage increases, contributes to this resurgence in core inflation. Projections anticipate core inflation to continue declining modestly on an annual basis until mid-year, with estimates suggesting a long-term inflation rate of 3%, surpassing the European Central Bank's (ECB) 2% target.

Policy Implications

Forecasts anticipate the ECB to implement its first interest rate cut in June, aiming to counterbalance inflation dynamics. However, the central bank is expected to proceed cautiously, considering the Eurozone's persistent services inflation, which remains steady at 4.0%. Vigilance regarding wage negotiations and future interest rate adjustments remains a focal point for the ECB, indicating a gradual approach to rate reductions.

Market Expectations

Amidst mounting indicators pointing towards an interest rate cut by the ECB, market expectations suggest a gradual reduction in interest rates, with the deposit rate potentially decreasing to 3.0% over four steps. Nevertheless, the ECB's decision-making process may undergo reassessment in light of inflation rates exceeding expectations, potentially influencing future rate hike considerations.

EUR/USD Technical Analysis

Examining the technical landscape of EUR/USD, recent weeks have seen the currency pair entrenched in a strong downtrend, culminating in a new monthly low of 1.0725. Despite this downward trajectory, momentum appears to have reached a temporary impasse, with the US dollar signaling overbought conditions on a daily basis. Short-term price targets hover around 1.0830, coinciding with the 50- and 200-day moving averages. EUR/USD Rebound Shows Limited Strength Amid Market Activity_1

EUR/USD Rebound Shows Limited Strength Amid Market Activity_1

Looking ahead, the bearish outlook for EUR/USD remains prevalent, with attention focused on the critical support level at 1.0690, representing its Valentine's Day low. A breach below this level could pave the way for further downside movement towards the main support level at 1.0600. Conversely, a notable shift in the trend trajectory necessitates a move towards the 1.1000 resistance level.

Conclusion

Navigating the complexities of EUR/USD trends requires a comprehensive understanding of economic fundamentals and technical indicators. While recent inflation data may have influenced short-term market sentiment, overarching inflationary trends and ECB policy decisions are pivotal in shaping the currency pair's trajectory. By combining analytical insights with prudent risk management strategies, traders can navigate the EUR/USD landscape with confidence and foresight.

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Samantha Luan

Economic

The opening ceremony of the Boao Forum for Asia (BFA) Annual Conference 2024 was held in Boao, south China's Hainan Province on Thursday, with China's top legislator Zhao Leji stressing China's economic potential, appealing to international investors and calling for Asia solidarity and cooperation for regional prosperity in his keynote speech.

Zhao, chairman of the National People's Congress Standing Committee, highlighted that China is pursuing a path of high-quality development and is deepening reform and opening up, which he said will provide great development opportunities for Asia and the world.

'Investing in China is investing in the future’

China has set an economic growth target of around five percent for 2024 and the country's GDP grew by 5.2 percent last year, one of the highest among major economies. The Chinese economy has accounted for about one-third of global growth, and the International Monetary Fund last year projected that a 1 percentage point increase in GDP growth in China will lead to a 0.3 percentage point increase in other Asian economies.

To transform its economy and achieve sustainable development, China now is deepening reforms. For example, China has pledged to further shorten the negative list for foreign investment, remove all restrictions on foreign investment access in the manufacturing sector and deliver national treatment for foreign businesses.

On March 22, the Chinese Commerce Ministry rolled out the first negative list for cross-border trade in service sectors at the national level, in which sectors that are not listed are, by default, open to foreign service suppliers under the same conditions as for domestic service suppliers, a major step for China's further opening up.

China also promised to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060. Official data shows that China's installed solar capacity accounted for nearly half of the world's, the number of new energy vehicles (NEVs) registered in China accounts for over half of the world's and at least 25 percent of the foliage expansion since the early 2000s globally came from China. Zhao said China's green and low-carbon development is expected to nurture a 10-trillion-yuan (about $1.4 trillion) market for investment and consumption each year.

In addition, new drivers of China's economy resulting from tech innovation are also growing fast. At the just concluded China Development Forum, Chinese Premier Li Qiang said the added value of China's strategic emerging industries increased from 7.6 percent of GDP 10 years ago to more than 13 percent last year, the scale of China's digital economy has exceeded 50 trillion yuan, and China has as many as 24 of the world's top 100 sci-tech innovation clusters.

"The potential of China's supersized market with over 1.4 billion people will be further unlocked," said Zhao. "Investing in China is investing in the future."

Cooperation is vital for global prosperity

Zhao also expressed optimism for Asia's development at the forum, saying it's the "most dynamic and promising" region in the world, but he warned that protectionism and a cold-war mindset are undercutting some countries' efforts for development and pushing the world toward division and confrontation.

A report published by BFA Academy on Tuesday predicted that the Asian economy will sustain a strong growth rate in 2024, accounting for 49 percent of the world's GDP, and its growth rate is expected to reach 4.5 percent.

Although the growth of Asia may face pressures from a global economic slowdown, geopolitical conflict and other factors, positive factors including accelerated digital trade, recovery of tourism and advancements of regional economic integration such as the Regional Comprehensive Economic Partnership will add new impetus to Asian trade and investment, the report predicted.

Zhao stressed that peace is a prerequisite for Asia's development in the face of intertwined and complex global security threats. He called on Asian nations to stay united, jointly stand against unilateralism and extreme egotism, oppose confrontation between different camps, and prevent the region and the world from becoming an arena for geopolitical fighting.

During the 2022 Boao Forum, China proposed the Global Security Initiative, promoting the vision of common, comprehensive, cooperative and sustainable security. In 2021, China proposed the Global Development Initiative, which promotes globalization, multilateralism and free trade, aiming to build a just, equitable, open and inclusive world.

"No country is able to develop itself behind closed doors," said Zhao, adding "We must oppose trade protectionism and all forms of erecting barriers, decoupling or severing supply chains, but instead share opportunities in opening up and seek win-win outcomes through cooperation."

Source：cgtn

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Chandan Gupta

Traders' Opinions

Forex

A Closer Look at Trading Opportunities

Reflecting on my previous GBP/USD signal from April 1st, it's clear that the anticipated bullish price action failed to materialize upon reaching the support level. However, today presents fresh opportunities as we delve into the latest signals and analyze the potential trade setups.

Today's GBP/USD Signals

With a risk factor set at 0.75%, trades can be executed between 8am and 5pm London time. Long trade ideas involve going long following a bullish price action reversal on the H1 timeframe upon touching $1.2588, $1.2558, $1.2538, or $1.2507. Conversely, short trade ideas entail going short following a bearish price action reversal on the H1 timeframe at $1.2710, $1.2732, or $1.2759.

It's crucial to set stop-loss orders 1 pip above or below the local swing high or low, respectively. Additionally, once the trade garners a 25-pip profit, adjust the stop-loss to break even and consider taking off 50% of the position. This strategy allows for prudent risk management while maximizing profit potential.

Identifying a classic "price action reversal" involves observing hourly candle closures such as pin bars, dojis, or engulfing candles with higher closes. These indicators serve as reliable signals for potential trade entries or exits.

GBP/USD Analysis

Reviewing the technical landscape, the GBP/USD pair faced formidable resistance at $1.2657 in recent sessions, signaling a potential short trade opportunity. While this resistance level held without being tested, a notable bullish development has emerged with a breakout above $1.2657. GBP/USD Bulls Challenge Critical Resistance Level at $1.2657_1

GBP/USD Bulls Challenge Critical Resistance Level at $1.2657_1

Bullish sentiment is further bolstered by the bearish reversal of the US Dollar Index from a critical resistance point, prompting a decline in the Dollar's value. This scenario paves the way for GBP/USD to advance beyond $1.2657, with a potential target of $1.2710.

To capitalize on this bullish momentum, traders should await a clear signal for entry, preferably two consecutive higher closes above $1.2663 during the London session. This cautious approach ensures alignment with market dynamics while minimizing exposure to unnecessary risk.

Market Outlook

In terms of economic releases, there are no significant events scheduled today for GBP. However, USD may experience volatility following the release of Unemployment Claims data at 1:30pm London time. Traders should remain vigilant and adapt their strategies accordingly to navigate potential market fluctuations.

Conclusion

As we navigate the intricate world of forex trading, staying attuned to market signals and adopting a disciplined approach are paramount. Today's GBP/USD signals offer compelling opportunities for traders to capitalize on prevailing market dynamics. By exercising patience and prudence, traders can enhance their chances of success while mitigating risks in a dynamic trading environment.

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Ukadike Micheal

Economic

Forex

In the week ending March 30, the number of initial claims for unemployment benefits in the United States rose by 9,000 to reach a total of 221,000, according to seasonally adjusted data. This figure represents an increase from the previous week's revised level, which was revised up by 2,000 to 212,000. Additionally, the 4-week moving average increased by 2,750 to 214,250, with the previous week's average revised up by 500 to 211,500.

The advance seasonally adjusted insured unemployment rate remained unchanged at 1.2 percent for the week ending March 23, with the number of insured unemployed decreasing by 19,000 to 1,791,000 compared to the previous week's revised level. The 4-week moving average for insured unemployment also decreased by 750 to 1,799,750, with the previous week's average revised down by 2,250 to 1,800,500.

In unadjusted data, the number of actual initial claims under state programs totaled 196,376 for the week ending March 30, representing an increase of 2,455 from the previous week. However, this increase was contrary to the expected decrease of 5,304 based on seasonal factors. The advance unadjusted insured unemployment rate remained unchanged at 1.3 percent, with the number of insured unemployed decreasing by 73,454 to 1,939,150 compared to the preceding week.

The total number of continued weeks claimed for benefits in all programs for the week ending March 16 increased by 1,035 to reach 2,038,116, while the number of weekly claims filed for benefits in all programs in the comparable week in 2023 was 1,905,338.

Notably, no state triggered the Extended Benefits program during the week ending March 16. Initial claims for UI benefits filed by former Federal civilian employees increased by 9 to 371, while claims filed by newly discharged veterans decreased by 11 to 368.

The highest insured unemployment rates in the week ending March 16 were observed in New Jersey (2.8 percent), California (2.5 percent), and Rhode Island (2.5 percent), among others. The largest increases in initial claims for the week ending March 23 were reported in Texas, Missouri, and Oregon, while the largest decreases were seen in Michigan, California, and Mississippi.

These data points provide valuable insights into the state of the U.S. labor market, indicating fluctuations in unemployment claims and trends across different states. Such information is closely monitored by economists, policymakers, and investors alike to gauge the health of the economy and its potential impact on financial markets and policy decisions.

Source: US Department of Labour

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Chandan Gupta

Traders' Opinions

Forex

An Insightful Dive into Market Dynamics

In the ever-shifting landscape of the forex market, the recent events surrounding the USD/JPY currency pair have stirred considerable intrigue. From the anticipation of the first interest rate hike in Japan in 17 years to the looming specter of potential intervention by policymakers, there's much to unpack. Let's embark on a journey through the intricacies of these developments and their implications for traders and investors alike.

Interest Rates and Their Impact on the Yen

The much-anticipated interest rate hike in Japan, after nearly two decades, failed to deliver the anticipated boost for the yen. Analysts have identified several key factors contributing to the currency's ongoing weakness, with interest rates at the forefront. Despite the historic decision, the USD/JPY pair continues its upward trajectory, hovering around the resistance level of 151.90. This trend hints at the potential for Japanese intervention in the markets.

The low interest rates prevailing in Japan, compared to global standards, have been a significant factor driving the yen's decline. With yields on 10-year Japanese bonds languishing around -0.650% after adjusting for inflation, traders are enticed to engage in carry trades. This strategy involves borrowing the yen to invest in higher-yielding assets elsewhere, adding pressure on the currency and exacerbating its weakness.

Intervention and Uncertainty in the Market

Despite the rhetoric surrounding potential intervention by Japanese authorities to support the yen, uncertainties linger. While officials have issued warnings and heightened vigilance, the transition from verbal assurances to concrete actions remains uncertain. Traders are closely monitoring signals from top government officials for tangible guidance, with movements of 10 yen against the dollar over a month serving as a key gauge.

Market Dynamics and Export Challenges

Against the backdrop of declining market volatility, carry trade strategies have gained traction among investors. The reduced risk of market fluctuations bolsters the appeal of such trades, driving bearish sentiment on the yen to its highest levels in months. However, this trend exacerbates challenges for Japanese exports, which have failed to gain momentum despite the weakened currency.

The traditional economic narrative suggests that a weaker currency should stimulate exports by making goods more competitive internationally. However, Japan's export sector has yet to reap the benefits, signaling broader structural challenges. The yen's nominal effective exchange rate has plummeted by approximately 25% since the end of 2020, with inflation-adjusted exports registering a decline of 3.3% over the same period.

Navigating Trade Balances and Investment Flows

The dynamics of trade balances and investment flows further complicate the currency adjustment process. Japanese companies increasingly opt to produce goods overseas rather than relying solely on exports, reshaping the country's economic landscape. Concurrently, capital outflows seeking higher returns abroad pose additional headwinds for the yen, reflecting a broader shift in investment preferences.

Looking Ahead: Challenges and Opportunities

As we navigate the complexities of the USD/JPY landscape, it's essential to remain vigilant amid evolving market dynamics. The potential for further interest rate adjustments in Japan, coupled with the specter of intervention, underscores the need for adaptive strategies. Moreover, addressing underlying structural issues, such as export competitiveness and investment flows, will be crucial in shaping the yen's trajectory in the coming months.

Technical Analysis and Forecasts

The trajectory of the USD/JPY currency pair is poised to persist, barring significant developments such as the upcoming US jobs report or potential intervention by Japanese authorities. The market's focus remains on these pivotal events, awaiting cues that could either sustain the current trend or trigger notable shifts.

As it stands, key resistance levels for the prevailing trend lie at 152.00, 152.55, and 153.20. These levels serve as crucial markers, indicating potential barriers to further upward movement in the pair's price. USD/JPY Anticipates Uptrend Amid Potential Japanese Intervention_1

USD/JPY Anticipates Uptrend Amid Potential Japanese Intervention_1

Traders and investors are closely monitoring these levels, prepared to adjust their positions in response to emerging market dynamics. The resilience of the USD/JPY trend hinges on a delicate balance of economic data and geopolitical factors, with any deviation likely to prompt swift market reactions.

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