Take Five: A trillion-dollar problem
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[March 20, 2021] LONDON
(Reuters) - 1/ SNB CONUNDRUM
It's tough being the Swiss National Bank: After months of battling
safe-haven inflows, markets want to know what the SNB will do with its
914 billion-Swiss franc ($984 billion) foreign exchange pile at its
March 25 meeting.
With the franc depreciating 5% and 2.5% versus the dollar and the euro
respectively year-to-date, there is no pressure to stem inflows. The
pace of interventions has already fallen sharply.
Some of the franc weakness can be traced to recovery bets, but it comes
at a time when Swiss bond yields are trading unusually above their
German peers, global conditions are still uncertain and vaccine rollouts
bumpy. Signalling a reduction in its balance-sheet size could trigger a
rise in the franc, something policymakers would be careful to avoid.
The SNB is expected to keep rates unchanged -0.75%, the lowest in the
world, and maintain its interventionist stance.
2/ WHAT'S UP, GREENBACK?
Following a rather muted response to rising Treasury yields so far, the
dollar could be woken from its slumber if yields close in further on the
2% threshold.
The U.S. currency is up around 2% year-to-date, while yields on the
benchmark 10-year have risen from around 0.90% at the start of the year
to 1.75% in recent days. Higher yields typically make the dollar more
attractive to income-seeking investors.
A series of upcoming Treasury auctions will provide important clues on
how much further the recent surge in yields can run. The Treasury will
auction $60 billion of two-year notes and $61 billion of five-year
notes. A $62 billion offering of seven-year notes on March 25 follows
last month's disappointing auction in that maturity, which helped fuel
the bond selloff.
3/ RACE AGAINST THE VIRUS
The euro area March flash purchasing managers index on Wednesday could
give markets a fresh steer on the economic outlook.
Europe, off to a slow start in the COVID-19 vaccination race, faces new
hurdles that risk further slowing the post-pandemic recovery.
Brussels is at loggerheads with AstraZeneca over supplies; a number of
countries suspended its vaccine on reports of unusual blood disorders.
Germany, France and others will now resume its use, but the
stop-and-start are a blow to a faltering inoculation campaign while many
countries are fighting a third COVID wave.
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U.S. one dollar banknotes are seen in front of displayed stock graph
in this illustration taken February 8, 2021. REUTERS/Dado Ruvic/Illustration
Deutsche Bank cut its 2021 euro zone growth forecast to 4.6% from 5.6%; Morgan
Stanley warns Europe could be looking at another lost summer tourist season.
4/ THE GAMESTOP BUCK STOPS HERE
Reddit investors' darling GameStop reports fourth-quarte and full-year earnings
on Tuesday and stakes are pretty high given the parabolic 1,200% gain since
their December earnings report.
Estimates show the U.S. video game retailer is set to report a loss for the
fiscal year, the first one in a really long time.
Will that discourage the Reddit crowd?
The buying frenzy is still on, despite analysts predicting losses for months
and none of those covering the stock rating it "buy".
At $200, the stock is trading more than six times the most bullish price target
on Wall Street and no analyst thinks the planned e-commerce offering would
justify such high valuations.
5/ STAYING PUT, FOR NOW
After emerging-market central banks in Brazil, Turkey and Russia delivered
surprise cumulative rate increases of 300 basis points, focus shifts to policy
makers in South Africa and Mexico meeting on Thursday.
Both central banks are seen on hold while grappling with sluggish growth,
rising inflation pressures and climbing global yields. Mexico is poised to enjoy
some benefit from the U.S. stimulus package.
Meanwhile, Monday should see China confirm that its banks will leave its
lending benchmark, the one-year-loan prime rate (LPR), unchanged at 3.85% for an
11th month as higher producer prices, leftover deflation in consumer prices and
rising bond yields in late 2020 preclude the need for policy tightening.
($1 = 0.9285 Swiss francs)
(Reporting by Saikat Chatterjee, Thyagu Adinarayan and Dhara Ranasinghe in
London, Saqib Ahmed in New York, Vidya Ranganathan in Singapore; compiled by
Karin Strohecker; editing by Larry King)
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