Government bond sell-off grows

Economics

This week we expect the US overall retail sales to have continued its rise at a robust pace and consumer sentiment is likely to edge higher. Some rebound of industrial production after stagnation in February is likely.

The German ZEW expectations could show some improvement given strong manufacturing data. Eurozone industrial output is expected to show acceleration in January. The Japanese BoJ is
unlikely to change its policy.

Foreign exchange

EUR/USD seems trapped between resistance at 1.3450/1.3565 and support at 1.3300. Daily indicators that are overbought again and showing potential negative divergence slightly favour a correction near 1.3300.

Only a move back above 1.3465 would negate this downward view and allow a further rise with the previous 1.3666 top as next resistance.

JPY/USD: The dollar fell below its January-March support line. This is a bearish signal suggesting further losses back to 102.75. Only a move back above the previous support line (currently at 104.75) would negate this downward view making 105.60 as next resistance to the upside.

Fixed Income

The sell-off in government bonds continues, and should start to affect other fixed income asset classes. The most exposed are EMD markets, where liquidity was one of the recent performance drivers.

Credit should be relatively immune to volatility, but given tight spreads and little prospects for further tightening, we advise to reduce the overweight in corporate bonds and to switch these positions into GBP-denominated paper.

Equities

As the gates of Wall Street remained closed last Monday, Though the start was quite good, the rest of the week was spoiled by inflation fears, rising interest rates and high oil prices.

European markets suffered from new dollar weakness. On sector level, the picture was quite confusing. The winners of the day often proved to be nothing more than next day's losers.