A modest fall in global government bond yields yesterday, triggered in part by RBA and ECB policy interventions, contributed to a sharp rebound in global risk appetite and equities. The S&P 500 closed up 2.4%, almost fully reversing last week’s fall. The uptick in the US ISM manufacturing PMI in February to a higher-than-expected 60.8, another sign that US economic growth recovered in early 2021, arguably added to the feel-good factor. Given this backdrop, perhaps unsurprisingly the Dollar weakened across the board with the trade-weighted index down 0.3%.
Today’s price action in financial markets has been somewhat more subdued, with the Dollar up very marginally and at time of writing the S&P 500 is down 0.3%. The Australian Dollar is one of the few major currencies to have outperformed the US Dollar, with the AUD/USD up 0.3% since yesterday’s close.
This modest performance can be attributed to the Reserve Bank of Australia’s decision at its policy meeting yesterday to increase its QE program by AUD 100mn. At the same time the RBA stated that it would keep its policy rate unchanged at 0.10% until inflation was sustainably within it 2-3% target
range. These dovish actions and words were seemingly enough to ease market concerns that a rise in Australian government bond yields could derail the growth recovery as well as domestic equity markets.
Sterling is poised ahead of Chancellor of the Exchequer Sunak’s annual budget statement to parliament tomorrow lunchtime. Recent history suggests that UK financial markets don’t tend to react much to budget announcements, at least in the near-term.
