Central Banks Employ Yield Curve Control Measures
STOCK INDEX FUTURES
U.S. stock index futures advanced sharply in the early morning trading on Monday, as Treasury yields retreated from their highs from last week and eased concerns that higher interest rates would undermine equity valuations.
The House passed the $1.9 trillion stimulus plan early Saturday and the Senate will now vote on the bill.
The 8:45 central time February PMI manufacturing final is expected to be 58.5.
The 9:00 February Institute for Supply Management manufacturing index is anticipated to be 58.9 and the 9:00 January construction spending report is estimated to show a 0.8% increase.
Stock index futures are performing well for the news.
The U.S. dollar index rebounded from early losses to trade higher and is at the strongest level on a closing basis since February 4.
The euro currency is lower despite news that the IHS Markit euro zone manufacturing PMI was revised higher to a three-year high of 57.9 in February 2021, up from a preliminary estimate of 57.7 and compared to January’s 54.8. In addition, output and new orders expanded by the most since last October.
The British pound is lower despite a report that U.K. mortgage approvals fell less than predicted. The number of mortgage approvals for house purchases in the U.K. decreased slightly to 99,000 in January, but beat market expectations of 96,000.
The Japanese yen fell to a 7-month low in spite of news that a Bank Japan manufacturing PMI was revised higher to 51.4 in February, the first month of expansion in factory activity since April 2019 and the fastest since December 2018. Input cost inflation accelerated to the fastest rate in two years, while selling prices went up for the third month in a row.
INTEREST RATE MARKET FUTURES
Federal Reserve Bank of Richmond President Thomas Barkin said in an interview he remains optimistic the U.S. economy will continue recovering and that rising government bond yields do not worry him much.
Federal Reserve speakers today are John Williams at 8:00, Lael Brainard at 8:05 and Raphael Bostic at 1:00.
I believe major central banks will employ tools to mitigate rising long-term yields. The Reserve Bank of Australia is already acting by launching a surprise bond buying operation late last week.
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