• Global equity market ended on a sour note in February due to bond market rout
• AUD drifted slightly lower given China’s disappointing PMI
• Brazil central bank intervenes in FX as BRL slide deepens, down 7%
The rising bond yields last week pressured the equity market to sell off as investors reallocating their portfolios. US equities were among the hardest hit, with the Nasdaq sinking nearly 5%, followed by Dow jones, S&P 500 and small-cap Russell 2000. Later today in the US, session will be kicked off with manufacturing PMI data for February from Markit and, on Friday, we will see the much-anticipated non-farm payrolls again. Analysts are looking for a 165k in jobs added for February.
Speaking of PMI, AUD drifted slightly lower by China’s Caixin PMI figures, which missed the forecast of 51.4 and landed at 50.9. NBS manufacturing PMI dropped to 50.6 (previous 51.5), and non-manufacturing PMI also slid to 51.4 (previous 52). China’s factory activity apparently expanded at a much slower pace than a monthly earlier. Although this should not be too much of a surprise as factories usually go dormant during the Lunar New Year holiday, some manufacturing firms are indeed seeing increasing pressure from rising labor costs and a shortage of workers.
On AUD, attention has now been given to RBA’s interest rate decision, as the central bank attempts to defend its 3-year yield target. RBA was forced to purchase over $7 billion in bonds last week to prevent the yields from going further away from the 0.1% target. Currently, the yield still remains 3-bps higher than the target.
Brazil’s central bank intervened in the spot currency market on Friday, selling a total of $1.545 billion as BRL slid further against USD. The YTD loss is at 7%, marking BRL one of the worst performing currencies of the year so far. Counting its intervention on last Thursday, the total amount over the 24-hour window has been brought up to $3.08 billion. Brazilian market has been suffering in a global move to reduce risk exposure against surging bond yields, just as Libyan dinar and Sudanese pound. Meanwhile BRL has failed to gain any tangible support from traders, who see little hope of rising interest rates in Brazil.