Chart of the Day
Markets in the US were generally closed for Presidents Day, though RBOB gasoline jumped as cold temperatures caused massive disruption in Texas and the other southern states, including the closing of various refineries. As a result, gasoline prices are now higher than they were before the pandemic effects started to be felt in early 2020. That is another reason why inflation both in the US and elsewhere is set to rise sharply in the coming months.
In the eurozone, the goods trade balance returned to its pre-pandemic high of 2.9% in December.
In Canada, manufacturing sales rose by almost 1% in December, but remain much weaker than before the virus hit.
Russia’s industrial production recovery stalled in December, although manufacturing confidence there points to better results in the coming months.
With US markets closed, let’s take a closer look at European developments. The eurozone-wide Euro Stoxx index rose by 1.3% yesterday, with energy stocks leading the way as oil prices rose.
Over the past month, it is technology and financial companies that have done the best, while the defensive utilities sector has weakened.
Despite its good performance in the past month, the Euro Stoxx tech sector is still lagging over 20%-points behind the S&P 500 equivalent in terms of its post-2020 performance.
Finance companies have been helped by steepening yield curves. Very long rates, as proxied here by 10-yr/10-yr interest rate swaps, have more than tripled so far this year.
FX volatility for the euro is now lower than its 2017-19 average, which is a similar story to most currencies on the left-hand side of this chart.
Volatility for both the EUR and JPY have moved near enough in lock step in recent years, perhaps reflecting expectations that neither will raise interest rates for years, and possibly decades.
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