STIR: FED Reverse Repo Operation

• Stocks are trading moderately weaker ahead midday Monday, consolidating after this morning's data, higher than expected ISM Prices Paid while ISM Mfg, Orders and Employment figures were lower than expected as Treasuries reversed early losses to new session highs.
• Currently, the DJIA trades down 39.5 points (-0.09%) at 43802.42,  S&P E-Minis down 1 points (-0.02%) at 5962.5, Nasdaq down 53.4 points (-0.3%) at 18795.89.
• Information Technology and Energy sectors underperformed in the first half, semiconductor makers weighing on the former: Nvidia -4.75% (reportedly as "Singapore is investigating whether Dell Technologies Inc. and Super Micro Computer Inc. servers shipped to Malaysia housed Nvidia Corp. chips barred from China" Bloomberg reprted). Meanwhile, Enphase Energy declined -3.49%, First Solar -3.31% and Broadcom -2.71%.
• Leading laggers in the Energy sector included APA Corp -2.46%, Valero Energy -2.03%, Marathon Petroleum -1.97% and EOG Resources -1.84%.
• On the positive side, Real Estate and Health Care sectors outperformed in the first half, investment trusts buoyed the former with Weyerhaeuser +3.29%, Ventas +1.95% and Host Hotels & Resorts +1.58%. Viatris +4.39%, Teleflex +2.98% and Medtronic +2.48% supported the Health Care sector.
• Expected earnings announcements for Tuesday include Target Corp and AutoZone Inc before the open while Crowdstrike Holdings and Ross Stores report after the close.

• Data today has supported both legs of the bullish EURUSD trade. Eurozone flash readings of CPI and core CPI coming in a tenth above consensus estimates boosted an already buoyant Euro, and the more constructive price action for European equities exacerbated the risk-on momentum. Furthermore, weaker growth/employment metrics in the US ISM manufacturing survey have added to the positive sentiment for EURUSD.
• Today’s 1.15% advance has swiftly erased the majority of the three session decline seen late last week, and in the process we are flirting once again with the 1.05 handle. This leaves spot just 30 pips away from a cluster of resistance, a collection of daily highs between 1.0520/33 which will provide the key focus ahead.
• A clear break of 1.0533 (Jan 27 high) would highlight an important technical break and provide the foundation for a stronger bullish short-term theme, opening 1.0630, the Dec 6 high.
• Given the significance of this area, options markets may be underestimating the potential range for EURUSD this week, especially considering we have ongoing tariff developments, discussions on Russia/Ukraine, the ECB meeting and US employment data. Pricing for a EURUSD straddle expiring on Friday incorporates a move of just +/- 85 pips from current spot levels.

In the following publication, we provide a summary of ECB speak between February 25 and March 3: 250303 - Weekly ECB Speak Wrap.pdf

The final week of ECB speak before the March 6 decision did not bring too many surprises, with Schnabel and Nagel’s hawkish communique balanced by the characteristically dovish Stournaras. A 25bp March cut is unanimously expected and essentially fully priced in ECB-dated OIS, leaving focus on the policy statement guidance and updated macroeconomic projections. MNI’s ECB preview will be released tomorrow.

• The MNI Policy Team’s pre-meeting sources piece helped separate the signal from noise ahead of Thursday’s decision. While the bank’s inflation projections are likely to be revised a little higher, this is seen as a temporary blip. Meanwhile, hawkish officials are already pushing to remove a reference to policy being at restrictive levels from the ECB’s statement, though dovish resistance could limit the change to a mention of the need to closely monitor the degree of restriction.
• Schnabel argued that the ECB’s balance sheet run-off would contribute to a higher neutral rate of interest, which underscores her view that “we can no longer say with confidence that our policy is restrictive”. These comments were broadly consistent with her hawkish FT interview the week before last.
• Meanwhile, Kazaks (speaking on monetary policy for the first time since prior to the January decision) argued that the direction for monetary policy is “still clear” – a sentiment shared by Stournaras.
• In an interview with the MNI Policy Team, Bank of Cyprus Governor Patsalides provided a pragmatic outlook for policy, noting that “while our policy remains restrictive at this stage, going forward the appropriate degree of restrictiveness is continuously reassessed based on evolving economic conditions at each meeting”.
• The ECB’s January accounts were also released last week. For a summary, see here, here and here.
• Last week’s dovish repricing in ECB-dated OIS has largely been unwound today, with long-end yields pushed higher amid prospects of increased Eurozone (especially German) defence spending.