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FX News Today

European Fixed Income Outlook:  Long yields moved higher across Asia, after yesterday’s correction, thus putting fresh pressure on stock markets. The 10-year JGB yield is up 0.1 bp at 0.046%, other markets under-performed, but the 10-year Treasury yield is down -1.1 bp at 2.939%. Investors fretted over the Fed’s upbeat assessment of the economy as the FOMC minutes saw risks roughly balanced, but mentioned increased upside risks to the near term. U.S. futures are heading south, after a mixed session in Asia. Mainland China bourses rallied in catch up trade and the CSI 300 is up 1.99%, while Nikkei and Hang Seng corrected markedly and the ASX closed with a modest gain of 0.12%. The Topix meanwhile lost -0.88%, the Nikkei -1.07% and the Hang Seng also nearly 1%. The yen strengthened against the dollar and oil prices slipped back with the front end WTI future trading at USD 61.07 per barrel.

FX Update: FOMC minutes showed a majority saw stronger growth in the economy and agreed a gradual rate hike approach was still appropriate. Indeed, a number of policymakers raised their growth forecasts since the December meeting and saw upside risks to growth. However, officials noted “few signs of a broad-based pickup in wage growth.” And “almost all” do expect inflation to reach to the 2% goal. Several members did caution about financial market imbalances. The report supports expectations for a 25 bp tightening in March, but of course doesn’t settle the issue of 2 or 4 rate hikes this year, which is dependent on the data reflecting the economy and inflation. Fed funds futures are little changed after the FOMC minutes, but are paring small losses earlier, in tandem with the slide in nominal yields. The minutes didn’t really tell us anything new. But the futures were primed for a slightly more hawkish tone.

Charts of the Day

 Main Macro Events Today        

  • German IFO – expected to correct to 117.0 from 117.6 in January, with the risk to the downside after the sharper than expected corrections in PMI readings.
  • UK GDP Data – unrevised GDP data for Q4 last year, anticipated at 0.5% q/q and 1.5% y/y.
  • ECB Monetary Policy Meeting Accounts –  will be scrutinised for indications of how far the ECB’s discussions about the expected change in guidance have progressed. It is widely anticipated that a growing number of council members will be arguing for a change in language as the ECB heads toward the March meeting, which will also include updated staff projections.
  • Canadian Retail Sales – Retail sales are expected to dip 0.3% m/m in December on the heels of the tepid 0.2% gain in November.
  • US Unemployment Claims and Oil Inventories – U.S. initial jobless claims are expected to hold at 230k in the BLS survey week, versus the week-ended February 10. Continuing claims are expected to fall 12k to 1,930k


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Andria Pichidi

Market Analyst


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