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European Fixed Income Outlook: Long yields are mixed in Asia. 10-year JGBs trailed Treasuries and sold off, with the yield up 0.8 bp at 0.055%, while the 10-year Treasury yields jumped 2 bp to 2.83%. Yields headed south in Australia and New Zealand. The global stock market sell off meanwhile continued in Asia overnight, Nikkei and Topix lost 2.5% and 1.8% respectively, undermined by U.S. President Trump’s announcement of new tariffs in imported steel and aluminium, which together with a stronger yen weighed on exporters. The rise in long yields moved amid a drop in the jobless rate and a rise in Tokyo inflation added to pressure. U.S. futures are starting to stabilise, however, oil prices remain under pressure, with the front end Nymex future trading at USD 60.92 per barrel. In Europe,the 10-year Bund yield is down -2.1 bp at 0.616% as of 7:25GMT, extending opening losses after weaker than expected German retail sales and a dip in import price inflation at the start of the session. European stock futures are deeply in the red, after a sell off in Asia overnight. The local calendar still has the U.K. CIPS construction PMI as well as Eurozone producer price inflation.

Fed Chairman Powell had been largely bullish, Fed’s Dudley later seemed at ease with 4 hikes and that didn’t help along with the tariff/trade concerns.  Powell’s testimony included a lot of discussion was on the labor market, wages, and inflation. He did note at Tuesday’s hearing that there was still some slack in the system, but was the markets instead focused on his comments about keeping a gradual tightening posture in place to prevent the economy from “overheating,” as well as on his optimism on growth following tax legislation. He stressed several times that wage inflation isn’t at a point of acceleration and isn’t expected to push up inflation. He does expect wages and prices to be moving up, but he didn’t suggest inflation is on the brink or a breakout. The PCE deflator data supports that conclusion. It’s still the case the Fed will increase the funds rate another 25 bps at the end of the month.

Charts of the Day


Main Macro Events Today        

  • UK Prime Minister May Speech
  • UK Construction PMI –  the construction PMI expected to come in at 50.5 from 50.2, which would affirm a sector barely limping along.
  • BOE Gov Carney Speaks in London, for the evolution of money and the emergence of Crypto-currencies.
  • Canadian GDP – December GDP is seen flat (0.0%) after the 0.4% jump in November. The separate GDP report is projected to reveal a 2.0% real growth pace (q/q, saar) following the 1.7% growth rate in Q3.
  • US Revised UoM Consumer Sentiment – Final Michigan sentiment for February may tick up to 99.5 from 99.9 prelim.


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Andria Pichidi

Market Analyst


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