- Asian equity markets were negative across the board as the impact from Fed Chair Powell’s testimony reverberated in the region
- USD remained firmer in the wake of Fed Chair Powell’s testimony with EUR/USD firmly below the 1.2300 handle and GBP/USD below 1.3900
- Looking ahead, highlights include German jobs report, Eurozone CPI, US GDP, Chicago PMI, Pending Home Sales, DoEs, EU Brexit Draft Treaty
Asian equity markets were negative across the board as the impact from Fed Chair Powell’s testimony reverberated in the region and as participants also digested disappointing Chinese PMI data. The inaugural testimony by Fed Chair Powell provided a hawkish view on inflation and was also optimistic on economic growth, which raised the prospects of 4 hikes for this year and subsequently weighed on equity markets across the globe. ASX 200 (-0.7%) and Nikkei 225 (-1.1%) were lower with the worst performers in Australia also dampened by poor earnings results, while Nikkei 225 suffered from a firmer JPY as well as weak Industrial Production and Retail Sales data. Elsewhere, Hang Seng (-1.6%) and Shanghai Comp. (-0.7%) were the early laggards with investor sentiment dragged following a miss on Chinese Official Manufacturing and Non-Manufacturing PMI data in which the former printed its weakest since September 2016, while aluminium names also felt the brunt after the US confirmed tariffs on aluminium foil imports from China. Finally, 10yr JGBs lacked demand despite the broad global risk-averse tone, as Japanese yields tracked the upside in their US counterparts and which also followed a reduction of the BoJ’s Rinban purchases in the super-long end.
Chinese NBS Manufacturing PMI (Feb) 50.3 vs. Exp. 51.1 (Prev. 51.3), lowest since September 2016. (Newswires)
Chinese NBS Non-Manufacturing PMI (Feb) 54.4 vs. Exp. 55.0 (Prev. 55.3)
Chinese Composite PMI (Feb) 52.9 (Prev. 54.6)
PBoC skipped open market operations for a 2nd consecutive day. (Newswires)
PBoC set CNY mid-point at 6.3294 (Prev. 6.3146)
UK Lloyds Business Barometer (Feb) 33 (Prev. 35). (Newswires)
UK GfK Consumer Confidence (Feb) -10 vs. Exp. -10 (Prev. -9)
UK BRC Shop Price Index (Feb) Y/Y -0.8% vs. Exp. -0.6% (Prev. -0.5%)
UK PM May said will reject Brexit deal that threatens UK integrity, will not agree to ECJ as an arbiter of exit deal and will offer a robust response to EU regarding the withdrawal. (Guardian) Furthermore, there were also Twitter reports which cited a senior official that the UK is preparing to reject draft EU deal. (Twitter)
UK Foreign Secretary Boris Johnson suggested the prospect of a hard border for Ireland in leaked letter to PM May, although later reports stated that Downing Street insisted there will be no hard border. (Telegraph/Sky News)
USD remained firmer in the wake of Fed Chair Powell’s testimony which boosted yields across the curve and saw the probability of 3 hikes this year lifted to 73% from 60%, while chances of 4 hikes increased to 34% from 24%. This dampened its major counterparts with EUR/USD firmly below the 1.2300 handle and which saw GBP/USD below 1.3900. Elsewhere, commodity-linked currencies were also subdued after declines in metals and oil prices, as well as the disappointing Chinese PMI data, while JPY bucked the trend amongst the majors amid safe-haven flows and on quasi-tightening concerns after the BoJ lowered its Rinban purchases of 25yr+ maturities.
Commodities were lacklustre overnight as a firmer greenback kept prices in check, with WTI crude futures choppy and eventually pressured following the release of the latest API inventory report. This was despite a smaller than expected build to headline crude stockpiles, as it was also accompanied by an unexpected build to gasoline inventories. Elsewhere, gold prices languished after yesterday’s losses which were triggered by a firmer greenback in the wake of a hawkish testimony by Fed Chair Powell, while copperwas also subdued in tandem with the risk averse tone.
US API Crude stocks (Feb 23) 0.933M vs. Exp. 2.700M (Prev. -0.907M). (Newswires)
US API Gasoline stocks (Feb 23) 1.914M vs. Exp. -0.600M (Prev. 1.468M)
US API Cushing stocks (Feb 23) -1.277M vs. Exp. -0.880M (Prev. -2.644M)
US API Distillate stocks (Feb 23) -1.437M vs. Exp. -0.700M (Prev. -3.563M)
OPEC officials are said to be meeting with US shale producers next Monday, according to some reports. (Newswires)
Iraqi oil production is around 4.35mln bpd, according to Iraq oil ministry official; Iraq was reported to be in discussions with the KRG to resume oil exports through the Kirkuk-Ceyhan pipeline, and later in the day, the Iraqi PM said exports through the pipeline would resume ‘soon’. (Newswires)
Ecuador Oil Minister said the country is in talks with OPEC to add new crude production this year, despite current supply cut agreement. (Newswires)
US is said to be weighing oil sector sanctions in Venezuela before their election in April. (Newswires)
Yields were higher across the curve after Powell’s testimony was judged as upbeat, cementing at least three hikes in 2018, while seemingly retaining the optionality of four hikes, should the situation warrant. The probability of three hikes in 2018 rose to 73% (Prev. 60%), while the probability of four rate rises rose to 34% (Prev. 24%). 5s30s spread flattened by around 4bps to within touching distance of 50bps following the testimony and Q&A of Fed chair Powell. 2s30s was 2bps flatter, and 10s30s was 2bps flatter; though 2s5s and 2s10s widened slightly. US T-Note (H8) settled 14 ticks lower at 120-12+.
Fed Discount Rate Minutes stated that Dallas Fed wanted to hike discount rate at the January meeting by a quarter percentage point from its current 2% rate due to solid growth, tight labor-market and an expected rise in inflation toward 2%. Furthermore, the minutes noted that Directors were optimistic on the effect of tax cuts and the economic outlook. (Newswires)
Fed Chair Powell said that he expects wages to increase this year and that if Fed falls behind the curve they will have to raise rates faster. (Newswires)
US Republican Senator Cornyn said Congress may not have enough time to address infrastructure this year. (Newswires)
US Special Counsel Mueller is said to be looking into President Trump’s Russia deals prior to the 2016 election. (Newswires)
US is said to have evidence Russia compromised election systems in 7 states prior to the 2016 election, although no votes were said to have been changed and no voters were removed from rolls. (Newswires)