Minutes of the early February FOMC meeting didn’t reveal much new yesterday following last week’s revelation by St. Louis Fed Bullard and Cleveland Fed Mester (both non-voters this year). They argued against downshifting the tightening pace from 50 bps to 25 bps at that meeting and will do so again in March. FOMC Minutes effectively referred to “a few” in favor of or agreeing to support a 50 bps step. A number of participants also observed that a policy stance that proved insufficiently restrictive could halt recent progress in moderating inflationary pressures, in another sign that the Fed would much rather implement a rate hike too much rather than stopping too early. Speeches by Fed governors this year suggested that the median expected policy rate peak for this year will be lifted in the March “dot plot” compared to December. The median peak rate was 5-5.25% though already 7 out of 19 governors expected it to be at least 25 bps higher. A final passage worth mentioning was one on financial conditions, given Chair Powell’s somewhat off the mark remarks on the topic at the Q&A session (suggestion that they had tightened despite weaker dollar, yield correction and stock surge). Some officials at the meeting observed that any continued easing in financial conditions could require the Fed to raise rates to higher levels or keep them at higher levels for longer than anticipated. The post-Minutes market reaction was muted overall, with the exception of an underperformance at the front end of the US Treasury curve which eventually helped the dollar close on the intraday highs and stocks at the intraday low. Daily changes on the US yield curve varied between -1.2 bps (3-yr) and -5.9 bps (30-yr). The US 10-yr yield is still pushing to get beyond 3.9% resistance on a sustained basis. German yield changes ranged between -2.8 bps (2-yr) and -0.9 bps (10-yr) with a strange underperformance of the very long end of the curve (30-yr: +4.2 bps). EUR/USD closed the session at 1.0605 from an open at 1.0648. It’s the weakest close for the pair since January 5 which, slowly but gradually, creeps towards 1.0484/66 support. The trade-weighted greenback (DXY) tested the February high at 104.67. Main US equity benchmarks closed near opening levels. NY Fed Williams in a speech after US close on inflation said that strong demand in the US economy continues to exceed supply, pointing to persistent price pressures in the services sector, excluding food, energy and shelter. Continued demand for goods, as well as ongoing supply-chain issues in the global economy, may keep prices from falling as quickly as some have expected. Today’s eco calendar is extremely thin with only final EMU CPI data, weekly jobless claims and some central bank speeches. In such context, the proximity of key technical levels (in yield terms) might prevail as market driver.
The central bank of South Korea this morning for the first time in year kept the policy rate steady (at 3.5%). The status quo was expected with two members already voting against the rate hike at the previous meeting. But Governor Rhee was keen to stress that today’s decision shouldn’t be seen as the official end to the rate-hike stance. Indeed, one member dissented, voting for a 25 bps increase. And when he polled the board, five members were open to a peak policy rate of 3.75%, two more than in the January meeting. Just one board member favoured having 3.5% as the terminal rate, down from three people last month. The BoK’s updated forecasts differ little from the November projections. Growth for this year and the next is seen at 1.6% and 2.4% vs 1.7% and 2.3% before. Inflation forecasts for 2023 and 2024 stand at 3.5% and 2.6% (vs 3.6% and 2.5%). The South Korean won strengthens on the idea of a higher terminal rate than what was expected after the January meeting. USD/KRW drops below 1300.
Inflation in Singapore rose 6.6% Y/Y on a 0.2% M/M increase in January. That’s faster than in December (6.5%) though below the peak seen in August (7.5%). Core inflation (excluding private road transport and accommodation costs but including food and fuel) jumped from 5.1% in December to 5.5%. The acceleration was largely due to one-offs including a sales tax hike and seasonal effects and was also below analyst estimates. That said, with core inflation at the fastest in 14 years, the Monetary Authority of Singapore is likely to keep the policy stance tight at its April policy meeting. MAS sets policy through the exchange rate instead of using interest rates. The Singapore dollar is trading stable against the US dollar his morning at around but just below USD/SGD 1.34.