Here are the latest developments in global markets:
FOREX: Political scandals surrounding the Japanese Finance Minister regarding a discounted sale of state-owned land continued to pressure the yen during the European afternoon, sending dollar/yen to 107.60 (+0.80%) ahead of the release of US CPI figures which have the potential to alter risk appetite in the market. The dollar index edged up to 89.98 (+0.13%). Pound/dollar was moving sideways around 1.3880 (-0.12%), shrugging off remarks expressed by the EU Brexit negotiator Michel Barnier who said that the EU is open to UK ideas on avoiding a hard Irish border, but Theresa May’s stance keeps many EU doors closed. Euro/dollar gained a little, touching 1.2551 after the ECB’s board member, Philip Lane, talked down any concerns on the currency level, though, the gains were temporary, and the pair returned immediately to 1.2337 (+0.03%). Meanwhile, the President of the EU commission, Jean Claude Junker reiterated threats of retaliation against Trump’s protectionism, claiming that more clarity is expected from the US side in the coming days. Dollar/loonie stretched higher to 1.2867 (+0.23%) and aussie/dollar was flat at 0.7864 (-0.09%). Kiwi/dollar picked up speed towards a fresh two-week high of 0.7320 before it slipped to 0.7320 (+0.34%) following encouraging comments by the RBNZ acting governor, Grant Spencer, who backed the central bank’s current macroprudential policy, explaining that the usage of those tools limited risks of a hot housing market.
STOCKS: European stocks inched higher as of 1030 GMT. The pan European STOXX 600 and the blue-chip Euro STOXX were up by 0.06% and 0.10% respectively, with energy sectors leading the gains. The German DAX 30 rose by 0.16%, the French CAC 40 improved by 0.46%, the Italian FTSE MIB climbed by 0.40% and the Spanish IBEX 35 surged by 0.83%. The UK’s FTSE 100 was steady, while US stock futures were pointing to a positive open.
COMMODITIES: Oil prices edged higher at 1045 GMT following a suspension of crude loadings in a key port in Libya, despite concerns over rising US oil production. Yesterday, the US Energy Information Administration said in its monthly report that the US oil shale production is expected to reach a record high in April. WTI crude and Brent were last trading at $61.58 (+0.40%) and $65.09 (+0.25%) per barrel respectively. In precious metals, gold stood at $1318.30 (-0.29%) per ounce, near intraday lows.
Day ahead: US CPI data to warn on inflation; UK’s Finance Minister issues Spring Statement
US consumer prices will be in focus later today at 1230 GMT in the absence of any other major economic releases. The headline CPI rate for the month of February is expected to inch up to 2.2% in yearly terms compared to 2.1% seen in January and the core equivalent which excludes volatile products such as food and energy is anticipated to remain steady at 1.8% y/y. While this is not the Fed’s preferred inflation measure – that would be the Personal Consumer Expenditure index – it would be the only evidence on prices ahead of the two-day FOMC policy meeting next week. Therefore, any upside surprise in the numbers could revive inflation fears and increase chances for four rate increases compared to three currently priced in the markets. In this case, the dollar could extend today’s gains. On the other hand, if CPI misses predictions, investors could doubt any significant rise in inflation pressures, pushing the dollar lower. Note that Friday’s NFP wage component came in below estimations, spreading speculations that inflation could remain below the Fed’s 2.0% target for longer.
In other data releases, the Westpac Banking Corporation will report on Australia’s consumer confidence for the month of March at 2330 GMT, while a few minutes later, at 2350 GMT Japan will publish readings on core machinery orders at 2350 GMT. After a sharp fall in December, analysts see a strong rebound in January’s manufacturing orders with the yearly gauge surging by 5.3% y/y. At the same time, the Bank of Japan will issue minutes of its policy meeting held on January 22-23.
In the UK, the Finance Minister, Philip Hammond, will unveil the latest economic forecasts in front of the Parliament at 1230 GMT as part of his Spring Statement. Expectations are for Hammond to give an upbeat tone on the country’s financial health, but he may postpone providing many details until the more important Autumn statement later this year. Traders will keep a close eye on any Brexit comments after the UK’s junior Brexit minister said that the EU and the UK are very close to reaching an agreement on the transition period.
In energy markets, investors will look to the private API inventory data at 2030 GMT, in order to gauge whether US production has really peaked, for the time being, something signaled by the decline in the Baker Hughes oil rig count on Friday.
In politics, all eyes will be turned to the US, where a special election will be held in Pennsylvania for an open seat in the House of Representatives. While a single House seat is usually not very important in US politics, this time is different. Back in 2016, Trump and the Republicans won this district by a landslide, but opinion polls now suggest that the Republican and Democratic candidates are running neck and neck. If the Democratic contender wins or comes close to winning, that would be a clear sign that the Republicans are at risk of losing districts they won easily in 2016. Such an outcome could heighten speculation that the Republicans may lose control of Congress at the mid-term elections later this year.