Sat, Mar 25, 2023 @ 12:02 GMT
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Markets Firmly In Risk-On Mode

Global markets synchronised their appetite for risk after the US stock market broke out earlier in the week, with the German Index and UK 100 following suit. This followed on from positive news on the geopolitical arena, as Syrian tensions eased and trade talks made progress. Corporate earnings are showing good results. The US 500 was up 1.07% yesterday to 2706.39, with the German 30 up 1.57% to 12585.57. The UK 100 was up only 0.39% to 7226.05, despite GBPUSD moving down to retest the 1.42850 area and Oil prices moving higher. USDJPY dipped yesterday in a contrarian move to retest 107.000 but is recovering this morning. Gold traded in a range between 1348.50 and 1338.00, as EURUSD had a brief move above 1.24000.

UK Average Earnings excluding Bonus (3Mo/Yr) (Feb) was as expected at 2.8%, from 2.6% previously. Claimant Count Change (Mar) was 11.6K v an expected 5.0K, from a previous reading of 9.2K, which was revised up to 15.1K. ILO Unemployment Rate (3M) (Feb) was 4.2% v an expected 4.3%, versus 4.3% previously. Average Earnings including Bonus (3Mo/Yr) (Feb) was 2.8% v an expected 3.0%, from 2.8% previously. Claimant Count Rate (Mar) was unchanged at 2.4%. Wage growth continued to tick up after stabilizing at 2.5% and moving up last month. The unemployment rate is at multi-decade lows, putting some pressure on wage growth. The Claimant count showed an increase in the number of people claiming benefits, with last month’s number revised higher also. GBPUSD fell from 1.43632 to 1.43057 following this data release.

German ZEW Survey – Current Situation (Apr) was 87.9 v an expected 88.0, against a prior 90.7. ZEW Survey – Economic Sentiment (Mar) was -8.2 v an expected -1.0, from 5.1 previously. These data points continued to soften, as the strengthening in the Euro affects business. The deteriorating trade environment is also a headwind for business outlook. The Sentiment was very negative, reaching a low not seen since 2012 and forecasting a growing pessimism in the German economy, in line with the drop seen in other data points. EURUSD moved up from 1.23799 to 1.23867 after this data.

US Housing Starts (MoM) (Mar) was 1.319M v an expected 1.269M, from a previous number of 1.236M, which was revised up to 1.295M. Building Permits (MoM) (Mar) was 1.354M v an expected 1.328M, from a prior reading of 1.298M, which was revised up to 1.321M. This data was expected to show a pick-up in residential construction activity as the weather improves and summer approaches. These data points have been recovering since hitting lows of 0.46M and 0.49M respectively in 2009, after the financial crisis. The numbers exceeded both forecasts.

FOMC Member Williams spoke about monetary policy at a global symposium co-hosted by the National Association for Business Economics and the Bank of Spain, in Madrid. He said that the Fed needs to continue on the path of gradual rate hikes which reduce the risk that the economy could overheat. The outlook for the US economy is very positive. Core inflation is to hit 2% sometime this year. He said he doesn’t expect an inverted yield curve in the next few years. Long-term yields should rise gradually as the Fed hikes. Yield curve inversion would be a warning sign. The biggest risks to the US lie outside its borders.

US Industrial Production (MoM) (Mar) was released at 0.5% v a consensus of 0.4%, from 0.9% previously, which was revised up to 1.0%. This measure rebounded strongly to reach the highest reading since December 2014 last month, after slipping below zero in the previous reading. The forecast was lower this month but the data still exceeded expectations, showing relative strength. Capacity Utilization (Mar) was also released at this time coming in at 78.0% v an expectation for 77.9%, against 77.7% prior, which was revised down from 78.1%. This number shows strong performance in capacity utilization.

New Zealand Global Dairy Trade Price Index was 2.7% v a previous reading of -0.6%. NZDUSD moved higher from 0.73266 to 0.73437 following this data release.

FOMC Member Harker gave a scheduled speech in Philadelphia, commenting that the labour market is fairly tight. He also warned that student loan debt could burden workers and dissuade others from higher education.

FOMC Member Bostic discussed the economic outlook in an interview conducted by Bloomberg at an executive workshop, in Atlanta. He said that he was hearing about labour shortages everywhere he went. The goal for Fed policy should be to get to a more neutral stance. The US economy is in a good place but businesses are confused about the direction of US trade policy. He expects to see inflation build. PCE is moving higher and he expects it to be at target in a month or two.

EURUSD is up 0.06% overnight, trading around 1.23763.

USDJPY is up 0.34% in early session trading at around 107.363.

GBPUSD is up 0.15% this morning, trading around 1.43063.

Gold is down -0.30% in early morning trading at around $1,343.00.

WTI is up 0.55% this morning, trading around $67.08.

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