European Outlook: Global stock markets continue to move higher and after European and U.S. bourses closed with gains, most Asian markets also managed to rise. Japanese bourses were the notable exception, with investors apparently spooked by a rise in indices of future volatility in U.S. markets, which raised doubts about the sustainability of the especially the U.S. run higher. A stronger yen, which weighed on automakers and exporters didn’t help either and the Nikkei closed with a -0.47% loss. U.S. stock futures are indeed in the red, while FTSE 100 futures are still managing gains, after yesterday’s broadly higher close in Europe. The FTSE 100 managed to close above 7300 and the DAX also remains at lofty highs even if gains above the 11800 mark could be held into the close. The Italian MIB underperformed after some rumors that Renzi is pushing for snap elections in September, which would only add to Europe’s political challenges this year. Today’s data calendar is quiet, with Italian trade numbers, as well as Eurozone current account data and inflation numbers from Sweden.
FX Update: The dollar has remained on a back foot, marginally extending the correction from post-U.S. data highs of yesterday. USDJPY has fallen back under 114.00, logging a low of 113.76 in Tokyo trade today. The move comes after the pair topped out at near three-week highs of 114.95 in the aftermath of yesterday’s hotter U.S. CPI outcome. Good selling was reported from the highs, with profit taking ramping up into the key 115.00 level, where a wave of Japanese exporter offers is reportedly sitting. The 50-day moving average is at 114.88. EURUSD has breached above yesterday’s peak in making 1.0624. AUDUSD rallied to a three-month peak at 0.7732, since settling just under 0.7700.
Fedspeak: During Fed Chair Yellen’s testimony, to House Financial Services Committee, she did state that she believes much of the rally on Wall Street is a function of hopeful fiscal policy expectations. The firmer dollar, meanwhile, reflects expectations of Fed rate hikes. She hopes that the economy will allow the Fed to raise rates faster. On the border tax, she sees great uncertainties with respect to impacts on trade and currency flows. Unfortunately, much of the day’s testimony saw grandstanding from many committee members who seemed more interested in throwing barbs at the new administration, rather than discussing key issues of monetary policy and the economy. Hence, there weren’t any fresh insights on how Yellen viewed today’s stronger than expected data and if the reports upped the chances for a March tightening. Meanwhile, Fed’s Harker repeated he supports 3 rate hikes this year, assuming the economy remains on track, in his speech on the economic outlook. The economy is more or less back at full strength he said, forecasting GDP growth a little above 2%. And he expects the inflation target to be met later this year or next. He does think the economy needs more workers and immigration could help.
US reports: revealed a wide array of upside surprises that have boosted prospects for the consumer and factory sectors in the face of rising confidence, small business optimism and producer sentiment, with a solid inventory reversal and a big bounce in the inflation gauges into 2017 that lift the risks of a Fed tightening at the March FOMC meeting. We saw January retail sales gains of 0.4% overall and 0.8% ex-autos after upward revisions, alongside a 0.4% December business inventory rise that lifted Q1 GDP estimate to 2.2% from 2.0% after an expected Q4 boost to 2.2% from 1.9%. We saw a 0.3% January industrial production drop that reflected temporary weather and auto hits, but with upward revisions that left a strong report, alongside a February Empire State surge to a 29-month high of 18.7 with an ISM-adjusted pop to 54.5. We saw a 0.6% January CPI gain with a 0.3% core price rise that left respective y/y gains of 2.6% for the headline and a cycle-high 2.3% for the core.
Main Macro Events Today
- ECB Report – ECB Monetary Policy Meeting Accounts Report.
- US Philly Fed Index – February U.S. Philadelphia Fed Index is expected to dip to 15.0 after a January surge to 23.6 from 19.7 in December. The Empire State index for the month was already released and posted a big headline bounce to 18.7 from 6.5 in January. Producer sentiment in February now looks poised to hit a two-year high with the ISM-adjusted average of all measures rising to 55 from 55 in January.
- US Housing Starts & Unemployment Claims – January housing starts data should reveal a 1,226k headline for the month. This would be an unchanged pace following the 11.3% bounce to this level in December from 1.102k in November. Initial claims data for the week February 11 expected to rise to 247k after a big dip to 234k in the week prior. Claims in February are expected to average a stronger 244k in February from 247k in January and 258k in December.
- NZ Retail Sales – New Zealand’s Retail Sales for last quarter of 2016, expected to rise by 0.2%, i.e. 1.1% from 0.9% last quarter.
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