Yellen’s last hurrah, positive Fed minutes
The overall sentiment for Sterling yesterday was disappointing as UK bond yields fell. Cable breached the psychological 1.4000 mark briefly as UK wages grew 2.5% from September to December. However, this effect was quickly negated by the fact unemployment unexpectedly rose to 4.4%, despite jobless claims unexpectedly declining to 7,200 for January.
In Bank of England Governor Carney’s testimony to the Treasury Select Committee, despite disappointment in confidence, the data is consistent with rising wage pressures. Chief Economist Andy Haldane added that the pace of increases would soon reach 3.0%. Wages confidence and capacity constraints concerns fed speculation of a near-term UK rate hike.
The Euro was sold off as it strengthened to 1.1300, although Dollar gains pushed the Pound below 1.3900 after flirting with 1.4000.
The Sterling bulls now look ahead to the second estimate of the UK GDP figures for the last quarter of 2017. With the market monitoring government attempts to formulate a united Brexit stance, any reaction to positive surprises in market data is likely to be short-lived.
The US PMI manufacturing index strengthened to 55.9 for February from 55.5 previously. As well as being above consensus expectations, the PMI was the strongest reading for 40 months while the services-sector index strengthened to six-month highs. Existing home sales declined to an annual rate of 5.38mn for January from 5.61mn previously.
The eagerly-anticipated minutes from January’s Federal Reserve (Fed) meeting stated that recent strengthening of the economy increased the likelihood of further gradual rate increases. Most members judged the economic risks as roughly balanced, but several saw increased upside risks. A number of officials also raised near-term economic growth forecasts given the impact of tax cuts. Markets had priced in some hawkish rhetoric and the Dollar lost ground immediately after release before regaining ground quickly as US yields moved higher and Fed Funds futures indicated a 30% chance of four rate hikes this year.
The Dollar index advanced to the 90.0 level as the Euro dipped below 1.2300 with lows around 1.2260 this morning as the Dollar continued to advance.
Eurozone manufacturing PMIs declined to 58.5 for February from 59.6 the previous month, failing to meet expectations as momentum faded slightly, but still indicating expansion of the sector. Upward pressure on costs and output prices also moderated slightly. Bond yields edged lower following the data and the Euro lost ground against the Dollar, eventually falling through the 1.2300 mark. Bundesbank head Jens Weidmann remained the favourite to succeed Mario Draghi for the European Central Bank (ECB) Presidency next year.
Data to Watch:
01:15 USD FOMC Member Kashkari Speech
05:15 USD Fed’s Quarles speech
07:45 EUR Consumer Price Index (EU norm) (YoY) (Feb)
09:00 EUR IFO – Business Climate (Feb)
09:00 EUR IFO – Current Assessment (Feb)
09:00 EUR IFO – Expectations (Feb)
09:30 GBP Gross Domestic Product (QoQ) (Q4)
09:30 GBP Gross Domestic Product (YoY) (Q4)
12:30 EUR ECB Monetary Policy Meeting Accounts
13:30 USD Continuing Jobless Claims (Feb 9)
13:30 USD Initial Jobless Claims (Feb 16)
13:30 CAD Retail Sales (MoM) (Dec)
15:00 USD Fed’s William Dudley speech
17:10 USD FOMC Member Bostic speech
20:30 USD FOMC Member Kaplan Speech