Morning Markets: March rate-hike odds jump to 44%
- Brazil: Economic Activity Index (1030 GMT)
- US: Housing Starts (1330 GMT)
- US: Initial Jobless Claims (1330 GMT)
The chances of the Federal Reserve following December's rate hike with another next month jumped to 44% from 30% on the back of a five-year high for US inflation in January at 2.5%.
With corporate price inflation also at 2.3%, it is well in excess of the central bank's 2% target.
A bout of US 10-year Treasuries buying ensued to force the yield down to basis points to 2.48% and end a five-day bonds selloff on the back of US president Donald Trump's reflation signal at the tailend of last week and Fed chair Janet Yellen's relatively hawkish stance on the dollar earlier this week. Safe-haven gold also managed to regain a foothold above $1,230/oz and yen strengthened against dollar.
USDJPY's slip to below 114.0 inevitably reversed Nikkei's recent rise, but the equities surge elsewhere continued unabated with Hang Seng and Shanghai Composite both enjoying 0.5% rises after Dow Jones, S&P500 and Nasdaq all posted strong gains. With the FTSE All-World equity index surging 0.9% to beat the previous peak set in May 2015, global indices seem to be running to a different beat with US markets particularly beginning to look overextended.
Dollar could be subdued Thursday on the raised prospect of a Fed move next month unless Trump intervenes to re-establish the reflation narrative. Strong US data later this afternoon could paradoxically weaken dollar if that is taken as a signal of emboldening the Fed to move, if not in March, then certainly in May. GBPUSD was close to 1.25 in the hour before the European open and EURUSD had once again regained the 106.0 handle.
Speaking of Trump, he abandoned the long-held two-state solution with the goal of an independent Palestinian state. He has already had to make one embarrassing climb down after China stared down his bid to dismantle the 'One-China' policy and, while Palestine is no China, the move will not go down well on the international stage and only exacerbate the underlying tensions that beneath the selective euphoria, is making markets queasy.
That leaves the Fed. That leaves March. What will it do? We'd still edge towards May.
- Asian stocks were mixed after strong gains on Wall St
- The Nikkei 225 was down 0.5% in afternoon trade
- Australia's ASX200 managed to end 0.12% up despite Telstra woes
- The Shanghai Composite rose 0.39%; the Hang Seng gained 0.44%
- Toshiba shares extended their fall by more than 3%
- China sold off US Treasuries heavily in 2016 to support the yuan
- Pakistani GDP should hit 5% this year, thanks to Chinese investment: Nikkei Asian Review
- The murder of Kim Jong-nam, a friend to China, may strain Sino-North Korea ties
- Australia's inflationary expectations fell in February by two percentage points to 4.1%
- Australia's unemployment rate edged lower to 5.7% despite a big drop in full-time jobs
- In trend terms full-time employment rose for the fourth straight month
- Oil, iron ore and copper prices all fell after strong recent gains
- The US dollar fell against the yen; it was worth just ¥113.8400 at 0210 GMT
- AUD surged from an overnight low of 0.7637 and burst through resistance at 0.77
- The Aussie dollar was worth 0.7720 at 0203 GMT, a three-month high
- The NZ dollar rebounded and headed higher; it was worth 0.7235 at 0211 GMT
From the Floor
Risk-on/off. "Risk reversals in USDJPY are at the lowest levels for a number of months," says Larsen
Inexorable equities. "We are trading at levels not seen since 2002 and it is beginning to sniff of being very overvalued," says Garnry
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Although the near-term outlook for construction still looks healthy in the US, it appears that growth has slowed to a crawl, writes James Picerno.
Wary approach Saudi Arabia's planned flotation of its state-owned oil company looks to be on track for 2018 amid a gradual re-balancing of the oil markets. The stock offering is expected to be the biggest in history, writes John Acher.
The latest inflation update out of the US has seen the market warm to the idea of a rate hike at the FOMC meeting on March 15 but traders remain wary, explains Max McKegg.
Saudi Arabia's planned flotation of its state-owned oil company looks to be on track for 2018 amid a gradual re-balancing of the oil markets. The stock offering is expected to be the biggest in history, writes John Acher.
The Fed is willing and ready to react to data and adjust its timetable accordingly, says John J Hardy, and while March might see a holding pattern, May is looking more likely.
Gold may have faced its challenges this week but ongoing political uncertainty seems likely to keep gold well supported above $1,220/oz, says Ole Hansen.
China has issued licences to US banks for the first time as the process of opening the market to foreign operators gathers pace, writes Michael Boye.
Even if Angela Merkel loses the election in September, her social democratic rival is every bit a pro-European and anti-isolationist as the veteran chancellor, says Clemens Bomsdorf.
China may have helped fueled the global deflation wave but the surprise PPI jump in January indicates this is no more and that will stimulate systemic inflation, says Christoffer Moltke-Leth.
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