Morning Report APAC: Key lies with US inflation
- JPY is trading close to a five-month high at ¥107.74 per dollar
- Investors keenly await the US inflation report for direction
- 10-year yields tipped to hit 3.5% in the next six months
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time)
- 1600: EU – Deutsche Bundesbank president and European Central Bank governing council member Jens Weidmann speaks in Frankfurt, Germany
- 1820: EU – ECB board member Yves Mersch speaks in Frankfurt
Waiting for US CPI: Remember that the equity selloff started after the surprise on the wages inflation in the payroll report so the inflation data tonight are extremely important.
The market is expecting core inflation to be at 1.7% YoY from 1.8% the previous month.
If there is a positive surprise in inflation, expect another round of equity selloff, US yields to bring new highs and the curve steepening.
USD should also rally but we don’t believe that that move will be sustained for too long.
On a negative surprise for CPI, expect the USD to drop and the US Treasury curve to flatten. Equities should have a strong rally as well on that.
UK CPI: UK CPI surprised on the upside at 3.0% YoY (expected. 2.9%) and core at 2.7% YoY (expected: 2.6).
Upward pressures came from the recreation and culture sector, where prices posted their smallest January decline in five years.
There was also some pressure from clothing prices as seasonal discounts failed to match those of a year ago.
Japan GDP: Big disappointment for Japan GDP which printed 0.5% SA quarter-on-quarter with an expectation of 1%.
The dip in Q4 reflected weaker public demand, and reduced support from external demand due to a pickup in imports.
Private-sector demand was solid -- business investment and consumer spending both increased. A drop in inventories dented the Q4 GDP.
Singapore GDP: Positive surprise in the Singapore GDP at 3.6% YoY from 3.1% (expected: 2.9%).
Manufacturing in the trade-reliant economy was boosted last year by a surge in electronics exports.
Services industry, which makes up about two-thirds of economy, grew at an annualised 6.3% in the fourth quarter from prior three months. Manufacturing contracted 14.8% while construction declined 0.2%
DXY continues to be well offered with USDJPY accelerating lower on the break of ¥108.50.
The market has been buying aggressively downside strikes for a while now and it finally performed and locals have been seen selling USDJPY .
The market will now wait for the US CPI tonight but the feel is that we will see another big move lower of the USD after the number no matter what.
Emerging Markets: USD/emerging market currencies were fairly mixed despite the rally in equities in Asia yesterday. Funds are waiting for the inflation data in the US tonight.
Foreign exchange movements
– Edited by Adam Courtenay
This report was compiled by the Saxo APAC Sales trading team in Singapore – the home of social trading. Follow the team on @SaxoStrats or post your comment below to engage with Saxo Bank's social trading platform. Follow us on @SaxoStrats on Twitter
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