Morning Report APAC: Weak market awaits clues on US inflation
- US inflation report expected to give clues Federal Reserve policy tightening.
- Japanese and Aussie stocks largely unmoved with KOSPI also little changed
- JPY the only currency reacting overnight, up 0.1% at 106.27 to the USD
By Saxo APAC Sales Trading
Economic data of the day (Singapore Time)
Speeches (Singapore Time)
22:15: CA - Bank of Canada governor Stephen Poloz speech in Kingston
06:10: AU - RBA’s Kent gives speech in Sydney
Market Summary: It was a quiet day for markets as lack of data. Concerns on tariffs made equities give up some gain from good job data in US. Treasuries were higher on the back of weakening dollar, while JPY strengthened. Commodities fell led by oil, as concerns on US production looms.
Libor-OIS spread at six-year high : The Libor-OIS spread is regarded as a measure of how expensive or cheap it will be for banks to borrow, as shown by Libor, relative to a risk-free rate, the kind that’s paid by highly rated sovereign borrowers such as the US government.
The Libor-OIS spread provides a more complete picture of how the market is viewing credit conditions because it strips out the effects of underlying interest-rate moves, which are in turn affected by factors such as central bank policy, inflation and growth expectations.
Reasons behind the surge are three fold as mentioned by Bloomberg. First, there is a big trunk of Treasury bill supply after the US government last month resolved the borrowing limit impasse.
Second, tax reform brings back money, however it's mostly kept in the form of short-term instruments, dampening the demand. Last but not least, is the balance sheet shrinkage caused less reserves in the financial system.
Foreign exchange movements
– Edited by Adam Courtenay
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