It has once again been a mixed session on Tuesday, dominated by Brexit and, in economic terms by the US housing data, with both the monthly Housing Starts and Building Permits missing expectations. At the same time, the Case Shiller House Price Index rose increased by 3.6% from a year ago in January, the smallest gain since September 2012. Elsewhere, the US Consumer Confidence came in much lower than expected at 124.1 vs 132.5, while the Richmond Fed’s manufacturing index fell to 10 from 16, in line with expectations.
The US dollar was mixed, but edged higher against the Euro (and the DXY), ignoring the softer data, as US Treasury yields rebounded from their lows, coming after a 2-year note auction that saw very strong demand, with the yield coming in about 1.6 basis points lower than the market had been anticipating. The auction demonstrated the demand for safe assets amidst growing fears of slowing economic growth and the possibility of the need for a Fed rate cut. This actually helped the Aud$, where the RBA are also expected to cut rates this year, but traders looked at the possibility of a narrowing interest rate differential and thus underpinned the currency. The Yen was under pressure as yields staged a minor rebound from their lows, underpinning the dollar, and remains so heading into Wednesday trade. For its part, Cable is bouncing around on the latest Brexit headline, of which there are plenty, but ultimately it is going nowhere fast as traders sit on the sidelines. No-one has a clue where the ultimate direction might lead so it seems best to stand aside.
In other markets, stocks initially headed higher, but then gave up some of their gains after the bond auction heightened the fears of weaker economic growth, but by the end of the session the major indices were generally up by around 0.5%/0.7%, underpinned by a stronger energy sector. This was because the main action on Tuesday was in oil, where WTI rose by almost 2%, back to 60.00, after Venezuela’s second major blackout this month left it in darkness and without power, possibly disrupting crude supply over coming sessions. Gold was a little lower, undermined by the mildly stronger US$ and by the stock markets moving a little higher.
Looking ahead, Wednesday will begin with the RBNZ Interest Rate Decision, coming up shortly, at which no change is expected and the interest will lie in the statement/press conference, and a speech from the RBA’s Kent. Europe will look to speeches from most of the board at the ECB gathering in Frankfurt including Draghi, Praet, Lautenschlager, Mersch and De Guindos, while the US will see the Q4 Current Account (exp $-130 bio), January Trade Balance (exp -57 bio) and a speech from the Fed’s George.
Economic data highlights will include:
Wed: Speech; RBA’s Kent, RBNZ Interest Rate Decision/Statement, Swiss ZEW Survey, ECB Speakers: Draghi, Praet, Lautenschlager, Mersch and De Guindos, UK CBI Distributive Trade Survey – Realised, US Current Account, Trade Balance, Speech; Fed’s George, EIA Crude Oil Stocks Weekly Change
Market moves, in brief:
FX: DXY 96.83 (+0.3%)
Bonds: US10Y; 2.42% (0.82%), German 10Y; -0.016% (+42%), UK 10Y; 1.008% (2.002%), Australian 10Y; 1.835% (2.43%), NZ 10Y; 1.875% (-1.83 %), China 10Y; 3.14% (-0.11%)
Stock Indices: DJI; +0.55%, S+P; +0.72%, NASDAQ; +0.47%, EUStoxx50; +0.52%, FTSE100; +0.26%, Shanghai Composite; -1.51%,
Metals: Gold 1315 oz (-0.45%), Silver 15.43 oz (-0.66%), Copper 2.8645 lb (+0.23%), Iron Ore 85.80 per tonne (-0.02%),
Oil: WTI 6.04 pb (+1.7%)
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