Markets continue to digest yesterday and Beijing’s signal of more economic support measures, awaiting the move.
The US 5-10 year curve is crossing an inversion and flattening as the Fed moves from one corner of the woe (behind the inflation curve) to the other (recession fears).
Asia-Pacific stocks extended yesterday’s gains. led by a gain of 6.7%. Up 3%, up 2.5%. European stocks edged higher, with U.S. futures paring gains late yesterday. U.S. yields were near 2.11% after briefly breaking above 2.2% yesterday. European bond yields were mostly down 2-3 basis points.
The Hong Kong Monetary Authority and Saudi Arabia raised 25 basis points based on their currency peg requirements. It initially rose on the Fed statement, but pared gains at Chairman Powell’s news conference. It was lower against most currencies today. is the strongest among the majors by. Today’s emerging market currencies are made by .
It traded below $1900 yesterday before recovering. This recovery is expanding today, with gold near $1944. $1962 could be reached in the next day or two. April seems to have built a base around $93-94 and is trying to test $100.
Firming after a 4% gain yesterday. Recovering half of yesterday’s 6.7% loss. It retreated after rising 8.5% yesterday. Extending yesterday’s gains, it rose about 1.4%. May started to consolidate after falling nearly 7.5% yesterday.
China has highlighted a shift from structural reforms to growth, as many market watchers have spotted. However, investors now need to see evidence of a pudding, so to speak, policy adjustment. That could happen at the prime lending rate set in Beijing on Monday, but more observers are talking about lowering the reserve requirement ratio in the coming weeks.
Australia rose by 77,400, more than double the forecast in a Bloomberg survey. Details are more powerful. Full-time jobs rose by nearly 122,000 last month, after a revised decline of 61,000 in January (down 17,000 initially). It fell from 4.2% to 4.0%, although it rose from 66.2% to 66.4%. Australian shares rose 3-4 basis points as many saw the data ahead of an RBA rate hike. The likelihood of action at the end of the second quarter has increased.
Tomorrow’s conclusion and a firm footing will underscore the growing divergence with U.S. and other countries’ monetary policy. Japan’s buying and selling of foreign bonds and stocks remained subdued as the fiscal year came to a close, but foreign investors performed well for the second week in a row.
It rose slightly to 119.10 yen yesterday and is consolidating below today. Support was provided by the 118.60 yen we targeted last week. Note that the Bollinger Bands are on track near 118.70 today.
The Australian dollar rose 1.35% yesterday, its biggest gain since early November 2020. It is extending gains today and is approaching the retracement target of the decline (61.8%) since reaching $0.7440 earlier this month. The retracement target is near $0.7335. Above this, last week’s high near $0.7375 could be of interest.
Recall that USD/USD gapped higher on Monday and Tuesday. It filled Tuesday’s gap yesterday and entered Monday’s gap today without filling it. The bottom of the gap is just below RMB 6.34. The People’s Bank of China set the US dollar reference rate at 6.3406 yuan. The median forecast in a Bloomberg survey was 6.3360 yuan.
Wait for the Bank of England. The swap market has about a 1 in 4 chance of a 50 basis point move today, with the favorite being a 25 basis point move. The Bank of England is likely to raise its inflation outlook, which will help underline the policy path. Today’s move would be the third straight rate hike and raise the benchmark rate to pre-pandemic levels. A 25 basis point hike would bring the benchmark rate to 0.75%. When it hit 1.0% (May), the BoE said it could (but will not) shrink its balance sheet more actively by selling securities, rather than passively by not reinvesting earnings as they mature.
Sweden’s central bank governor said its first rate hike could come before the second half of 2024, which it had previously projected. Ingves warns that inflation is too high. Using fixed mortgage rates, underlying inflation was 4.3% in February and the core base rate excluding energy was 3.4%. The next Riksbank meeting will be at the end of next month, but the focus of the first rate hike is now September.
The U.S. said sanctions on Russia did not prevent Moscow from repaying its dollar debt by May. This has also been made more difficult by Russia’s attempt to preserve its reserves of hard currency at its disposal, with many expecting a default in the second quarter.
Also note that India, which abstained in the UN vote condemning Russian aggression, appears to be exercising its option to buy more Russian oil in an earlier deal. As one might imagine, Rosneft has been trading at deep discounts, with Russia covering the shipping and insurance costs. The White House press secretary said India’s purchases did not violate U.S. sanctions.
Trading volume hit a five-day high in European morning trade today, just above $1.1065. Last week’s high was near $1.1120. Before that is the 20-day moving average near $1.1095. Recall that yesterday, in response to the Fed’s statement, the euro hit a session low of $1.0950 before recovering to a fresh session high. We suspect that the day’s high may be close, with initial support in the $1.1000-$1.1020 range.
At the lows yesterday, the euro fell below $1.3050 before reversing higher, recovering 1 cent. Those gains extended to $1.3190 today. Sterling is also poised to buy the rumor sell the fact type of trade, just like the USD reacted to the Fed yesterday. Initial support is near $1.3150 and then $1.3100.
The dollar typically rises ahead of the Fed’s first rate hike in recent cycles, then weakens as the tightening phase progresses. The BIS study found the average decline was just over 4%. Part of the reason may stem from the Fed’s inability to achieve the proverbial “soft landing” to lower inflation without triggering a recession. Many doubt that a soft landing can be achieved now, in part because the Fed waited too long to halt asset purchases.
While the “transient” drama was removed from the Fed’s rhetoric on inflation, the Fed’s new forecasts show it’s still a median case. The PCE deflator was 6.1% in January, and the median Fed forecast is 4.3% by the end of this year, 2.7% next year and 2.3% in 2024. In addition, many observers also find it difficult to estimate the pace of Fed tightening and slowing GDP, with a median of 3.5% this year and next.
The Fed meeting may have reduced focus on today’s high-frequency data, including , , and , and . Note that following yesterday’s data, the Atlanta Fed’s GDPNow tracker raised its first-quarter forecast from 0.5% to 1.2% (starting March 8). For many of us, seeing a high probability of a recession and not thinking that a contraction is imminent, but probably from the end of the year, or more likely a 2023 story.
Canada reported a stronger-than-expected February report yesterday, at 5.7% (median forecast of 5.55), compared with 5.1% in January. The average for basic measures also rose. The Bank of Canada will hold its next meeting on April 13. There is a 50 basis point probability that the swap market is pricing close to 68%. The balance sheet is likely to start shrinking in May.
As widely expected, Brazil’s central bank raised the Sellik rate by 100 basis points to 11.75%. It has now raised rates by 975 basis points over the past 12 months. Running above 10%. Petrobras (NYSE: ) raised diesel prices by 25%, warning of more upside inflation risks. Still, a central bank survey found that inflation expectations will fall back to 6.45% by the end of this year and 3.7% next year. Mexico and Chile are also expected to hike rates later this month (March 24 and March 29, respectively).
It reversed lower after peaking near C$1.2870 on Tuesday. It continued to pare recent gains yesterday, falling to C$1.2675. European morning trade continued to be choppy, approaching C$1.2650. There is an option worth about $325 million at C$1.2635 that expires today. The low earlier this month was near CAD1.2585, with the 200-day moving average just above CAD1.2600.
The dollar hit this month’s high on March 8, trading just below 21.47 against MXN21.47. It fell below MXN20.60 yesterday and is trading in a tight range around today. The month’s low was near 20.39 MXN, just below the 200-day moving average (~20.42 MXN). It was turned back earlier this week after approaching BRL5.17. It looks poised to re-challenge the BRL5.00 zone.