US stock futures shaky and hawkish ECB’s Lagarde backtracks
Market nerves are lingering at the start of this week as long echoed components like supply disruptions, inevitable hot employment and wage growth, are clearly revealing strong developments in price pressures, which has had global central bank action shift up a gear in one way or another.
The market feeling is that central banks have been nudged on to the wagon of, be vigilant, flexible and ready to pounce on inflation if it starts to seriously run away, especially if persistent baby steps in economies continue to unfold.
Although the dollar index ticked slightly higher in the Asian session, the greenback’s dominance in the forex arena is just not there with the dollar index currently at 95.50 after struggling to hold onto earlier traction, while the US stock futures, which are dipping a tad, are suggesting sentiment remains sluggish.
The US 2-year yield is at 1.315% and the longer-term 10-year is standing at a whopping 1.93% but were unable to prod the reserve currency beyond its intraday high.
Nonetheless, in spite of expectations that the Fed will bring tighter policy against soaring inflation, market drivers remain scarce ahead of US CPI data on Thursday, where a hot inflation result is expected to fuel fresh volatility in the markets.
Across the Atlantic
ECB President Lagarde may have kept dollar gains muted after the surprise hawkish tone of comments in last week’s meeting. ECB’s Lagarde mentioned that the pace of net asset purchases will be discussed and decided in the March meeting and that the ECB will refrain from hiking until net bond purchases end.
The unexpected hawkish tone came about after the governing council reiterated concern about high inflation data, which has, to a degree fuelled tightening and elevated pricing odds of a hike in 2022, despite softening attempts from ECB’s Lagarde, throwing in the old narrative that energy costs are still part of why inflation is hot.
Yesterday, President Lagarde before the European Parliament’s Economic and Monetary Affairs Committee said inflation remains elevated, but it will not force them to act quickly. Another attempt to soften the ripples from last week failed to convince markets, which continue to price in more aggressive policy shifts that may keep the euro buoyant moving ahead. The euro is now retesting the $1.1400 handle after recouping around 70% of its intraday range. However, the euro is likely to remain supported as ECB tightening expectations remain high.
Nonetheless, the aftershocks from last week as we said may still be weighing slightly on the dollar ahead of Thursdays US inflation data. The pound is neutral at $1.3535, back to levels where its Asian session began after a minor push higher to $1.3563. Thus, the EURGBP pair bounced back to 0.8437 sterling per euro, recapturing more than 50% of previous losses from the Eastern trading start.
Oil falls below $90 while global demand remains high
WTI oil futures recent pullback from the more than 7-year high of $93.15 has tested the $89.00 per barrel mark and appears to exhibit a bearish outlook today after a calmer tone about the Ukraine tensions situation.
The Canadian dollar has weakened along with the dive in oil prices. The loonie is at C$1.2710 after bouncing from a key support at $1.2650.
The antipodeans are bearish but are fighting back, holding near yesterday highs. The aussie is at $0.7115 and the kiwi is at $0.6629.
At 02:00 GMT New Zealand’s inflation expectations for the first quarter will be released.
