Market movers today
Markets are still awaiting the two key events this week: the ECB meeting tomorrow and the US employment report on Friday.
Today, we get the US ADP employment report, which offers some input on the job situation in the US. However, note that the correlation with non-farm payrolls on a month-to-month basis is not very high.
Further, US trade data is due; while normally it does not receive a lot of market attention, the chance that it might show that the US trade deficit has grown by more than USD100bn due Trump’s presidency could mean it gets some focus amid the final rounds of trade negotiations between the US and China.
The Bank of Canada is widely expected to leave policy rates unchanged at today’s interim policy meeting. At the last meeting (9 January), Poloz and co signalled that the next policy move is still expected to be a hike. Meanwhile, as in the US, markets have fully priced out any hike probability over the next 12M. Given our constructive view on the global economy and our call on Fed and oil, we think this is too dovish. However, we doubt we will see any significant re-pricing post today’s announcement.
Tonight, the Fed’s Beige Book is released and we will have speeches by the two Fed members Williams (voter, neutral) and Mester (voter, hawk).
Selected market news
Mixed sentiment overnight with Asian equities struggling after small losses in the US session. Notably, weaker-than-expected Australian GDP data showing growth decelerated to 2.3% (previous 2.8%, consensus 2.6%) helped dent risk appetite in Asia. This came after a relatively strong US non-manufacturing ISM report on Tuesday afternoon, which saw the overall index rebound to 59.7 in February (previous 56.7), driven by a decent increase in both business activity and new orders, albeit the employment component actually fell somewhat. At least this underlines that a US recession is not imminent and we should be on track for a healthy level of Q1 growth with 3% q/q (ar) in sight. However, the Fed’s Rosengren helped dampen any attempts to reprice the Fed on this, as he was out stating it may take ‘several meetings’ before the Fed is ready to move on rates again. US Treasuries ended the day mixed but the 10Y yield declined a tad to 2.72%. USD crosses continued to edge higher as the ISM report helped add to the sense of a possible bottom in the US cycle.
Separately, the GBP was supported yesterday by noteworthy comments from Bank of England (BoE) governor Carney that the current market path for the Bank rate ‘may not be high enough’. Meanwhile, May’s talks with the EU were reportedly unsuccessful yesterday (but are set to continue today) and preparations for a no-deal outcome continue. The BoE announced that it has set up a EUR swap line with the ECB to ensure UK banks can have access to euro funding. And according to Sky News , the UK may cut tariffs down to zero for 80-90% of all goods (excluding cars and some food products) in case of a no deal Brexit.
