Here are the latest developments in global markets:
FOREX: The dollar index held onto gains during early European afternoon as investors’ optimism that the Fed would raise rates more than three times this year heightened further after the Fed’s new chair testimony in front of the House Financial Committee. Jerome Powell, the new Fed boss, reiterated that the US economy is on a healthy track and a normalization of the monetary policy is needed to avoid an overheating economy – acknowledging the growth effects of Trump’s tax cuts – given that inflation will move towards the Fed’s 2% target. The dollar index touched a fresh two-week high at 90.55 (+0.12%), whereas dollar/yen was on the backfoot, trading at 107.11 (-0.18%) on the face of a strengthening yen, which gained momentum after the Bank of Japan offered to buy a smaller amount of super-long government bonds on Wednesday in its regular buying operations. Inflation preliminary figures came in as expected in Eurozone (Italy’s CPI numbers disappointed). Euro/dollar moved down to 1.2218 (-0.10%), while pound/dollar was the worst performer, diving to a two-week trough of 1.3845 (-0.48%) after the EU’s Brexit negotiator Michel Barnier said that the Brexit legal draft treaty did not provide any surprises – the draft was expected to express political positions and terms of the exit as were discussed in the Brussel’s meeting with the UK Prime Minister Theresa May in December – but he argued that there are still "significant divergences" on transition issues. Aussie/dollar managed to climb to 0.7807 (+0.23%) despite worse than expected Australian and Chinese data, while kiwi/dollar tumbled to 0.7215 (-0.26%) near three-week lows. Dollar/loonie was steady at 1.2768 (-0.05%).
STOCKS: European stocks headed lower on Wednesday following their US counterparts in Wall Street as Powell’s speech on Tuesday raised flags that the Fed could increase interest rates faster than expected. Meanwhile, earnings releases from European corporates came in disappointing, adding further pressure to the market. The pan-European STOXX 600 and the blue-chip Euro STOXX 50 were down by 0.21% and 0.23% respectively at 1030 GMT with all sectors except financials and techs being in the red. . The German DAX 30 and the British FTSE 100 dropped by 0.26%, while the Spanish IBEX 35 was among the worst performers, losing 0.56% on the back of underperforming healthcare sectors. US stock futures were a sea of red, pointing to a negative open.
COMMODITIES: Oil prices were weaker. WTI crude was trading at $62.88/barrel (-0.21%) and Brent stood at 66.44 (-0.29%) ahead of the EIA weekly oil report. Earlier today, industrial data out of China, Japan and India – the world’s major crude-consumers – indicated a slowdown in their monthly factory activities, signaling a potential ease in global demand. In other news, Reuters sources reported that OPEC will meet US shale firms on Monday for a dinner, where analysts expect both sides to discuss on how to mitigate the supply oil glut. In precious metals, gold managed to pare a small part of earlier losses, touching a session high of $1321.22/ounce.
Day Ahead: US updates Q4 GDP growth estimates; EIA oil report eyed
Looking forward to the day, economic releases will continue to attract attention with the US, Canada, and New Zealand being among the countries to publish figures.
Following the upbeat speech of the new Fed chair, Jerome Powell, yesterday before the House Financial Committee, who expressed his hawkish views on the US economy and sent the dollar index higher, US agencies are next in the line to potentially shake the dollar.
At 1330 GMT, the Bureau of Economic Analysis will release second estimates on the US GDP growth for the final quarter of 2017. Analysts believe that the economy has expanded by 2.5% quarter-on-quarter, slightly below the 2.6% growth estimated initially. Revised figures on inflation gauges involving the GDP growth deflator (this tracks the level of prices of all new, domestically produced, final goods and services) and the core Personal Consumption Expenditures index (PCE) will be also delivered along with the abovementioned data.
Then later in the day, the Kingsbury International and the National Association of Realtors will report on Chicago’ manufacturing conditions at 1415 GMT (Chicago PMI) and pending home sales at 1500 GMT respectively, with both measures expected to slow down.
Elsewhere, Canada will see the release of producer prices for the month of January at 1330 GMT, while terms of trade will be out of New Zealand at 2145 GMT.
In energy markets, the focus will be on the EIA oil report due at 1530 GMT. .In contrast to the previous week when the numbers showed a decline of 1.616 million barrels in the US crude oil inventories, forecasts are now for a rise of 2.400 million barrels in the week ending February 23, the biggest increase recorded since the end of January. Gasoline and distillate stocks are also anticipated to fall.
In other areas of interest, political developments in Italy will gather attention as well as the country heads to the polls to elect a new government on March 4, at the same day when Germany will announce the results of a ballot by the SPD members who recently voted on whether they should re-establish a coalition agreement with Merkel’s Conservatives, giving an end to a five-month political impasse. .NAFTA talks which entered the seventh-round of negotiations this week will be also in focus.
In equities, companies continue to report earnings as some investors are repositioning in response to rising expectations for a higher interest rate environment.
, while pound/dollar was the worst performer, diving to a two-week trough of 1.3845 (-0.48%) after the EU's Brexit negotiator Michel Barnier said that the Brexit legal draft treaty did not provide any surprises – the draft was expected to express political positions and terms of the exit as were discussed in the Brussel's meeting with the UK Prime Minister Theresa May in December – but he argued that there are still "significant divergences" on transition issues.){kind=link}