The FOMC minutes, relating to the January 30th-31st meeting were released on Wednesday evening and they offered up very little in the way of clues, regarding the timing of interest rate rises in 2018. Instead the minutes accentuated the positives in the USA economy and with regards to any concerns over inflation building up, the minutes actually suggested that CPI may in fact miss the target, as opposed to quickly rising to (and breaching) a 3% level. Investors overall regarded the release as benign but disappointing, with very little clues in the form of forward guidance. The FOMC confidence was underscored by the PMI readings published on the day, which beat the forecasts, however, in other calendar news existing home sales surprised analysts by falling by -3.2% in January.
Once again, the concerns regarding another tipping point emerging in relation to ten year treasury bonds reaching 3%, were ignored by investors as the yield reached 2.94%, a five year high, with two year bonds reaching a nine year yield high of 2.26%. The issuance of new government debt was a subject of heightened interest on Wednesday, as the USA treasury intends to auction circa $260 billion of debt this week. These auctions, and the elevated yields, could impact on the equity markets if investors rotate out of equity markets into bonds.
The markets initially reacted positively to the release of the minute. The SPX rose for the seventh time in eight days, but then sold off from a position of 1% up, to register a close on 0.5% fall on the day, but the index still remains approx. 7% off the record peak registered in January. The dollar index rose for the fourth day in series, by circa 0.5%, whilst the USD also rose versus JPY, EUR and GBP. Gold fell for the third day and WTI oil slipped.
European calendar news on Wednesday was dominated by the publication of a raft of Markit PMIs, with the majority missing the forecasts, albeit by small margins. The U.K. published ONS data regarding employment and unemployment levels, wage rises and certain public sector debt of the U.K. government. Unemployment rose to 4.4% as an extra 46,000 lost their jobs in the latest available quarter’s data, but the claimant count dropped. Wages rose annually by 0.1% and the UK public sector recorded a net borrowing surplus of GBP 11.62 billion in January 2018, lower than the 13.2 billion surplus a year earlier. Since the start of the financial year in April, borrowing by the U.K. govt. has totaled 37.7 billion, which is the lowest YTD net borrowing since 2008. The FTSE 100 rose, sterling experienced mixed fortunes during the day, whilst the CAC rose and the DAX fell.
EURO
EUR/USD traded in a narrow bearish range throughout the day, only temporarily impacted by the FOMC minutes causing a spike up through the daily PP. The major pair fell by circa 0.4% on the day to 1.227, circa 300 pips short of the recent high printed on February 16th. EUR/GBP traded in a tight range with a bias to the upside, rising up through the first level of resistance, before giving up the gains, to close the day out near to the daily PP and flat for the day, at 0.882.
STERLING
GBP/USD whipsawed through the day as firstly; the U.K. unemployment data impacted and secondly; the FOMC minutes effected price late in the New York session. Price fell through S1 to then recover to breach the daily PP, to then fall again closing out down circa 0.4% at 1.390. GBP followed a similar oscillating pattern, trading in a tight range versus many of its peers, only registering gains of significance versus the Aussie, GBP/AUD closing up circa 0.3% at 1.783.
U.S. DOLLAR
USD/JPY traded in a wide bullish range, breaching R2 early in the Asian session, before giving up some gains mid-afternoon in the European session, price regained its R2 level, but failed to hold close to the intraday high, closing up circa 0.5% at 107.7. USD/CHF closed up 0.3% after trading in a tight bullish range throughout the day’s trading sessions. The currency pair closed the day out at circa 0.939. USD/CAD traded in a wide bullish range, other than shortly after the FOMC minutes release, when price lost its support. The security closed up 0.4% on the day at 1.279.
GOLD
XAU/USD continued its recent slump, trading in a narrow bearish range, falling through the first level of support S1, down circa 0.3% on the day. The intraday high of 1,334 was only just above the daily PP, the low of the day was 1,324, close to the price at the close of the day’s proceedings.
INDICES SNAPSHOT FOR FEBRUARY 21st.
• DJIA closed down 0.67%.
• SPX closed down 0.55%.
• FTSE 100 closed up 0.48%.
• DAX closed down 0.13%.
• CAC closed up 0.23%.
KEY ECONOMIC CALENDAR EVENTS FOR FEBRUARY 22nd.
• EUR. German IFO Business Climate (FEB).
• GBP. Gross Domestic Product (QoQ) (4Q P).
• GBP. Gross Domestic Product (YoY) (4Q P).
• GBP. Exports (4Q P).
• GBP. Imports (4Q P).
• JPY. National Consumer Price Index (YoY) (JAN).
CALENDAR RELEASES TO MONITOR ON THURSDAY FEBRUARY 22nd.
There’s several releases relevant to the U.K. economy released on Thursday morning, relating to the U.K.’s GDP both monthly and yearly, and the U.K. export and import performance. The forecast is for GDP to be maintained at 1.5% YoY and 0.5% QoQ, for the last quarter of 2017. Exports are forecast to register a 0.2% increase for Q4, after registering a -0.7% fall in Q3 which would register a fall of -0.5% in the last six months of 2017. Naturally, due to the Brexit situation becoming critical, these metrics will be carefully monitored by market participants for any signs that the economy is coming under pressure as the exit day looms.
Late evening we’ll receive the latest CPI figure from Japan, the forecast is for a YoY rise to 1.3% from 1%, this reading could be bullish for yen, if investors and analysts translate the result (if the forecast is met or beaten), as evidence that the BOJ may move the monetary policy into a more hawkish direction.
