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EUR

28 Feb 2023

Inflation continues to surprise

• Eurozone inflation surprise. Eurozone bond yields jumped up after a run of higher than expected inflation prints.• USD still firm. The USD remains near recent highs, with relative interest rate expectations still in favour of the US.• AUD risk events. Q4 GDP, January inflation, and China PMIs are released today. AUD intra-day volatility should pick up, but will the underlying trend change? Interest rate expectations and bond markets remain in focus, though overnight attention was in Europe rather than the US. Bond yields across the Eurozone rose ~5-8bps as markets re-priced how high the ECB policy rate could end...

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27 Feb 2023

Treading water

• Holding steady. A quiet start to the week with US bond yields easing back slightly and US equities edging a little higher.• GBP & EUR bounce. UK and EU agreed a new deal on Northern Ireland’s trading arrangements. But GBP continues to face structural headwinds.• Retail sales in focus. AUD has consolidated. After softening into year-end consensus is looking for Australian retail sales to bounce back in January. A quiet start to the week. The adjustment in expectations around how high the US Fed could lift interest rates this cycle and the flow through to bonds have driven markets...

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27 Feb 2023

Capitulation

Markets have given up on trying to fight the Fed. Yields and the dollar remain well-supported after Friday’s date showed the central bank’s preferred inflation measure accelerating in January, suggesting policymakers will have to move more aggressively to cool aggregate demand in the months ahead. The core personal consumption expenditures price index climbed 4.7 percent from a year earlier, up slightly from December as consumer spending jumped 1.8 percent month over month. This pushed market-implied terminal rate expectations above the 5.5 percent threshold, with back-to-back quarter-point hikes expected at the next three meetings. If historical price dynamics are any indication,...

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26 Feb 2023

Another US inflation surprise

• Higher US rates. Strong US inflation data generated another repricing in US rate expectations, propelling the USD even higher.• Fed needs to do more. Sticky inflation means the US Fed has more work to do. Positive US data can reinforce the upswing in US yields.• AUD slump. AUD is now ~6% below its early-February peak. Will this weeks Australia/China data provide an offset to the stronger USD? The outlook for US Fed policy continues to drive markets. US rate hike expectations took another leg higher on Friday, pushing US bond yields back up towards their peaks. This in turn...

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