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Markets Brace for US Inflation Print

Happy Leap Day to all who celebrate. With the Federal Reserve’s preferred measure of consumer price growth – and therefore the world’s most important inflation yardstick – set for release in less than half an hour, global markets are holding their collective breath. Core personal consumption expenditures inflation is thought to have doubled to 0.4 percent from a month earlier in January, with the gain flagged in advance by stronger-than-forecast increases in consumer and producer price indices. Ten-year Treasury yields are sitting near 4.31 percent, up a little over 4 basis points, equity futures are seeing incremental losses ahead of...

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Antipodean FX underperformance

• Negative vibes. A slightly more bearish tone ahead of tonight’s US PCE deflator data. Equities & bond yields a bit lower. AUD & NZD underperform.• RBNZ holds. RBNZ clipped the markets hawkish wings. Rates held steady & odds of another hike were watered down. NZD fell. This dragged on the AUD.• AU CPI. Headline inflation failed to re-accelerate in January. But there was little new info on services prices. AU retail sales released today. A slightly more bearish tone across markets overnight as traders gear up for the release of the US PCE deflator (the US Fed’s preferred inflation...

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Dollar Gains on Subdued Risk Appetite 

Good morning. The dollar is gaining strength before the North American open, bolstered by a broad-based worsening in risk appetite as investors lower expectations for how much the Federal Reserve is likely to lower rates. Equity futures are suffering losses in premarket trading, Treasury yields are steady, and both major oil benchmarks are slipping as US inventories continue to build. Economists expect a small downward revision in fourth quarter gross domestic product when the Bureau of Economic Analysis publishes updated numbers this morning. The first iteration pointed to the economy expanding at a 3.3 percent seasonally adjusted annual rate, but...

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Will the RBNZ re-start is hiking cycle?

• Low vol. US/European equities consolidated, while bond yields nudged up. FX markets were well contained. AUD range traded over the past 24hrs.• RBNZ decision. RBNZ meets today. Markets are assigning a ~21% chance they hike rates. No change could see the NZD fall & AUD/NZD snap back.• AU CPI. January reading of the monthly CPI indicator due today. Annual inflation forecast to re-accelerate. This may catch the eye & give the AUD a boost. Another uneventful session overnight. US and European equities consolidated (S&P500 +0.1%), with yesterday’s lift in Asia not flowing through (China’s CSI300 index rose 1.2%, its...

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Getting Kinky

Despite the volume of noise that has so often accompanied them, American elections have historically had very little impact on currency markets. This year could be slightly different. Donald Trump appears committed to doubling down on the protectionist impulses that defined his first term, threatening to implement a 10-percent “universal baseline tariff” on imports from all US trading partners. We don’t expect traders to take directional positions this far from election day, but we do worry that market participants are failing to anticipate a rise in uncertainty. Volatility term structures – which measure the cost of insuring against big moves...

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