The economic calendar is particularly busy today, with private sector PMI’s out of the Eurozone and the U.S, the UK inflation report hearings and the release of the FOMC meeting minutes scheduled for release. While the Dollar has been on the rise, much will depend on the minutes and how many doves are left in the camp.
Earlier in the Day:
Economic data released through the Asian session was on the lighter side this morning, limited to Australia’s construction work done and wage growth figures for the 4th quarter.
Unsurprisingly, focus was on wage growth, which rose by 0.6% in the quarter, coming in ahead of a forecasted and 3rd quarter 0.5%. The positive numbers came after the latest RBA minutes that continued to raise concern over soft wage growth.
While the wage growth figures were certainly a plus for the Aussie Dollar, construction work done slumped 19.4% in the 4th quarter, more than reversing the 3rd quarter’s 16.6% rise, with a softer housing sector likely to raise some concerns over labour market conditions and consumer spending in the months ahead.
The Aussie Dollar moved from $0.78852 to $0.79019 upon release of the figures before falling back to $0.7856 at the time of writing, the 0.34% decline coming off the back of a narrowing in yield differentials.
Elsewhere, the Yen was down a further 0.34% to ¥107.69 against the Dollar, with the Kiwi Dollar down 0.16% to $0.7336.
In the equity markets, it was a choppy morning for Asian equities, with the ASX200 down 0.04% at the time of writing, while the Nikkei found little support from a weaker Yen, down 0.12% ahead of the final hour. With the China markets reopening tomorrow, the Hang Seng was in recovery mode following Tuesday’s losses, up 0.91% to buck the trend at the time of writing, supported by the financial and O&G sectors and Tencent Holdings, the index’s largest stock by weighting.
The Day Ahead:
Following softer economic sentiment figures out of Germany and the Eurozone and a slide in consumer confidence, according to figures released on Tuesday, this morning’s prelim February private sector PMI figures will garner plenty of attention. Not only will the headline figures be relevant, but also the inflation and new orders sub-components, with the markets keen to understand how the private sector will be performing in the coming months and also, whether any shift in inflationary pressures could impact the ECB’s current line of thinking on monetary policy.
There will be some relief with the EUR back down to $1.23 levels, heaving hit $1.25 levels last week and, while the economic data will continue to provide direction, the 4th March is beginning to loom, with the announcement of the result of the SDP vote on the Grand Coalition coinciding with the Italian General Election.
The Establishment has managed to avoid a shock political outcome over the last 12-months, in spite of the rise of the populist parties including France’s Front National and Germany’s AfG. While the Spanish, Austrian, Dutch and French General Elections all ended favourably for the Establishment, perhaps of greater significance will be whether Merkel survives the 4th, with none of the front running Italian parties looking to leave the EU or the EUR, as even the populist parties have softened the talk of leaving the EUR.
There’s some time to go, but as we covered on Monday, the outcome to the SDP vote will be considered a major event and will certainly have an influence on the EUR.
At the time of writing, the EUR was down 0.04% to $1.2332, with today’s stats the key driver.
For the Pound, it’s a busy day after a quiet start to the week, with focus being on the UK inflation report hearings, where BoE Governor Carney and team are likely to provide more colour on the outlook for monetary policy. Ahead of the hearings, economic data will also have a material impact, with wage growth and unemployment figures scheduled for release this morning.
Following recent Carney speeches, it should be red letter day for the Pound, but there will be some caution, with the BoE Governor having flipped flopped on policy sentiment on previous occasions.
The Pound was down 0.07% to $1.3986 at the time of writing, with Carney and wage growth likely to be the main drivers through the day.
Across the Pond, it doesn’t get any quieter, with February’s prelim private sector PMI numbers scheduled for release, together with January existing home sales and, more importantly, the FOMC meeting minutes from this month’s meeting.
While we will expect some influence from the private sector PMI numbers, particularly if the surveys reflect a further build up in inflationary pressure and increased labour costs, it may well boil down to the FOMC meeting minutes, with the markets looking for a March green light and whether the more dovish members of the FOMC are getting a little hawkish…
FOMC voting members Harker and Kashkari, who are scheduled to speak late tonight, may provide some useful insight on how the doves view policy in light of rising wage growth and a pickup in inflation. Kashkari is certainly one of the most dovish members of the Committee, having voted against each of last year’s rate hikes. Any hawkish commentary from either and we could see another jump in Treasury yields and the Dollar.
At the time of writing, the Dollar Spot Index was up 0.10% to 89.803 and, while the minutes, commentary and stats will influence, another factor for the markets to consider will be the performance of the note auctions, with a 5-year note auction scheduled for later this afternoon.