2018Feb

FC: EUROPEAN OPENING REPORT : THURSDAY – 22ND – FEBRUARY – 2018 February 22, 2018 at 05:34AM

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US bourses whipsawed towards the end of the session yesterday as US Treasury yields rose to fresh multi-year highs on the FOMC minutes. Gains in tech and airline stocks outpaced the broader market while Wal-Mart added to Tuesday’s sizeable drop in the wake of their Q4 update. As mentioned, the FOMC minutes were the focus, they showed members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate. Both the Greenback and US government bond yields initially fell in response as they did little to fan expectations for four rate increases this year. Later in the session, the 10-year yield rose to a 4-year high, while the 30-year yield hit its highest since July 2015. Treasuries had earlier been largely unresponsive to the 5-year note sales as the yield came in at the when-issued rate of 2.658% and the bid-to-cover in line with the recent average. Meanwhile, the Greenback rebounded in the light of the upturn in Treasury yields with the US Dollar index higher by 0.3%. Elsewhere, US Crude futures settled at $61.68 (-$0.11).

Following the lower close stateside after the late downturn, Asian bourses mostly followed suit, while markets in China returned from their week-long Lunar New Year holiday and outperformed the other Asian indices. In the FX markets, Usd/Jpy the notable mover in a choppy session. The Dollar’s ‘recovery’ saw US Crude futures fall over 1% to under $61/bbl. We heard from Minneapolis Fed Governor Kaskari, who said the US economy is doing very well, adding he does not really know if the US is at full employment and is also unsure about the neutral rate or output gap. Kashkari stated the Fed should let inflation build and be patient, adding hitting 2% inflation goal would give the Fed more flexibility in fighting downturns in the future. He said we are seeing some signs of a build in inflation, but it takes more than one-month’s data, adding he wants to see definitive signs of inflation increasing to 2% before being in favour of more rate hikes. Lastly, he stated the Fed could invert yield curve and tip the economy into recession, if it hikes rates to aggressively. Meanwhile, a Japanese Adviser to PM Abe said the BoJ should consider purchasing foreign bonds. Data wise, New Zealand credit card spending fell 0.6% m/m and rose 4.6% y/y in January. In other news, the US Embassy in Montenegro was under attack by a grenade throwing assailant.

Looking ahead, at 07:45 GMT, we get French CPI, followed by Sweden’s total number of employees at 08:30 GMT. Next at 09:00 GMT, we get Germany’s IFO surveys and Italian industrial sales & orders, followed by UK GDP & index of services at 09:30 GMT. Then at 10:00 GMT, we get Italian CPI, followed by UK CBI retailing and Irish PPI at 11:00 GMT. At 11:30 GMT, we get Turkish retail confidence. Also of note, we look for possible comments from German Chancellor Merkel at 08:00 GMT, while the UK sells £0.95 Bln 0.125% inflation-linked Gilts at 10:30 GMT.

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