18th March 2021 - Powell speech: Really strong economic data should be coming

Good Morning,

Market Headlines

Sentiment reversed after the Federal Reserve’s decision this morning did not contain the hawkish signals markets had hoped for. Equities flipped from moderate losses to moderate gains (S&P500 currently + 0.3%), and short-end bond yields and the US dollar fell. Commodities, Brent crude oil futures fell 0.4% to $68.10, copper rose 1.9%, iron ore rose 0.1% to $165.55, and gold rose 1.1%.

Overnight Currency Ranges

AUD/USD 0.7700 0.78105

EUR/USD 1.1887 1.1985

GBP/USD 1.3853 1.3966

USD/JPY 108.745 109.32

NZD/USD 0.7155 0.7263

USD/CAD 1.2408 1.2493

USD/CNH 6.4850 6.5103

AUD/JPY 84.09 84.96

AUD/NZD 1.0753 1.0781

AUD Thoughts

A busy day ahead on the economic calendar with Australian employment data are expected to show a further solid increase in employment in February, albeit at a slower rate than in prior months. Following a rise of +29k m/m in January, we have pencilled in +25k for employment growth in February.

This should be accompanied by a further decline in the unemployment rate to around 6.3% in the month. (Perth’s snap lockdown occurred during the survey’s reference weeks but it shouldn’t affect measured employment based on the ABS’ methodology).

The Bank of England’s interest rate decision is also due out this evening. Markets anticipating no change in the BoE’s policy rate, and the pace of QE is very likely to remain stable at GBP 4.4bn per week. Tapering will likely have to wait until later this year.

The AUD/USD bounced strongly overnight spurred by the dovish FOMC and the subsequent USD weakness. Offering interest is still expected ahead of 0.7820 while demand has likely followed spot higher and now rests between 0.7700 and 0.7720.

Event Risk Data Today

Australia: The labour market has had a sharp V-shaped recovery, much stronger than anticipated. However, the state data reveals the impact of further lockdowns, and re-openings, with employment surging in Victoria while it stalled in NSW. In addition, the recovery has been dominated by male part-time employment. Market consensus is for +30k on employment (based on a NSW bounce and a softer Victoria) with a 0.1ppt rise in participation results in a 0.1ppt fall in unemployment to 6.3%. RBA Assistant Governor (Financial Markets) Christopher Kent will speak on “The End of LIBOR and the Australian market” at 12:05pm. The RBA will also publish its latest Bulletin of economic research.

NZ: Markets expect a 0.3% drop in GDP for the December quarter following a 14% rebound in September as Covid-19 restrictions were lifted. The absence of international tourism has disrupted the seasonal patterns in the data.

UK: The BoE will deliver its March monetary policy decision. This will give the Bank an opportunity to address the recent bond selloff, which may invoke commentary around the flexibility of the bond-buying program.

US: Markets expects the recent downtrend in initial jobless claims will become entrenched (market f/c: 700k). The March Philly Fed index will be supported by the stimulus package (market f/c: 23.0). Finally, the February leading index should begin to decelerate as base effects fade out (market f/c: 0.3%).

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