Market Headlines
Higher U.S yields failed to slow Wall St overnight with the NASDAQ rising 2.1% while the S&P 500 closed 1.2% higher. U.S 10-year yields gained 8bps to 2.94% while oil dropped a sharp 5.4% but remained above $100 a barrel. In currency markets, USD/JPY continued its rise and peaked at 128.97 while the AUD/USD closed in the middle of its .73455/.7400 range.
Little in the way of data though geo-political headlines hitting the wires as Russian Foreign Affairs minister Sergei Lavrov commented that Russia will only use conventional arms in Ukraine while the EU was said to give a preliminary opinion to Ukrainian membership in June. Into the NY open and Canadian Housing Starts for March came in largely as expected at 246.2k. In the US, Housing Starts rose 0.3% to $1.793m to beat forecasts of a 1.6% contraction to $1.740m while Building Permits rose 0.4% to $1.873m to also beat forecasts of a 2.4% contraction to $1.820m.
The International Monetary Fund cut their global growth outlook for 2022 to 3.6% from 4.4% while also raising inflation forecasts and stressing that inflation was a clear and present danger for nations. Also, of note and they said that war was a dominant factor in their outlook with the EU significantly affected while a potentially larger slowdown in China also a risk. Federal Reserve CEO Charles Evans hit the wires saying that with a few 50bp hikes, the Fed could get to a neutral rate of 2.25-2.50% by the end of the year. He also said that if inflation accelerated it would be a great concern and rates would need to go beyond neutral.
Currencies
Little was little reaction to the limited data overnight although USD/JPY continuing its ascent to see 20-year highs of 128.75. USD/CAD meanwhile reached 126.465 highs while GBP/USD was offered down to 1.29805 lows. Losses for the antipodeans (AUD & NZD) and EUR/USD were more limited.
AUD/USD climbed to finish the European session at 0.7400, prompted by the RBA minutes which mentioned how higher inflation and accelerated wage growth may bring forward a rate rise. Following the open, AUD/USD fell back towards 0.7350, NZD/USD fell from highs of 0.6764 to trade below 0.6740. GBP/USD followed suit shedding around 30pts from 1.3040 highs. EUR/USD traded beneath 1.0790 from highs of 1.0815. USD/CAD jumped from lows of 1.2569 to 1.2600. USD/JPY traded sideways from highs of 128.465.
Currency ranges over the last 24 hours
Source of data Macquarie Morning Report
Market Outlook
A quiet day in Asia on the data front although market attention is expected to remain on the USD/JPY price action and any further commentary from the BoJ.
Canadian CPI data is due this evening and market expectations is that it will continue to show another strong gain for March. The headline print is likely to have been driven by a spike in gasoline prices, which were +12% MoM. Core inflation should also continue to accelerate further with shelter a significant driver. Notably, used cars and trucks are excluded from Canada’s CPI. Consequently, data will not see the same relief as occurred in the US for the month. The market expects there will be a further rise in YoY inflation.
The Fed’s Beige Book will also be released tonight. This will contain anecdotal reports gathered from mid-February through early April on the state and trajectory of the economy. It will also contain useful information on the labour market and inflation.
The AUD/USD traded in a .73455/.7400 range yesterday. Demand remains ahead of .7340 and again ahead of .7315 while offering interest remains above .74c
Upcoming Events
• AU – Westpac Leading Index m/m
• JP – BOJ Outright Bond Purchases
• EU – Germany PPI March y/y
• EU – Trade Balance
• CA – March CPI
• US – Fed’s Evans discusses outlook