Thursday 19th February: European Open Briefing

Global Markets:

• Asian stock markets: Nikkei up 0.40 %, Hang Seng gained 0.20 %, ASX fell 0.20 %, Shanghai Composite closed
• Commodities: Gold at $1215 (+1.25 %), Silver at $16.64 (+2.30 %), WTI Oil at $51.30 (-2.90 %), Brent Oil at $59.55 (-0.80 %)
• Rates: US 10 year yield at 2.068, UK 10 year yield at 1.845, German 10 year yield at 0.375

News & Data:

• Japan Trade Balance -¥1.18trl, Expected: -¥1.69trl, Previous: -¥661bln
• Japan Adjusted Trade Balance: -¥0.41trl, Expected: -¥0.60trl, Previous: -¥0.62trl
• Japan Exports 17.0 %, Expected: 11.9 %, Previous: 12.9 %
• Japan Imports -9.0 %, Expected: -4.8 %, Previous: 1.9 %
• FOMC: Many Fed officials inclined to stay at zero longer; many officials felt dropping “patient” may lead to date focus
• FOMC: A few Fed officials noted risk dollar could strengthening further; many officials saw risks if foreign weakness worsened
• FOMC: Fed noted risks from China, Mideast, Ukraine and Greece
• FOMC: Continued tepid wage growth could restrain spending; officials agreed policy should stay data dependent

Markets Update:

Most agree that the FOMC statement reads dovish with focus on the inflation outlook, international developments, and emphasis on the line that “many” officials are included to stay at zero longer. However, this is just one of 4 major near-term events that could determine the direction of the USD. Fed Chair Yellen will speak at a Senate testimony next week. Following that, the market is looking forward to the NFP number for February in 2 weeks and the March FOMC statement.

There was also some discussion around the forward guidance language within the FOMC. The minutes show that “Many participants regarded dropping the ‘patient’ language in the statement as risking a shift in market expectations for the beginning of policy firming”, which means that the Fed is worried about losing flexibility regarding the timing of an initial rate hike. The FED will probably keep the ‘patient’ phrase in March, with the possibility of a June rate hike.

The USD fell across the board after the minutes release. GBP/USD, which received already a strong boost in the European session after UK employment data, extended gains towards 1.5480. EUR/USD made it back above 1.14, though further consolidation seems likely and hence, selling rallies towards 1.1490/1.15 the favored strategy. USD/JPY fell to a low of 118.40 overnight and the focus is now on the 118.20 support area. Meanwhile, the commodity currencies failed to gain much against the US Dollar. The Canadian Dollar weakened despite the dovish FED minutes, as Oil prices are declining.

Looking ahead, we have a rather light econ calendar for today. The focus will be on US Initial Jobless Claims data at 1330 GMT and the Philadelphia Fed Manu Index at 1500 GMT.

Upcoming Events:

• 07:00 GMT – Swiss Trade Balance (CHF1.23bln)
• 07:45 GMT – French CPI (-0.9 % m/m)
• 07:45 GMT – French HICP (-1.0 % m/m, -0.3 % y/y)
• 09:00 GMT – Euro Zone Current Account (€23.3bln)
• 13:30 GMT – US Initial Jobless Claims (305k)
• 14:45 GMT – US Bloomberg Consumer Confidence
• 15:00 GMT – US Philadelphia Fed Manufacturing Index (10.0)
• 15:00 GMT – US CB Leading Index (0.3 % m/m)

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