Tuesday 17th February: European Open Briefing

Global Markets:

• Asian stock markets: Nikkei down 0.05 %, Shanghai Composite gained 0.90 %, Hang Seng rose 0.40 %, ASX fell 0.50 %
• Commodities: Gold at $1229 (+0.20 %), Silver at $17.24 (-0.30 %), WTI Oil at $53.90 (+0.50 %), Brent Oil at $62.06 (+0.70 %)
• Rates: US 10 year yield at 2.012, UK 10 year yield at 1.676, German 10 year yield at 0.325

News & Data:

• China House Prices -5.1 % y/y, Previous: -4.3 %
• China MNI Business Indicator 52.8, Previous: 53.7
• Japan EconMin Amari: Excessively weak Yen would diverge from fundamentals, can’t say what level would be excessive
• Amari: Best for FX to reflect fundamentals, excessively rapid FX moves aren’t good
• Japan FinMin Aso: Japan’s 4Q GDP data shows gradual economic recovery
• Reserve Bank of Australia (RBA): Uncertain outlook for Chinese property, commodity demand. Restrained wages growth suggested sustained low inflation
• RBA: Considerable uncertainty on consumption, investment rise
• RBA: AUD still above most estimates of its fundamental value, lower exchange rate likely needed for balanced growth
• RBA: Data indicated economic improvement later than expected, board judged rate cut was appropriate to support demand
• RBA: Board noted importance of confidence for investment pickup, board discussed cutting rates at February or March meeting

Markets Update:

The RBA minutes offered little new on the banks’ outlook for the economy. However, the minutes highlighted that there was a debate about the timing of the rate cut. AUD/USD rose after the release and reached a high of 0.7810 earlier. The next major resistance level lies now at 0.7873, which is the current monthly high. AUD/NZD recovered slightly, hitting a high of 1.0480 after reaching a fresh record low in yesterdays‘ European session. One Australian bank notes that they “continue to expect another 25bps rate cut at the March meeting given the RBA’s tendency towards consecutive moves in the early part of a new cycle and its own research which suggests that the impact of one 25bps rate cut on the economy is negligible”.

EUR/USD fell sharply after the EuroGroup meeting finished and no deal was reached. The Euro recovered somewhat in the Asian session, but overall sentiment remains negative. While most analyst see a Greek exit from the Eurozone as unlikely, the tensions within the currency union will continue to weigh on the Euro in the near-term. Immediate support seen at 1.1320 (yesterdays‘ low) and then in the 1.1260-70 area. Any rallies above 1.14 will likely run into selling interest from leveraged names.

USD/JPY broke below the 118.30 support level yesterday and fell to a low of 118.10, but it quickly recovered back to 118.40. The current price action suggests that we’ll see another period of consolidation in the pair, with 117.00-20 and 119.20-30 the key levels to watch.

Looking ahead, the focus in the European session will be on UK inflation data at 0930 GMT and the German ZEW numbers at 1000 GMT. In the US session, there are no major data releases, but we’ll get the NY Empire Manu Index and NAHB Housing Market Index. Also, SNB Chairman Jordan will speak later today. See the calendar below for details.

Upcoming Events:

• 08:30 GMT – Swedish CPI (-1.1 % m/m, -0.3 % y/y)
• 09:00 GMT – Italian Trade Balance (€3.27bln)
• 09:30 GMT – UK CPI (-0.8 % m/m, 0.3 % y/y)
• 09:30 GMT – UK Core CPI (1.3 % y/y)
• 09:30 GMT – UK House Price Index (10.3 % y/y)
• 09:30 GMT – UK PPI Input (-2.5 % m/m, -12.2 % y/y)
• 10:00 GMT – German ZEW Economic Sentiment (56.0)
• 10:00 GMT – German ZEW Current Conditions (30.0)
• 13:30 GMT – US NY Empire State Manufacturing Index (9.00)
• 15:00 GMT – US NAHB Housing Market Index (58)
• 17:00 GMT – SNB Chairman Jordan speaks

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