Dollar still king!

The dollar continues to advance on the foreign exchange markets, chalking up notable gains against the yen yesterday (rising to almost Y112) but also gaining a little further against both the euro and the pound and reaching highs of around $1.0775 and $1.2880 respectively in overnight trading. This leaves sterling marginally weaker against the single currency this morning trading at just over 83.5p

Equity markets closed in positive territory yesterday with the S&P 500 in the States setting yet another all-time high. However, bond yields in the core markets were largely unchanged on the day, and while stocks are now ahead by some 5% to 6% in February to date, yields are only marginally higher over the same period

The IMF says the coronavirus is a “stark reminder of how a fragile (economic) recovery could be threatened by unforeseen events”. It notes that “if the disruptions from the virus end quickly…the result would be a sharp drop in GDP growth in China in the first quarter of 2020, but only a small reduction for the entire year, (while) spillovers to other countries would remain relatively minor, mostly through temporary supply chain disruptions, tourism, and travel restrictions….however, a long-lasting and more severe outbreak would result in a sharper and more protracted growth slowdown in China (and) its global impact would be amplified through more substantial supply chain disruptions and a more persistent drop in investor confidence, especially if the epidemic spreads beyond China”

The minutes of the Fed’s January meeting show the central bank viewed its “current stance of monetary policy as likely to remain appropriate for a time, provided that incoming information about the economy remained broadly consistent with this economic outlook”, but noted that “if developments emerged that led to a material reassessment of the outlook, an adjustment to the stance of monetary policy would be appropriate”

The annual rate of inflation in the UK rebounded quite sharply in January rising to 1.8% from 1.3% in December, though it is likely to head lower again as we move through the first half of this year, while the core rate edged up to 1.6% (from 1.4%)

Data due today include retail sales in the UK and jobless claims in the US, while the ECB publishes the minutes of its January meeting