Markets reverse course
Markets are responding negatively to Donald Trump’s overnight “State of The War” address, which contained nothing new really and reiterated that the US would hit Iran “extremely hard” over the next two to three weeks. Oil prices are moving back up again – Brent crude is at around $108 this morning – bond yields are higher, and stocks are lower. The dollar is also firmer, regaining much of the ground it had given up over the past day or so. This sees EURUSD and GBPUSD trading at around $1.1530 and $1.3220 respectively this morning, both down about a cent from yesterday’s best levels. EURGBP is largely unchanged as it continues to hover just above £0.87.
US bond yields are about 5-6bps higher in overnight trading, having closed the New York session broadly flat, while German and UK yields are up around 3-5bps and 5-8bps respectively at the open this morning, reversing yesterday’s decline in yields. In equity markets, Asian stocks were mostly in the red overnight and European stocks are almost 2% lower at the start of play today, while the futures market points to a weak open for US stocks later in the day.
Bank of England Governor Andrew Bailey says the Monetary Policy Committee (MPC) has to respond to the energy price shock in a way that “causes the least damage in terms of activity in the economy and in terms of jobs”, and reiterates that he still thinks “markets are getting ahead of themselves…in pricing us to raise (interest) rates.”
Fed member Musalem says the “risks to the labour market and inflation both tilt in unfavourable directions, that is, toward a weaker labour market and greater persistence of above-target inflation.” He notes that “monetary policy is well positioned” to address these risks and expects “the current setting of the policy rate (in a range of 3.5% to 3.75%) will remain appropriate for some time.”
It is a relatively quiet day ahead in terms of economic data. The regular weekly jobless claims and February trade balance are due in the US, while the Bank of England publishes its Decision Maker Panel survey of inflation expectations. There are a few ECB/Fed members scheduled to speak over the course of the day.