The question now is whether markets got ahead of themselves in pricing in a Fed asset purchase tapering over the past number of weeks. Price action across all asset classes shows a clear case of uncertainty, and apart from a bounce in equities, it was a quiet session in the risk space. Most of the data released, including the German ZEW economic sentiment, US building permits, housing starts & CPI, was relatively mixed. A benign CPI reading removed any threats of rampant inflation concerns in the US.
The key takeaways were that perhaps the investment community is beginning to feel it got ahead of itself with pricing out QE. Recent data has certainly not blown expectations out of the water and from the CPI reading it certainly seems inflation is well under control. Yields on the US 10-year were basically flat at 2.18%; indicating just how uncertain investors are out there.
USD/JPY was perhaps the most interesting pair to watch as it is a good indicator of bond sentiment. The pair drifted further north, printing a high of ¥95.77 in US trade, and remains sidelined at ¥95.40. This move is likely to support the Nikkei today which we are currently calling up 1.6% at 13,218. On the wires today we have Japan’s trade balance data with a 0.89 trillion yen deficit expected. Any major variations in this figure could result in renewed volatility for the yen and Japanese equities. AUD/USD is back below $0.95 following the RBA’s monetary policy meeting minutes. Renewed selling for the pair could see it head towards last week’s low of $0.9326.
Locally we only have the CB leading index and MI leading index due out; we don’t expect any major moves from this data. EUR/USD poked its head above $1.34, managing to print a high of $1.3416. While the German and European ZEW economic sentiment readings came in slightly better than expected, we feel the strength in the single currency was more to do with comments by ECB President Mario Draghi. Mr Draghi was on the wires talking about ways to stimulate the region’s economy.
The pound struggled despite some better than expected CPI readings. Later today we have the MPC meeting minutes which may deserve some attention considering the change at the helm that the BoE is going through.