Equities on the Move with Inflation to Drive the GBP

Earlier in the Day:

Economic data through the Asian session this morning was limited to Australia’s business confidence figures for January.

The NAB Business Confidence Index rose from 11 to a 9-month high 12 in January, coming in ahead of a forecasted 10, which was good news following the drop in the 4th quarter numbers released last week.

January’s increase was attributed to upbeat sentiment towards the global economy, with the recent equity market volatility doing little to dampen spirits. By component, trading conditions and profitability saw sizeable increases in January, with the employment sub-index unchanged, pointing to a job creation rate of 20k per month, which is expected to continue to exert downward pressure on the unemployment rate.

Forward indicators were on the softer side in January, though continued to hold above long-run averages, easing any concerns over the economic outlook.

The Business conditions index surged 6 points to 19 points, well above the long-run average of 5 points.

The Aussie Dollar moved from $0.78511 to $0.78522 upon release of the figures, with the sentiment numbers largely aligned with the RBA’s view on the economic outlook. At the time of writing, the Aussie Dollar was up 0.11% to $0.7871. The risk on sentiment and pull back in U.S Treasury yields providing support through the morning, the Aussie Dollar recovering from an intraday low $0.7848.

Elsewhere, the Yen was up 0.27% to ¥108.37 against the Dollar, with demand for the Yen easing through the morning session. The softer U.S Dollar also saw the Kiwi Dollar recover from early losses, the Kiwi Dollar up 0.04% to $0.7267 at the time of writing.

In the equity markets, the CSI300 and Hang Seng led the way, with gains of 2.13% and 2.18% at the time of writing and the ASX200 seeing a more modest 0.53% rise. The Nikkei pulled back from more than 1% gains, up 0.24% following Monday’s holiday, with the stronger Yen weighing on the Index mid-way through the Asian session.

Overnight gains in the U.S eased market fears of another sell-off this week, supported by a softer Dollar and a pullback in yields, with the U.S Treasury 10-year seeing yields fall back to 2.75%.

The Day Ahead:

It’s another quiet day for the EUR, with stats out of the Eurozone this morning limited to France’s nonfarm payroll figures for the 4th quarter.

The figures are forecasted to be EUR positive, though we won’t expect the EUR to show too much of a response ahead of tomorrow’s 4th quarter GDP numbers out of Germany and the Eurozone.

The EUR was up 0.09% at $1.2303 at the time of writing, with the EUR on the rise as the Dollar slipped through the U.S session, off the back of softer inflation expectations amongst consumers, according to figures released on Monday.

For the Pound, focus will be on January’s inflation figures, which are forecasted to ease in January. While the consumer price index figures are forecasted to be a negative for the Pound, a jump in wholesale price inflation could pave the way for a stronger Pound. Following last week’s hawkish Carney commentary, a May rate hike would need the support of stubborn inflationary pressures to force the BoE’s hand. For the Sterling bulls, a bounce in wholesale inflation may be just the tonic.

At the time of writing, the Pound was up 0.07 at $1.3848, with inflation numbers and Brexit chatter the key drivers through the day.

Across the Pond, it’s another quiet day on the data front, with no material stats scheduled for release, leaving the markets to consider the weekly Redbook scheduled for release this afternoon, which will be of more interest than usual, with U.S retail sales figures due out tomorrow.
FOMC voting member Loretta Mester is also scheduled to speak this afternoon, which could provide some support for the Dollar, Mester one of the more hawkish members of the FOMC.
At the time of writing, the Dollar Spot index was down 0.19% to 90.034, pulling back from an intraday high 90.177.