– US equities took a strong lift, eclipsing European bourses and helped by a steady as she goes semi-annual Monetary Policy Report from Fed Chair Powell on Friday night,
– Market finding solace in Powell who stuck to the script, talking of further gradual hikes and rules based policy settings. ANZ Eco summary below and full Monetary policy report attached.
– Dudley, Rosengren, and Williams also spoke Friday.
o Dudley said QE is a useful tool while at the zero lower bound.
o Rosengren commented that it’s quite likely we will need QE again in the future.
o Williams maintained his hawkish bias, noting the risk of overheating.
– US 10yr yield eased below 2.90% again, closing under 2.87%, taking a breather from issuance and policy tightening drivers we have seen of late
– ECB Coeure said he is not eager to engage in “early normalisation” but added that “in the future, the Eurosystem can retreat as buyer in the market without risking an unwarranted decompression of the term premium.”
– Canada inflation came in above expectations at 0.7% m/m (mkt: 0.5%) with core inflation at 1.8% y/y (mkt: 1.7%). Helped by Ontario’s minimum wage increasing 21% in January. CAD took a reasonable lift on this and stemmed the recent flow of weakness.
– There is no NZ or AU data today, the focus largely offshore this week with US GDP and PCE (Feds preferred measure of inflation) data. Also keep an eye on political shenanigans with Trumps comrades under the pump and Italian elections looming
– NZD presented weak price-action late last week, failing to rally following stronger retail sales data before testing back below 73cents (NZ TWI -0.8%) on Friday. FIFX remain bearish the medium term
FED Chairman Jerome Powell published the semi-annual Monetary Policy Report. The new Fed chief did not deviate from the published view, noting “the Committee expects that the ongoing strength in the economy will warrant further gradual increases in the federal funds rate, and that the federal funds rate will likely remain, for some time, below the levels that the Committee expects to prevail in the longer run.” There was special attention paid to the labour market where “the labor market in early 2018 appears to be near or a little beyond full employment.” In addition, in commentary on rules based policy settings Powell said, the “use and interpretation of such prescriptions require careful judgments about the choice and measurement of the inputs to these rules as well as the implications of the many considerations these rules do not take into account” suggesting no change in how the Fed is considering using these tools.