Risk sentiment staged a bit of a recovery during today’s European session, with European equities up around 0.3% on average. G10 FX had an extremely quiet session though after some large moves in Asia, which saw AUD edging back toward 0.90 and USD/JPY sliding to its lowest level since the 23rd of December. NOK and SEK gained a bit of ground during the European session, but the rest of G10 FX was hardly changed from yesterday’s North American close. In the rates space we saw US Treasury yields come down a bit from yesterday’s highs, while European peripheral spreads tightened, with Portugal posting the biggest moves of the day (-14bps to bunds).
With little data today in the G10 universe, markets will be focusing on Fed speeches later today, and particularly the comments from Chairman Bernanke (14:30 EST) as his term is soon coming to an end. We’ll be keeping an eye out for any hints into the intended pace of tapering over the next few meetings.
CNY China’s non-manufacturing PMI slipped from 56.0 to 54.6 in December, following the slide in the manufacturing indices earlier in the week. This was a four-month low.
UK & Europe
EUR This morning’s M3 data for November came in largely in line with what we’ve seen the last few months, with weak household lending data (flat on a 3m basis), and even weaker lending to businesses (-1.0% on a 3m basis). There are still no real signs that better Eurozone growth is translating into renewed lending, but there were also likely distortions as banks prepared their balance sheets for the December 31st snapshot that will be used for the AQR and stress tests in 2014.
GBP The theme of this morning’s data was more positive signs around the UK housing market. The Nationwide measure of house prices was up 8.4% Y/Y in Dec (mkt 7.1%), its fastest pace of growth since June 2010. We also had the construction PMI come in a touch higher than expectations at 62.1 in Dec, down 0.5pts from Nov but still at an extremely elevated level, while mortgage approvals rose from 68.0K to 70.8K in Nov, their highest level since Jan 2008. And with more banks introducing Help to Buy Mortgage products this month, the housing market should continue to support UK growth at least through the first half of this year.
TRY December CPI rose from 7.32% to 7.40% Y/Y, in line with our estimate and above the consensus forecast of 7.26%. The increase was driven by fuel price hikes, while core measures declined, with Core-I inflation reaching 7.22% (prior 7.49%). National CPI rose despite the improvement in Istanbul inflation data, and may be followed by further increases in January on lira weakness and administered price hikes.
US & Canada
USD While Chairman Bernanke is just 4 weeks away from the expiration of his term, his remarks will be the main focus on Friday as the market will attempt to gauge the Fed’s desire to further reduce the pace of QE purchases in coming months. Fed’s Stein, Plosser, and Lacker will also provide insight ahead of Bernanke’s remarks, with the latter two hawks rotating into the voting spots in 2014. Vehicle sales will also be due and we expect sales to slip to a 15.9M annualized pace in December."
Jacqui Douglas I Senior Global Strategist | Rates and FX Research I TD Securities