Daily FX Update, 03 February 2016

OVERNIGHT MARKET UPDATE:

·         US – Fed’s George (a voting member) said the US economy is in a “good spot” despite the weakness in the energy and manufacturing sectors, and the sluggish global growth. She added the recent market volatility should be monitored, but that monetary policy cannot respond to every “blip” in financial markets.

·         Euro area – The fall in the unemployment rate, from 10.5% to 10.4%, was better than the consensus forecast. The German unemployment rate held at a record low of 4.5% and more timely national data point to a fall in January. French and Italian rates remained elevated at 10.2% and 11.4% respectively.

·         China – The People’s Bank of China (PBoC) and China Banking Regulatory Commission (CBRC) jointly released a notice to relax the mortgage down payment rules. The move is effectively a policy easing measure to counteract the downward investment cycle of the property market. The minimum deposit for first-time home buyers in cities that do not have curbs on home purchases would fall from 25% to 20%.

·         Currencies – There was a ‘risk-off’ tone evident overnight with EUR, JPY, USD and GBP strengthening at the expenses of NZD, AUD, CAD.

·         Equities – Global equity markets slumped, with oil’s renewed plunge rekindling concerns over global growth. Weaker energy stocks led broad-based falls, with weak profit results from BP setting the tone.  

·         Rates – Government bond yields fell. 10-year Treasury yields fell 10 bps to 1.84%, their lowest level since last April. Yields on 10-year Gilts fell 8 bps (1.54%), with 3 to 4 bps falls for French and German 10-year yields.

·         Energy – Crude oil prices fell sharply on signs of rising US crude stockpiles. A recent Bloomberg survey suggests US crude stockpiles may rise by 3.75 million barrels for the week. The US crude inventory is already at the highest levels since 1930s.

·         Precious Metals – Gold steadied after touching three-month highs on Tuesday, underpinned by global growth concerns and as another sharp drop in the oil price pushed investors towards safe-haven assets.