Daily FX Update, 17 February 2016

OVERNIGHT MARKET UPDATE:

·         US – The February NAHB index fell to 58 from 61, its lowest level since May last year, due to the recent volatility in financial markets. The six-month expectations index rose 1 point to 65.

·         US – The February Empire manufacturing index was weaker than market expectations, coming in at -16.64. New orders recovered to -11.6 from -23.5 and inventories were flat (0) vs -6 in January. The six-month general business outlook rose to +14.5 from +9.5. Inflation readings were soft with prices paid +3 vs +16.

·         Euro area – The German ZEW survey of investor sentiment dropped to a 16-month low in February, hurt by worries over the global economic slowdown and the falling oil price. Current conditions eased to 52.3 from 59.7 and expectations dropped to 1.0 from 10.2. For the euro area, expectations fell to 13.6 from 22.7.

·         UK – Inflation rose as market expectation to a one-year high in January on slower pace of declines in motor fuel and food prices. CPI rose marginally 0.3% on a yearly basis.  

·         Currencies – GBP fell as core CPI dropped and Brexit fears rose. The USD held well, gaining against EUR and JPY as risk settled.

·         Equities – Global equity markets experienced generally smaller moves. The lead-in from Asian equities was positive, however, the Euro Stoxx 50 eased 0.4%, as banks came under pressure again. The FTSE 100 bucked the trend, rising 0.7%. US equities enjoyed solid gains as banks and retailers recovered somewhat.

·         Rates – Moves on bond markets were relatively muted. US 10-year Treasury yields rose 2 bps to 1.78%. Yields on 10-year German bunds rose 3 bps, 10-year UK gilts fell 1 bp.

·         Energy – Crude oil prices were weaker after a volatile day. Saudi Arabia and Russia agreed to freeze crude oil output at January levels. The rub is both are already producing oil at near-record levels. Later in the day, Qatar and Venezuela also joined the agreement.

·         Precious Metals – Gold struggled to find support and closed lower at US$ 1208.7/oz as investors turned more optimistic on the global economy after stock markets rallied.