Daily FX Update, 03 March 2016

OVERNIGHT MARKET UPDATE:

·         US – ADP employment rose by 214k in February and January was revised down to +193k from +205k. The service sector, which represents most of the economy’s jobs, added 208k employees in February, up from a downwardly revised 174k in January and again buoyed by firms offering professional and business services.

·         US – The Federal Reserve’s Beige Book showed that the US economy continued to expand at a modest pace since mid-January. Business contract across US were generally optimistic about future economic growth, but the report revealed tepid conditions in a number of regions.

·         Euro area – ECB Executive Board Member Benoit Coeure acknowledged that the ECB is “aware” of the risk that negative policy rates hurt bank profitability: “many banks have been able to more than offset declining interest revenues with higher lending volumes, lower interest expenses, lower risk provisioning and capital gains”, he said.

·         Currencies – EUR remained under pressure as the ECB’s Coeure outlined the case for further easing. GBP jumped, reversing oversold indicators.

·         Equities – Euro area equities consolidated their gains, with Germany’s DAX rising 0.6% and France’s CAC up 0.4%. US stocks closed higher, building on the previous session’s advance, partly thanks to a jump in the energy sector following sharp gains in crude.

·         Rates – Sovereign bond yields lifted further, building on the previous day’s significant moves. UK, German, and French 10-year yields rose 6-7 bps and 10-year Treasury yields rose 2 bps.

·         Energy – Crude oil prices were sideways. Rising US refinery utilisation is supporting prices. The utilisation rate climbed to 88.3% against 87.3% the previous week. But US crude stockpiles continue to rise, with DOE data suggesting oil inventories rose 2% to 517.98m bbl.

·         Precious Metals – Gold prices rose as better-than-expected US data led some investors to believe inflation may be creeping back into the economy, increasing gold's appeal as a hedge against higher consumer prices.