Daily FX Update, 08 March 2016

OVERNIGHT MARKET UPDATE:

·         US – Fed Brainard said that the central bank needs to be patient in its plans for tightening monetary policy. "Tighter financial conditions and softer inflation expectations may pose risks to the downside for inflation and domestic activity. From a risk management perspective, this argues for patience as the outlook becomes clearer," she said.

·         US – The Federal Reserve’s Labour Market Conditions Index (LMCI) showed a notable decline in February, easing by 2.4 points. That’s the largest monthly drop since 2009 and sits in contrast to strong payrolls data.

·         Euro area – Germany factory orders in January fell by 0.1% m/m, a second consecutive month of contraction, but better than market expectations of a 0.3% decline. December’s readings were revised upwards sharply, from a preliminary estimate of a 0.7 contraction to a more moderate 0.2% contraction.

·         Currencies – A quiet start to the week with few notable releases. The GBP and CAD were marginally firmer against the USD.

·         Equities – European bourses were lower. European banking stocks suffered as market expectations firm up for a cut in the ECB deposit rate on Thursday. US stocks were mixed, with Dow rising for a fifth consecutive session on gains in the energy sector.

·         Rates – European sovereign bond yields were generally lower ahead of the ECB decision on Thursday. German 10-year bunds were down 1 bp to 0.22%. US 10-year yield closed 3 bps higher, with the spread against German bund continue to widen.

·         Energy – Brent crude rose above US$40/bbl for the first time since December. Sentiment continues to improve as discussion about a production freeze lingers. Russia’s Energy Minister said major producers plan to meet between 20 March and 1 April.

·         Precious Metals – Gold prices tracked sideways for the day even with the rally in risky asset classes. China raised its central bank gold reserves by the smallest amount since the nation started disclosing monthly increases last year.