Daily FX Update, 09 March 2016

OVERNIGHT MARKET UPDATE:

·         Euro area – The second estimate of euro area GDP in Q4 showed domestic demand growth picked up, led by government spending. Meanwhile, household spending growth slowed from 0.5% to 0.2%.

·         Euro area – German industrial production was stronger than market expectations, up 3% m/m. The growth was also the fastest since September 2009. Strength was evident across most sectors bar energy and intermediate goods, particularly manufacturing and mining (+3.2%) and construction (+7%).

·         UK – Bank of England Governor Mark Carney said that uncertainty surrounding the outcome of the Brexit referendum is being belt in financial markets already and that a vote in favour of leaving could cause a short-term hit to the wider economy. A possible departure represents “the biggest domestic risk to financial stability,” Carney said.

·         Currencies – The USD regained some strength overnight as a risk-off tone entered markets. The JPY benefited from safe haven flows, while EUR was relatively stable.

·         Equities – Equity markets suffered in the risk-off environment and opened lower following the Asian session. European equity markets closed around 0.5–1% lower, while the major US bourses were 0.6-1.3% lower. Weakness centred on energy, materials, and industrial producers.

·         Rates – Fixed income markets rallied as weak export data from China stroked fears of a global slowdown. UK 10-year yields ended the session down 10 bps at 1.38%. US 10-year Treasury yields finished down 8 bps at 1.83%.

·         Energy – Crude oil prices settled lower after hitting their highest settlements of the year at the previous session. Growing doubts over the potential for an output freeze, as market players bet that data will reveal a fourth-straight weekly climb in US crude inventories, has placed crude prices under pressure.

·         Precious Metals – Gold prices surged ahead to revisit its highest level in 13 months after poor China data stroked fears about a prolonged downturn and while European stimulus measures are expected to be supportive the near term.