Daily FX Update, 10 March 2016

OVERNIGHT MARKET UPDATE:

·         US – January wholesale inventories were better than market expectations, rising 0.3% m/m (mkt: -0.2% m/m). Ex-autos, inventories rose 0.1% m/m. The inventory sales ratio pushed higher to 1.35 vs 1.33 in December, its highest reading since April 2009. This may act as a headwind to the recovery in manufacturing in the near term.

·         UK – Industrial production rose by 0.3% m/m in January against -1.1% m/m in December, to be up 0.2% y/y. The rise was supported by a better-than-expected increase in manufacturing. Utilities production was strong, up 4.3% m/m. In stark contrast, both oil and gas production and mining and quarrying fell sharply.

·         Canada – Bank of Canada left policy rates unchanged at 0.50%, and the tone of the accompanying statement was little changed from January’s.

·         New Zealand – The Reserve Bank of New Zealand (RBNZ) cut its official cash rate by 25 bps to 2.25%. The RBNZ also flagged the prospect of further cuts, with a cumulative 50 bps reduction in the bill track by September 2017.

·         Currencies – The euro traded flat against the dollar as traders brace for the European Central Bank to deliver a large package of stimulus measures on today. Elsewhere, the New Zealand dollar plunged after the surprise RBNZ interest-rate cut.

·         Equities – European equity markets closed around 0.3-0.5% higher, albeit having given up much of their early gains on ECB optimism. The major US bourses up 0.2-0.6%, with gains led by energy producers in a bounce-back from the previous day’s’ session.

·         Rates – Led by a reversal in Japanese yields, core European bond markets sold off with 10-year UK gild yields up 9 bps. 10-year UST yields are 5 bps higher at 1.88%.

·         Energy – Crude oil prices firmed as gasoline inventories fell in the US. DOE weekly gasoline inventories fell by 4.5 million barrels vs expectations of just a 1.5 million barrel decline. Gasoline demand also continued to improve, with US gasoline demand averaging 9.33 million barrels in the last month – the highest since September.

·         Precious Metals – Gold prices ended lower as strength in oil prices and modest gains in US stocks dulled the metal’s investment appeal.