Daily FX Update, 16 March 2016

OVERNIGHT MARKET UPDATE:

·         US – The retail sales data for February were disappointing, with the control group unchanged and January's increase in the control measure revised down to 0.2% m/m from 0.6% m/m. The core PPI (ex-food and energy) continued to lift, rising to 1.2% y/y from 0.6% y/y.

·         US – Empire Manufacturing Index was better than expected at 0.6, its first positive reading in eight months. But the main focus was retail sales and that was disappointing, if largely driven by lower receipts at service stations (down 4.4% m/m) due to the fall in petrol prices.

·         Currencies – AUD, NZD and CAD were under pressure overnight following weakness in commodity and equity markets. EUR and particularly the JPY were stronger as markets took BoJ inaction as a sign of approval for JPY strength.

·         Equities – Markets were weaker on both sides of the Atlantic. The Euro Stoxx closed 0.8% lower, with weakness on the open persisting, while the DAX and FSTE 100 both finished 0.6% lower. US markets opened on the back foot too, but did improve over course of the session, with the Dow Jones and S&P 500 little changed by the close.

·         Rates – Euro area sovereign bond markets sold off, with 10-year yields rising 3.6 bps in Germany, 4.6 bps in France, 6.2 bps in Italy, and 4.8 bps in Spain. In contrast, there was a small rally in UK gilts with 10-year yields down 1.5 bps. The first half of the session saw a good bid tone for fixed income, with weakness in oil and equities the early drivers before mixed data in the US saw these moves extended. This took 10-year yields as low as 1.91% in USTs and 0.27% in Bunds before a moderate bounce in equities was the catalyst for a decent sell-off.

·         Energy – Crude oil prices were weak. Oil prices declined for a second consecutive session amid doubts about Iran joining the production freeze agreement.

·         Precious Metals – Gold fell to its lowest in almost two weeks on Tuesday ahead of a Federal Reserve statement that is expected to give clues on the pace of future US rate rises.