Daily FX Update, 23 March 2016

OVERNIGHT MARKET UPDATE:

·         US – The manufacturing sector is still in a slow-growth state as the flash Markit manufacturing PMI came in at 51.4 for March, just slightly higher than the final February print of 51.3. Some improvement in the rate of output, new business and hiring helped to support the sector. However, pre-production inventories fell at the steepest pace in over two years. On the other hand, the Richmond Fed index bounced to +22 vs -4, with both new orders and average workweek improved.

·         Euro area – Increases in the aggregate euro area flash PMIs and improvement in the German IFO survey of business sentiment were good news, with confidence lifting as financial market volatility dissipated.

·         UK – The February headline inflation rate remained same as January at 0.3% y/y, below market expectations for an inflation rate of 0.4%, while the core inflation rate held steady at 1.2%. Elsewhere, output price index has seen negative movements for 20 consecutive months, dropping 1.1% y/y due to lower petroleum costs.

·         Currencies – The tragedy in Brussels saw markets spurn risk and seek safety. GBP plunged as markets saw increased immigration concerns lifting the chances of ‘Brexit’.

·         Equities – The major European bourses finished the session largely unchanged (Euro Stoxx +0.1%, FSTE 100 +0.1%, and Dax +0.4%). In the US, the Dow Jones was down 0.2%, S&P 500 was down -0.1%, and NASDAQ was up 0.3%.

·         Rates – Sovereign bond markets rallied upon news of the terrorist attacks in Brussels. In Europe, 10-year bond yields declined 2 bps in UK, Germany, and France. 10-year UST yield traded as low as 1.88% and finished to be slightly higher at 1.94%.

·         Energy – Oil prices were barely changed with markets showing little impact from the bombing attacks in Brussels. The crude oil market is also awaiting a clearer picture on US inventories when API issues its inventory data today.

·         Precious Metals – Gold prices were flat until the tragic events in Brussels triggered buying. Gold prices jumped to USD1,260/oz on news of the bombings. The gains were fleeting however as prices retraced back below USD1,250/oz by the close.