Daily FX Update, 22 April 2016

OVERNIGHT MARKET UPDATE:

·         US – The Philadelphia reversed most of the improvement in March, falling from 12.4 to -1.6 in April. There was a sharp fall in new orders, employment, and shipments. However, the prices received and prices paid indices rose. The six month outlook also increased for the third consecutive time.

·         US – The initial jobless claims fell sharply to 247,000 in the week ended 16 April from 253,000 a week earlier. This is the lowest level since the week of 24th November 1973.

·         Euro area – The ECB meeting was broadly as market expectations. Interest rates were unchanged and Draghi maintained that interest rates will stay at current levels or lower for a while. Draghi noted that financial conditions had eased since March and that policy settings were supporting the recovery. On inflation, Draghi said “looking ahead, on the basis of current futures prices for energy, inflation rates could turn negative again in the coming months before picking up in the second half of 2016,”

·         UK – The retail sales volumes in March fell 1.3% m/m, a much sharper drop than market expectations, as consumers cut back on food and clothes.

·         Currencies – The EUR was round-tripped by the ECB, but the sell-off in EUR broadened into a general USD bid. The exception was against the JPY, which saw some demand.

·         Equities –In Europe, most major bourses finished up modestly in positive territory. It was a different situation in the US, where some disappointing earnings results and the negative impact of lower oil prices on energy shares weighed on markets.

·         Rates – Despite some weaker US data, we saw the US Treasury 10-year benchmark yield continued to inch higher, rising 2 bps to 1.86%. Movements in Europe were larger, with 10-year yields in Germany and the UK rising 9 bps and 11 bps respectively.

·         Energy – A stronger USD and the reality of high inventories weighed on crude oil prices, despite the talk on the possible oil freeze in OPEC’s June meeting. Kuwait’s oil production was close to capacity following the end of an oil workers’ strike.

·         Precious Metals – Gold prices closed marginally lower on stronger US dollar following the unexpected fall in US unemployment figures.