The markets remained mostly optimistic this week despite a few hiccups. Japan’s fourth quarter GDP for 2015 showed a contraction of -0.40% while falling -1.40% on an annualized basis. The Yen remained stronger for the most part, but the strong risk aversion sentiment was showing signs of easing. Expectations are starting to build for the BoJ to act with further QQE expansion at the monetary policy meeting in March.
China’s inflation data released during the week came out broadly better in comparison to previous month’s weak prints. CPI edged higher in January, rising 1.80% but missed estimates of 1.90%. However, the markets took the data in their stride as China’s inflation jumped from 1.60% previously.
GBP: Focus on UK/EU negotiations
In the UK, consumer inflation was mostly flat. Core CPI in the UK increased 1.20% compared to the previous year while the headline CPI showed a modest increase of 0.30% matching estimates. The monthly unemployment data from the UK showed that average earnings were starting to pick up, rising 1.90%, while the unemployment rate remained steady at 5.10%, missing estimates of a dip to 5.0%. Later on Friday, UK’s retail sales data showed a larger than expected increase. Core retail sales jumped 2.30% for the month while rising 5.0% for the year while the headline retail sales was up 2.30% for the month and 5.20% for the year.
[Tweet “Japan’s fourth quarter GDP for 2015 showed a contraction of -0.40% “]
The British Pound, however, eased back after the release as the Sterling shifted attention to the ongoing UK-EU negotiations which are likely to continue into the weekend. At the time of writing, GBPUSD is down -1.41% for the week, trading at $1.425.
AUD: Suppressed by weak unemployment and dovish comments from RBA
The Australian dollar came under pressure this week as the monthly unemployment data showed a surprise increase in the unemployment rate. After staying steady at 5.80% since November 2015, the unemployment rate in Australia jumped to 6.0% in January alongside a contraction in the job growth. Although the Aussie’s reaction was limited, earlier on Friday, RBA economist John Edwards noted that he preferred to see the A$ at $0.65 as the current price did not reflect the decline in commodity prices. He, however, noted that the downside risks in the AUD were limited.
The RBA has kept interest rates unchanged at 2.0% since May 2015 with little hints of further policy action. However with most of the other Central Bankers now talking about negative interest rates, Mr. Edwards said that the interest rate differential could bring upside pressure in the A$. The comments from the RBA’s economist today could potentially signal a cautious approach from the RBA at the future policy meetings. Speculators expect at least two rate cuts from the RBA by the end of 2016.
USD: Dovish Fed minutes. Inflation hits a 3 year high
From the US, the FOMC meeting minutes released this week did not surprise the markets. Coming out dovish, Fed members expressed concerns about inflation while staying cautious on the US labor market data with some members expecting a moderation in jobs. The main take away from the FOMC minutes was that the Fed would hike rates gradually and would be data dependent.
Today, the US Consumer inflation data released showed one of the strongest readings in recent times. Consumer inflation in the US edged higher in January, rising 0.30% on the core for the month and 2.20% on a year on year basis. The headline CPI was up 1.40% for the year, marking of the strongest increases so far. The US Dollar jumped higher on the better than expected CPI data.
[Tweet “WTI Crude Oil is up 2.85% for the week after prices retreated off the highs near $31.65 a barrel”]
WTI Crude Oil: Back to reality after production freeze deal euphoria
On the commodity front, Oil prices gained into the first half of the week as five OPEC members managed to agree to freeze Oil production at January levels. The countries include Saudi Arabia, Russia, Qatar, Venezuela, and Iran. Earlier, doubts lingered on whether the agreement would be reached as Iran brushed aside reports saying that it would continue to keep production up, in order to make up for its lost market share. The turn-around by Wednesday saw WTI Crude Oil prices rallying as Iran announced its willingness to join the production freeze. Oil prices, however, started to decline since Thursday after the US weekly inventory report showed a build-up of 2.1 million barrels. WTI Crude Oil is currently up 2.85% for the week after prices retreated off the highs near $31.65 a barrel.
Economic events this week
- Japan Q4 GDP (preliminary) -0.40% vs. -0.20%; annualized -1.40% vs. -0.80%
- RBA releases monetary policy meeting minutes
- UK Core CPI y/y 1.20% vs. 1.30%; CPI y/y 0.30% vs. 0.30%
- UK Unemployment 5.10% vs. 5.0%
- UK Average weekly earnings 1.90% vs. 1.90%
- FOMC meeting minutes released
- Australia unemployment rate 6.0% vs. 5.80%
- China CPI y/y 1.80% vs. 1.90%
- UK Retail sales core m/m 2.30% vs. 0.70%; retail sales m/m 2.30% vs. 0.70%
- US CPI Core m/m 0.30% vs. 0.20%; CPI m/m 0.0% vs. -0.10%
- Canada Retail sales m/m -2.20% vs. -0.90%; Retail sales core m/m -1.60% vs. -0.70%
- Canada BoC CPI Core m/m 0.30% vs. 0.20%; y/y 2.0% vs. 1.90%