FX News Today
Chair Yellen, Fed to proceed “cautiously” In her speech on The Outlook, Uncertainty, and Monetary Policy, she added that this caution is “especially warranted” because with the funds rate so low, “the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric.” Given her caution, April can be taken off the table (we don’t think it was seriously on). Global developments present ongoing risks to the U.S. economy (again singling out Chinese growth) she added and the future rate path is “necessarily uncertain.” The economic data so far this year has been somewhat mixed, she noted. Full employment may be lower than the 4.8% rate, she added, suggesting the FOMC might be again adjusting the goal posts. Another oil price drop could have adverse spillover effects for the global economy she worried. On inflation she noted it’s too early to ascertain if the pick up in core inflation will prove durable. Interestingly the word Uncertainty was added to title of the speech at the last minute. Markets took their cue from the release of the speech (the title change clearly helped) with Bonds, Commodities and Stock Markets rallying and the USD coming under pressure.
Japanese Industrial Production Falls significantly: Japan’s industrial output fell sharply in February, government data showed, not helped by a nationwide output shutdown at Toyota Motor Corp. Output dropped 6.2% from the previous month, according to data released by the Ministry of Economy, Trade and Industry. .The data suggest output is dragging on growth in the first quarter, adding to signs of weakness in the economy in early 2016, following a 1.1% annualized contraction in real gross domestic product in the last three months of 2015.
US Consumer Confidence Rises: US consumer confidence March rise to 96.2 after a big February drop to an upwardly-revised 94.0 (was 92.2) defied the downdraft in other March confidence readings to leave the index back near the 97.8 January figure. Consumer confidence still sits below last year’s oddly-firm Q3 readings that left a 102.6 September figure, and well below the 103.8 cycle-high seen in January of 2015. Confidence faces a lift into Q2 from reversals of early-year stock price declines and a diminishing hit to factory output from falling foreign demand as we near the end of the oil and inventory-hit to GDP. Confidence continues to benefit from low gasoline prices for consumers and home price gains despite limited credit availability. For other measures, the Michigan sentiment index fell to 90.0 from 91.7, versus a 98.1 cycle-high last January, the IBD/TIPP index fell to 46.8 from 47.8, versus a 54.0 cycle-high in October of 2012, and the Bloomberg Consumer Comfort index is poised for a 43.8 March average, versus 44.1 in February and a 45.7 cycle-high average in April of 2015.
European Outlook: Asian stock markets outside of Japan moved higher after cautiously dovish comments from Yellen yesterday, which helped to lift oil prices and weighed on the dollar. Japanese markets meanwhile were depressed by the resulting rise in the Yen and weaker than expected Japanese production numbers. Europe returns from the long Easter holiday weekend today, and bond futures are likely to rise in tandem with stocks in catch up trade, although the fact that the euro is creeping towards 1.13 against the USD again will give stocks a headache. The European calendar focuses on Eurozone ESI economic confidence and preliminary German inflation data for March.
Main Macro Events Today
- German Inflation
We are looking for a rise in the German HICP rate to -0.1% y/y (median same) from -0.2% y/y, Today’s data will be followed by French and overall Eurozone numbers tomorrow and after the ECB’s latest round of stimulus measures, the expected slight pick up in headline rates may put off discussions of yet more easing for now, but is unlikely to totally end speculation of what the ECB could do next.
- USA – ADP Employment change
Expectations are for an additional 194,000 jobs in the ADP survey this month down from last month’s 214,000. The ADP figures are a good guide to the official government NFP figures to be publish on Friday.
Janne Muta
Chief Market Analyst
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