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The pound was steady for the most part during the morning London, but got a major bullish infusion that allowed it to steamroll its peers near the end when the BOE’s meeting minutes revealed that “policy would need to be tightened somewhat earlier and by a somewhat greater extent” if the U.K. economy evolves as expected.

Meanwhile, the Aussie found itself at the opposite end of the spectrum since it was the worst-performing currency of the session, likely because of easing gold prices and RBA Guv’nah Lowe’s blatant statement that the RBA isn’t expecting to hike anytime soon.

  • German trade balance: €21.4B vs. €21.5B expected, €22.3B previous
  • RBA’s Lowe: “the Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy
  • As expected, 9-0 vote to keep the Bank Rate at 0.50%
  • 9-0 vote to maintain stock of government bonds purchased at £435B
  • 9-0 vote to maintain stock of corporate bonds purchased at £10B
  • BOE minutes: If U.K. economy monetary evolve as expected, then “policy would need to be tightened somewhat earlier and by a somewhat greater extent

Major Events/Reports

RBA Guv’nah Lowe speaks

RBA Governor Philip Lowe gave a speech in Sydney earlier during the session. Lowe touched upon monetary policy during his speech. And he had this to say about the future direction of the RBA’s monetary policy (emphasis mine):

“We expect, though, to make further progress in reducing unemployment and having inflation return to the midpoint of the target range. If we do make that progress, at some point it will be appropriate for interest rates in Australia to also start moving up. So, given recent developments in Australia and overseas, it is likely that the next move in interest rates in Australia will be up, not down.”

In other words, the RBA has a hiking bias, but conditioned on further economic developments in Australia, particularly with regard to the labor market and inflation.

However, Lowe was quick to add this stinker (emphasis mine):

“As I have discussed, while we do expect steady progress, that progress is likely to be only gradual. Given this, the Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.”

In short, don’t expect any rate hikes from the RBA anytime soon. What a bummer!

MPC decision, minutes, and inflation report

The BOE’s MPC released their latest inflation report, as well as the minutes for their latest monetary policy huddle late into the session. And as usual, below are some of the more important and/or interesting points in, well, bullet points for easier reading:

  • The MPC voted to maintain the BOE’s current monetary policy
  • As expected, 9-0 vote to keep the Bank Rate at 0.50%
  • 9-0 vote to maintain stock of government bonds purchased at £435B
  • 9-0 vote to maintain stock of corporate bonds purchased at £10B
  • Inflation is expected to remain around 3% in the short term, reflecting recent higher oil prices.”
  • More generally, sustained above-target inflation remains almost entirely due to the effects of higher import prices following sterling’s past depreciation.”
  • [D]omestic inflationary pressures are expected to rise.”
  • The firming of shorter-term measures of wage growth in recent quarters, and a range of survey indicators that suggests pay growth will rise further in response to the tightening labour market, give increasing confidence that growth in wages and unit labour costs will pick up to target-consistent rates.”
  • On balance, CPI inflation is projected to fall back gradually over the forecast but remain above the 2% target in the second and third years of the MPC’s central projection.”
  • Developments regarding the United Kingdom’s withdrawal from the European Union – and in particular the reaction of households, businesses and asset prices to them – remain the most significant influence on, and source of uncertainty about, the economic outlook.”
  • Since November, the prospect of a greater degree of excess demand over the forecast period and the expectation that inflation would remain above the target have further diminished the trade-off that the MPC is required to balance.”
  • The Committee judges that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report, in order to return inflation sustainably to the target.”
  • The BOE also upgraded its GDP growth and inflation forecasts for 2018 and 2019, as can be seen below (figures in parenthesis are previous forecasts):
Source: BOE's February Inflation Report
Source: BOE’s February Inflation Report

Commodities suffer

Most commodities were down in the dumps during today’s morning London session, very likely because of the relative stronger Greenback.

And for reference, the U.S. dollar index was up by 0.13% to 90.28 for the day when the morning London session ended.

Other than dollar strength, some market analysts pointed to higher inventories as the reason for the slide in some base metals. Meanwhile, other market analysts blamed the slump in oil prices on renewed focus on higher U.S. oil output.

Base metals were mostly bleeding out.

  • Copper was down by 0.31% to $3.078 per pound
  • Nickel was down by 1.09% to $13,032.50 per dry metric ton

Oil benchmarks were down hard.

  • U.S. WTI crude oil was down by 1.00% to $61.17 per barrel
  • Brent crude oil was down by 0.95% to $64.89 per barrel

Precious metals were also in the red, even though risk aversion was the dominant sentiment in other markets.

  • Gold was down by 0.17% to $1,312.40 per troy ounce
  • Silver was down by 0.05% to $16.230 per troy ounce

Risk aversion returns in force

Yesterday’s bout of risk-taking was apparently short-lived since the major European equity indices opened lower and then proceeded to plumb new intraday lows during the course of the morning London session.

And according to market analysts, the market is back to its risk-off ways because of rising bond yields, which hint at higher inflation expectations and reinforced expectations that the major central banks will be tightening monetary policy sooner or later.

The BOE’s hawkish message during the BOE statement was also cited as reinforcing the idea that the major central banks will be tightening monetary policy, which would make financial conditions more difficult.

  • The pan-European FTSEurofirst 300 was down by 0.93% to 1,478.23
  • Germany’s DAX was down by 1.37% to 12,418.02
  • The blue-chip Euro Stoxx 50 was down by 1.32% to 3,410.50

The U.S. equity futures were also down in the dumps, which implies that the risk-off vibes may continue in Wall Street.

  • S&P 500 futures were down by 0.28% to 2,660.75
  • Nasdaq futures were down by 0.11% to 6,548.75

Major Market Mover(s):

GBP

The pound was steady for the most part but was already getting some buyers ahead of the BOE statement.

However, the pound later skyrocketed across the board when the BOE’s meeting minutes revealed that “policy would need to be tightened somewhat earlier and by a somewhat greater extent” if the U.K. economy evolves as expected.

GBP/USD was up by 109 pips (+0.79%) to 1.3988, GBP/AUD was up by 199 pips (+1.12%) to 1.7923, GBP/CAD was up by 131 pips (+0.75%) to 1.7594

AUD

The poor Aussie was at the bottom of the forex heap during the morning London session, apparently because of a one-two punch from the slide in gold prices and RBA Guv’nah Lowe’s explicit message that “the Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.

AUD/USD was down by 28 pips (-0.35%) to 0.7804, AUD/CAD was down by 36 pips (-0.37%) to 0.9814, AUD/NZD was down by 57 pips (-0.52%) to 1.0809

Watch Out For:

  • 1:15 pm GMT: Canadian housing starts (211K expected, 218K previous)
  • 1:30 pm GMT: U.S. initial jobless claims (232K expected, 230K previous)
  • 1:30 pm GMT: Canada’s NHPI (0.1% expected, same as previous)
  • 5:45 pm GMT: BOC Senior Deputy Governor Carolyn Wilkins will be speaking