Risk aversion was the name of the game for the most part of the New York session, leading equity indices and commodities to close in the red, possibly on profit-taking at the end of the month as well.
Most dollar pairs consolidated, though, while bond yields edged higher.
- U.S. CB consumer confidence index up from 123.1 to 125.4 vs. 123.2 forecast
- BOE Governor Carney: Seeing pass-through effects of GBP weakness on inflation
- Carney: Wages are rising, labor market is tight, productivity and investment to pick up
- API crude oil stockpiles up 3.2M barrels
Profit-taking on month-end
Just like that, the first month of 2018 is almost over! With that, traders cashed in on most of their gains, particularly from the strong risk-on rallies earlier on. Besides, investors probably wanted to reduce their exposure ahead of the State of the Union address and the FOMC decision this week.
- Dow 30 index is down 362.59 points to 26,076.89 (-1.37%)
- S&P 500 index closed 31.10 points lower to 2,822.43 (-1.09%)
- Nasdaq is down 64.02 points to 7,402.48 (-0.86%)
Commodities were also in the red, with crude oil chalking up back-to-back daily declines. As it turned out, the American Petroleum Institute reported another buildup in stockpiles of 3.2 million barrels, reviving oversupply concerns.
- WTI crude oil slid to $64.50 per barrel (-1.60%)
- Brent crude oil fell to $68.11 per barrel (-0.60%)
Optimism from BOE head Carney
Guv’nah Carney was in a glass half-full mood during his testimony before the House of Lords Economic Affairs Committee in London, citing that he sees a pickup in U.K. investment for 2019.He also mentioned that the central bank has foreseen the potential impact of Brexit and assured that the economy has been resilient despite uncertainties. In particular, he noted that wages have been rising, the labor market remains tight, and an increase in productivity is expected.
“The firming of the labor market and the pick-up in wages over the course of the next few years appears to be on track, so there is a prospect of a return of real income growth later this year.”
When it comes to inflation, Carney said that the BOE expects annual CPI to be above target mostly due to the effects of the pound’s forex action. He explained that the currency’s depreciation has followed through to higher price levels as expected.
Bond yields climb again
While higher-yielding assets tumbled, bond yields were able to advance in anticipation of positive remarks in the FOMC decision and Trump’s speech.
- 10-year U.S. Treasury yields reached 2.7199%
- 30-year bond yields are up to 2.971%
- 5-year bond yields are at 2.502%
Analysts say that traders were also likely spooked by consecutive large declines in equities, sparking a flight to safety. Come to think of it, the Dow posted its largest opening bell drop in nearly sixteen years as healthcare-related stocks took the biggest hits.
Major Market Mover(s):
The pound managed to chalk up a few more pips after BOE Governor Carney’s upbeat speech, even as the climb has already been going on since the previous session.
GBP/USD ticked up from 1.4073 to a high of 1.4171, GBP/JPY went on to reach a high of 154.18, EUR/GBP is down to .8770, and GBP/CAD is up to 1.7460.
The Loonie was able to grab some pips, even though crude oil took another hit on rising stockpiles and rig counts.
USD/CAD fell from a high of 1.2355 to a low of 1.2309 then moved sideways for the rest of the session, CAD/JPY is up to 88.36, EUR/CAD retreated to a low of 1.5279, and AUD/CAD is down to the .9950 mark.
Watch Out For:
- 12:30 am GMT: Australian CPI q/q (0.7% expected, 0.6% previous)
- 12:30 am GMT: Australian trimmed mean CPI (another 0.5% gain expected)
- 1:00 am GMT: Chinese official manufacturing PMI
- 1:00 am GMT: Chinese official non-manufacturing PMI
- 2:00 am GMT: President Trump’s State of the Union address
- 5:00 am GMT: Japanese consumer confidence index (rise from 44.7 to 44.9 expected)