DAY AHEAD
As of Thu 30 Jan, Singapore Time zone UTC+8
The Bank of England will announce its latest policy decision later today, BoE policymakers will be debating whether to cut interest rates or not. Expectations of an interest rate cut shot up earlier this month when Governor Mark Carney and two other monetary policy committee (MPC) members flagged lower rates. Their dovish views were reinforced by weak economic indicators for November/December. But more recent data has been somewhat more encouraging, and markets are now split about 50-50 as to whether the BoE will ease. Expect elevated volatility in Sterling today as markets price in BoE’s posturing towards future monetary policy decisions.
FX MOVES
U.S. Dollar Index, +0.09%, 98.06 (Sentiment: Negative)
USDJPY, -0.17%, $108.96 (Sentiment: Neutral)
EURUSD, -0.07%, $1.1014 (Sentiment: Neutral)
GBPUSD, -0.06%, $1.3020 (Sentiment: Neutral)
USDCAD, +0.33%, $1.3198 (Sentiment: Positive)
AUDUSD, -0.17%, $0.6751 (Sentiment: Neutral)
NZDUSD, -0.27%, $0.6528 (Sentiment: Neutral)
MARKET MOVES
S&P500, -0.09%, 3,273.40 (Sentiment: Positive)
Nasdaq, +0.06%, 9,275.16 (Sentiment: Positive)
Nikkei Futures, +0.35%, 23,240.0 (Sentiment: Positive)
WHAT HAPPENED YESTERDAY
FED HOLDS RATES STEADY
The central bank left the target for the fed funds rate unchanged at 1.50-1.75% and extended repurchase operations to April from January. Fed Chair Powell reiterated that monetary policy is appropriate and will remain so until something changes to alter the macroeconomic outlook. The Fed’s statement was little changed from the one issued after its December meeting, saying that the current federal funds rate was “appropriate to support the sustained expansion of economic activity,” including ongoing job growth and a rise in inflation to the central bank’s 2% target.
IMPACT: Aside from the repo extension, there were few surprises from the Fed, which may have contributed to the lack of enthusiasm in risk assets. Demand for Treasuries steadily increased after the Fed’s policy directive. The 2-yr yield declined four basis points to 1.42%, and the 10-yr yield declined five basis points to 1.59%.
LACKLUSTER AUSTRALIAN INFLATION
The consumer price index (CPI) rose 0.7% in the December quarter, higher than forecasts of a 0.6% increase, driven by gains in cigarettes, domestic holidays, travel, fuel and fruit prices. The annual pace rose to 1.8%, still below the floor of the Reserve Bank of Australia’s (RBA) 2-3% target band. Indeed, a key measure of core inflation was stuck at an even slower 1.6% marking four straight years below target.
IMPACT: This persistent weakness was one reason the RBA cut interest rates three times last year to an all-time low of 1.75%, and why markets are still pricing in at least one more easing. Aussie finished the day lower as a result of benign results.
CHINA VIRUS EVACUATIONS BEGIN
Foreign governments began flying their citizens out of China’s Hubei province, the epicenter of the coronavirus outbreak, as authorities said the death toll there had topped 160. The World Health Organization’s (WHO) Emergency Committee is set to reconvene behind closed doors in Geneva later on today to decide whether the rapid spread of the virus now constitutes a global emergency.
IMPACT: The effects of the virus are already weighing heavily on China’s economy, the world’s second-biggest, with companies cutting corporate travel and tourists canceling trips. Gambling and Travel stocks have fallen as a result.