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European Outlook: Asian stock markets fluctuated after weaker sessions in the U.S. and Europe yesterday. Especially Eurozone markets were under pressure on Monday and spreads widened sharply, despite Draghi’s confirmation that the central bank will continue with its QE schedule and maintains an easing bias. This was followed up by Coeure telling La Parisien that the EUR is at an appropriate level. However, with the ECB continuing to keep the EUR down with a very expansionary policy the political risks facing the Eurozone externally and internally are rising and markets are reaction nervously to the rise of anti-EMU, far right parties in the polls. Especially France is in focus and the spread over the German benchmark has risen sharply in recent weeks. Political risks continue to overshadow the data calendar. Already released U.K. BRC retail sales for January unexpectedly dropped. German production numbers are due at the start of the session, followed by French trade data and U.K. house price numbers from Halifax later in the day.

ECB’s Coeure: EUR is appropriate level for the economy. The Executive Board member said in an interview with La Parisien that “since its last peak in 2011, euro has depreciated by almost 30% against the dollar”, adding that the single currency is “now at a level that is appropriate for the economic situation in Europe”. Coeure told said the “single currency has adjusted as a consequence” of necessary ECB policies designed to support the economy. Asked about Le Pen’s push for France to leave the EU Coeure said this is not what the French want as “when asked if they think the EUR is a good thing, the answer is an unambiguous yes”. He also played down arguments that the 3% debt limit in the Maastricht Treaty is a straightjacket, as “France has not respected the criterion once since 2007”. Meanwhile, ECB chief Draghi confirms easing bias and QE schedule at his hearing before the European Parliament, saying that the ECB policy is a key contributor to the Eurozone’s economic improvement and that financing conditions have to remain accommodative. He confirmed the QE scheduled of EUR 60 bln worth of asset purchases from April to December. The ECB president once again played down the importance of the recent uptick in headline inflation. Draghi repeated that the ECB will look through transient price increases and that the risks to the economic outlook remain tilted to the downside, and relate mainly to global factors.

Fedspeak: Philly Fed’s Harker did not discuss monetary policy in his prepared remarks on “Regulation is Key to Safeguarding Fintech, Consumers.” He did say it’s still an open question, who should supervise fintech lenders. We’ll see if he says anything policy related in Q&A. March should be considered on the table in terms of possible rate action, he told reporters in answering questions. Indeed, never take any meeting off the table, he warned, though he also advised he hasn’t made up his mind yet. It will depend on the evolution of the economy and fiscal policy. He still supports the FOMC’s three, quarter-point tightening trajectory and wants to make sure the Fed doesn’t fall behind the curve. Harker is on the hawkish side of the spectrum and is a voter this year.

Australia: Reserve Bank of Australia held rates at 1.50%, matching widespread expectations. They appear to be comfortable, for now, with inflation that “remains quite low.” Inflation is expected to “remain low for some time.” Governor Lowe said “Headline inflation is expected to pick up over the course of 2017 to be above 2 per cent, with the rise in underlying inflation expected to be a bit more gradual.” He said that the board “judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.” They appear content to stay on the sidelines and let the easing from 2016 percolate through the economy.

Main Macro Events Today                     

  • US Trade, JOLTS & Consumer Credit – The trade report, expected to reveal to narrow to -$45 bln in December from the -$45.2 bln in November. JOLTS job openings and consumer credit are also coming out today, with credit seen expanding by $20 bln in December from $24.5 bln in November.
  • CAD Trade Balance – The trade report, expected to reveal an expansion in the surplus to C$1.2 bln in December from the C$0.5 bln in November.
  • CAD Exports, Imports & Ivey PMI – Crude oil prices were sharply higher in December, which should provide a hefty boost to export values. Exports are seen rising 2.0% m/m in December after the 4.3% surge in November. Imports are projected to increase 0.5% in December after the 0.7% gain. Building permits and the Ivey PMI are also due out today, but will take a back-seat to the trade report.

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Andria Pichidi

Market Analyst

HotForex

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