Currency movements have been modest, the S&P500 is barely positive, while global rates are little changed; NZD has been shuffling sideways since this time yesterday and sits this morning at 0.6875

By Jason Wong

Markets are quiet ahead of the FOMC minutes to be released at 8am NZ time and with little newsflow.  Currency movements have been modest, the S&P500 is barely positive, while global rates are little changed.

After a lacklustre trading session, the FOMC minutes to be released within the next hour or so, have the potential to cause some market volatility, given the U-turn in the policy outlook between December and January and the confusing messages the Fed has been sending over recent months.  Investors will be trying to read into the minutes how “patient” the Fed will be on rates and what it is looking for to end the shrinking of its balance sheet.

The NZD has been shuffling sideways since this time yesterday and sits this morning at 0.6875.  The same can be said with most of the other majors, with only modest changes in currencies. An underwhelming read on wage inflation yesterday only caused a temporary ripple for the AUD, which sits little changed at 0.7175. NZD/AUD is back below the 0.96 mark after meeting some resistance after its strong run and sits at 0.9580. CAD is the best performer over the past 24 hours, up 0.4%, with no obvious explanation apart from its underperformance over the previous day.  Oil prices are extending their gains to make fresh highs for the year, with WTI up through $57 and Brent up through $67.

There was more political shuffling around in the UK, with another Labour MP and three Conservative MPs resigning from their parties to join the newly formed centrist independent group which now contains 11 members.  PM May meets with the EU’s Juncker today in a last throw of the dice to get legally binding changes to the Irish backstop – in an aim to prevent the UK being tied to EU rules indefinitely – the biggest obstacle to getting her deal through Parliament.  Spain’s foreign minister said that the legally binding Withdrawal Agreement won’t be re-opened, but could be supplemented by some new legal text that can reassure the UK.  If her deal doesn’t get through Parliament soon then the odds favour her losing control of the process. Parliament is expected to take over in a likely scheduled vote from 27 February.  GBP has pushed a little higher and sits this morning at 1.3070.

Global rates are little changed, with the US 10-year rate hovering around the 2.64% mark. Local swap rates fell by 1-3bps yesterday, with the swap-bond spread narrowing by 3bps at the 10-year mark as the government rate was unchanged.

After the FOMC minutes are out of the way this morning there is plenty more to look forward to today, with Australian employment data this afternoon.  Tonight sees the release of European PMI data where there is some hope of stabilisation after their poor run.  An unexpected further lurch down would be another kick in the guts to the euro area economy and get the attention of the ECB.  In the US the key release will be durable goods orders.


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