Analysts at ANZ explained the key themes ahead and recent Fed optimism.

Key Quotes:

“Perennial hawk Mester (voter) remains upbeat on the US outlook.” 

“New Fed Chair Powell said at his ceremonial swearing-in that they remain alert to any developing risks to financial stability. He added, “we are in the process of gradually normalizing both interest rate policy and our balance sheet with a view to extending the recovery.””

“As watchers attempt to ascertain whether the recent bout of equity volatility is done and dusted or about to burst into broader risk aversion, risk havens provides clues. Overnight JPY and CHF strengthened, and gold prices did lift, but all in a fairly muted fashion.”

“We expect the markets to continue to swing between risk-on and risk-off now a solid dose of uncertainty has been added to the trading mix. US CPI tomorrow (2:30am NZT) is the next big test for a market for whom upward inflation surprises have abruptly become A Bad Thing. 

The market is expecting 0.2% m/m in CPI ex food and energy (1.7% y/y exp; headline CPI 1.9% y/y exp). One can be fairly confident that an upside surprise would not be taken well.”

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