Analysts at Westpac explained that European equities weakened and haven currencies JPY and CHF outperformed but US markets were fairly stable. 

Key Quotes:

“Fed chairman Powell reiterated that policy tightening would continue. AUD/USD was jittery at times but steadied around 0.7850. Today’s important calendar features Australia Feb consumer sentiment, Japan Q4 GDP and US Jan CPI and retail sales.

Risk aversion returned in European trade, with Eurozone equities closing down 0.8%, Italy and Spain under particular pressure. The afternoon tumble in the Nikkei 225 – from up 1.3% to close down 0.7% – kicked off the decline in USD/JPY from 108.70 to 108.30 but selling continued in London and NY trade, to as low as 107.41, its weakest point since 8 September 2017. The Swiss franc was next strongest, USD/CHF -0.5% to 0.9340.

EUR/USD rose from 1.2280 to 1.2360, with no particular news. AUD/USD was jittery for a while in London trade, slipping from 0.7870 to 0.7828, but then recovered to 0.7855 by early Sydney trade Wednesday, little changed over the day. NZD/USD saw a strange spike from 0.7265 to 0.7315 before retracing. AUD/NZD fell from 1.0830 in the Sydney afternoon to spend most of NY trade under 1.0800.

UK Jan CPI held at 3.0% y/y, just above expectations, with core inflation rising from 2.5% to 2.7%. GBP/USD probed as high as 1.3920 after the data but later trimmed gains to 1.3880.

Fed chairman Powell delivered brief remarks at his formal swearing in ceremony. He said that the Fed was “in the process of gradually normalizing both interest rate policy and our balance sheet.” Cleveland Fed president Mester said rate increases at a similar pace to 2017 were likely to be needed both this year and next.

Director of National Intelligence Dan Coats declared that the US fiscal position “is unsustainable as I think we all know and represents a dire threat to our economy and national security.”

US 10yr treasury yields edged down slightly, to 2.83%, but 2yr yields rose from 2.06% to 2.10%. Fed fund futures yields were steady, pricing the chance of another rate hike in March around 90% (Bloomberg estimate).

US small business confidence (NFIB) rose from 104.9 in Dec to 106.9 in Jan (vs 105.3 expected). This is close to the Nov 2017 high of 107.5, which was the strongest since the record of 108 in 1983.”

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