Global equities reached new all-time highs as European bond yields sank to new lows as investors position themselves ahead of next week’s European Central Bank meeting. Markets are preparing for the next leg of the “Global QE Era” as participants expect more plans concerning Europe’s bond-buying scheme now that the latest Greek crisis has been put on ice. Here in the US, it would appear the fears over an imminent interest rate increase have also been put to rest as Fed Chairman completed two days of Congressional testimony on Wednesday, stating quite clearly that the Fed is comfortable with current interest rate levels. The US dollar has paced markets this week but had been confined to a tight range across the spectrum.
Economic data was limited overnight with Germany employment numbers the only result of consequence. Markets were looking for a slight decrease of 10K new jobs in February but it appears the largest economy in Europe lost closer to 20K. The unemployment remained firm at 6.5%. The euro, which had made a nice run toward to a high rate of 1.1379, is now slumping over as North American trading begins. As European fixed income prices rise into the close, the fall in yields permeating through the foreign exchange markets should be blamed for the recent rash of euro weakness. The British pound is also giving back a bit of its most recent gains as the market has chosen to look away from Q2 GDP readings. Coming in bang on at +0.5% for the second quarter, the pound, which had been pushing 1.5550 is now back below 1.5500, perhaps victim to a regional decline.
In Asia, Chinese stocks rose to their highest level in four weeks as markets also believe the government will try to enact some new stimulus to cushion the economic slowdown. Like the Europeans and the Americans, the Chinese have stepped up rhetoric of late now that the Lunar New Year holidays have passed. Financials shares have gained 3.3% this week as Premier Li Keqiang called for most fiscal policy while a central bank publication said additional monetary easing may be needed. Commodities are trading higher as gold, copper and spot platinum have all advanced.
Here in the US, January inflation was released today and it showed a -0.7% drop in consumer prices for the month of January, slightly below expectations. Core inflation was bang in line up 1.6% over the same period in 2014 and durable goods orders recovered nicely after last month’s sharp decline, to a rise of 2.8%. Canadian consumer prices beat expectations which is giving the Loonie yet another boost in early trading this Thursday morning. Following BoC Chairman Poloz surprise speech earlier this week, CAD bears were again caught on the wrong side as it appear prices rose 2.2% up north over the same period in 2014. Economic data concludes tomorrow with German inflation for February and Q2 US GDP. Next week, the markets’ attention turns to the European Central Bank meeting and US non-farm payrolls.
Further reading:
EUR/USD finally falls out of range – more to come?
US data is good enough – USD stronger
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