Equities across the Asia Pacific are broadly higher today as we see a re-emergence of a risk on appetite within the global capital markets. The shift towards risk-on assets has permeated throughout emerging and developed markets, pushing equities higher from Australia to Indonesia. This change in sentiment has largely been driven by changes in expectations with respect to a settlement between Greece and its creditors. With China, Taiwan and Vietnam sitting on the sidelines due to Lunar New Year celebrations the currency impact due to this change in sentiment has been largely muted as the Yen, Aussie and Kiwi dollars are essentially unchanged from yesterday.
Data indicating that employment in the UK has matched its record high set ten years ago has the Sterling on a tear. The currency has appreciated strongly versus the greenback, loonie, yen and euro as data signalled robust wage growth along with a labour force participation rate that is at its highest level since record keeping began in 1971. This positive news is no doubt playing in the minds of policy makers at the Bank of England as details of February’s Monetary Policy Committee meeting suggests a growing divergence amongst policy makers despite unanimous votes to keep any rate rises on hold for the time being. Interestingly, the bank has suggested that .5% is no longer the lower boundary for interest rates within the UK economy, adding that if deflationary pressures in the British economy were to become more entrenched there is scope to engage in further monetary stimulus or even a rate cut. Despite this shift in tone, continued labour market and wage strength in the UK is more suggestive of a case for increasing the bank rate towards the end of 2015 or early 2016. With capital markets currently taking this stance there is room for further Pound strength especially against its European and Japanese crosses, at this moment the Sterling sits at 1.36 versus the euro, 1.54 versus the buck and 1.92 versus the loonie.
Wednesday today will become Fed day in North America as a flurry of economic data concerning the strength of the US economy is to be released along with meeting minutes of the Fed’s Open Market Committee. Prior to the release of any substantial data we have seen equity futures take a wait -and-see approach as they sit largely unchanged at the record highs set yesterday. This approach is largely driven by speculation that despite earlier tough talk, Greece is likely to accept an extension to their bailout package principally similar to a deal suggested by the European Commission earlier in the month. Looking back to North America, Canadian wholesale sales smoked expectations, coming in at 2.5% growth versus expectations of .4% – whereas American housing starts, building permits and producer prices all came in weaker than expected. With the release of capacity utilization in the United States along with the FOMC minutes on deck for later today we can expect a fair bit of volatility in trading for the USDCAD. Watch out for any shift in tone in the FOMC especially to a more dovish sentiment as well as any upside variation in WTI prices as both are likely to favour Canadian dollar strength as we have seen a measure of retracement in USD strength versus the loonie.
Further reading:
Tsipras – Merkel needed for a resolution on Greece
EUR/USD: One Last Push; USD/JPY: End Of 2-M Range? – BofA Merrill
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