A tacit acknowledgement, just a hint from Janet Yellen that the weather issues in the US may have had a negative effect on the US economy seems to have been enough to move equities higher and move the USD back on to the back foot. Such is the scale and duration of the ‘polar vortex’ it will be almost April until data from the US economy is no longer tainted by the sting of arctic wind. Those of us who believe that the US economy is strong enough to sustain itself without the Federal Reserve’s asset purchases will once again be watching jobs numbers in March and April; should these numbers disappoint then we may be in for some USD weakness.
Despite this, the majority of her statement to the Senate yesterday was a carbon copy of the testimony delivered to the House of Representatives earlier in the month. Tapering will occur at a rate of $10bn a meeting it seems until Autumn when purchases will have eventually have been zeroed out. Tapering is very much data dependent, but at the moment, the data isn’t wholly reliable.
Another central banker unwilling to change direction is Mario Draghi who spoke last night in Frankfurt. “We will remain alert as to whether any indication on further downside risks to price stability emerge and we stand ready to act” is the party line at the moment but whether that will lead to action at March’s meeting is very much up for debate. 19 of 63 economists polled by Reuters this week see the ECB eventually plumping for some form of quantitative easing soon, that number is up from 8 last month. Another ECB member yesterday emphasised that “whether any cut in the interest rate would anyhow approach or tackle the problem in the right way, this is still a question for discussion. It’s a question whether it would be enough only to cut interest rates.” The meeting takes place next Thursday.
The latest estimate of Eurozone CPI is due at 10am this morning with the markets looking for no better than the record low of 0.7%.
GfK’s latest consumer confidence survey in the UK has shown that the UK consumer is at its most confident since September 2007. Respondents seemed more happy about where they perceived their personal financial situation to be going over the course of the next 12 months as well as the general economic situation in the past year. Sterling has risen on this as well as the latest house price data which has shown that average house prices are 9.4% higher now than a year ago according to the Nationwide building society.
Yen is the best performer this morning as Japanese industrial production grew the most since 2011 in January. Output swelled by 4%, a likely front loading of demand before April’s tax increase. For all the good that the Japanese economy is undergoing at the moment we believe that the picture will be a lot darker after April and those looking to sell JPY would do well to get shot of it before then.
Today will be shaped by goings on in Ukraine once again with news this morning showing a Crimean airport under occupation by Russian forces; some would categorise that as an invasion. Elsewhere we have the first revision to US GDP for Q4 that will likely be moved lower following falls in personal consumption and durable goods orders; analysts are looking for a move down from 3.2% to 2.5% annualised.
Eurozone and Italian unemployment numbers are also due this morning with the latter expected to remain at 12.7% – surely PM Renzi’s first order of business.
