Market Roundup
• US Markit Mfg PMI flash 54.3 v 55.3 forecast, 55 previous; Svcs PMI flash 53.9 v 55.8 forecast, 55.6 previous.
• Fed’s Harker: March rate hike a possibility, sooner we can move away from zero interest rate the better when time to reduce balance sheet favors stopping reinvestment (DJ).
• Fed’s Williams: Low natural rate of interest globally presents daunting challenges for Central Banks.
• Mexico's central bank to launch USD20bn peso hedge program, peso gains near 2%.
• OPEC chief sees higher compliance with oil cut, says confidence returning to oil market.
• China calls for "reasonable" local government bond issuance in 2017.
• Fonterra dairy prices fall 3.2% w/avg selling price NZD 3.474 /tonne.
• Socialist French minister may back Macron as left talks founder, Polls show Le Pen holding onto gains vs Macron & Fillon.
Looking Ahead - Economic Data (GMT)
• 00:30 Australia Construction Work Done* Q4 forecast 0.3%, -4.9%-previous
• 00:30 Australia Wage Price Index QQ* Q4 forecast 0.5%, 0.4%- previous
• 00:30 Australia Wage Price Index YY* Q4 forecast 1.9%, 1.9%- previous
• 01:30 China House Prices YY* Jan 12.4%- previous
Looking Ahead - Events, Other Releases (GMT)
• --:-- US Federal Reserve Bank of Cleveland President Loretta Mester holds roundtable briefing in Singapore.
Currency Summaries
EUR/USD is likely to find support at 1.0503 levels and currently trading at 1.0544 levels. The pair has made session high at 1.0553 and hit lows at 1.0525 levels. Euro declined against the dollar on Tuesday as U.S. dollar firmed against euro following hawkish comments from Federal Reserve officials, while European political uncertainty weighed on euro. Cleveland Fed President Loretta Mester said late on Monday she would be comfortable raising rates at this point if the economy maintained its current performance, while Market News International quoted Philadelphia Fed President Patrick Harker as saying that a March rise was on the table. The euro was on the defensive, under pressure from fears that the French Presidential election could upset the status quo, as rising anti-establishment sentiment surfaced after last year's Brexit and the U.S. election. The euro was down 0.4 percent at $1.0540, after moving little on Monday. It has fallen more than 2 percent so far this month. Investors stayed concerned about the political risk. They have been rattled by the prospect of anti-euro, far-right leader Marine Le Pen staging another political surprise in the race for the French presidency, with a poll on Monday showing her closing the gap with centrist opponents.
GBP/USD is supported in the range of 1.2385 levels and currently trading at 1.2471 levels. It reached session high at 1.2477 and dropped to session low at 1.2407 levels. Sterling initially declined against the dollar on Tuesday but reversed course as investors took profits after dollar rose on the view that Federal Reserve might raise interest rates in March. Investors were looking ahead to Wednesday's release of the Federal Reserve's minutes of its latest meeting for clues on the timing of the next interest rate hike. Fed Chair Janet Yellen said last week a rate increase would be considered at every policy meeting, suggesting the U.S. central bank could move next month. Philadelphia Fed President Patrick Harker on Tuesday, echoing Yellen's remarks, said he would support a rate increase at a mid-March policy meeting as long as inflation, output and other data continue to show a growing U.S. economy. Sterling traded flat on the day against the dollar after a rollercoaster ride which earlier in session saw it hit as low as $1.2407. The pound has risen around 4 percent against the euro and currencies such as the Japanese yen since mid-January but has steadily drifted lower against the dollar in that time.
USD/CAD is supported at 1.2106 levels and is trading at 1.3142 levels. It has made session high at 1.3165 and lows at 1.3121 levels. The Canadian dollar declined against its U.S. counterpart on Tuesday as expectations of an increase in U.S. interest rates next month pushed the dollar higher. Dollar spiked after hawkish comments from Cleveland Fed President Loretta Mester led traders to prepare for the possibility of an interest rate hike as soon as March. U.S. crude prices were up 2.3 percent at $54.63 a barrel after the Organization of the Petroleum Exporting Countries said it was sticking to its agreement to cut production and hoped compliance with the deal would be even higher. Canadian government bond prices were lower across the yield curve in sympathy with U.S. Treasuries and German Bunds as investors weighed upbeat euro zone data and the possibility of a March rate hike by the Fed. Domestic retail sales data for December is due on Wednesday. Economists expect it to be unchanged but to show a rise of 0.6 percent after excluding autos.
AUD/USD is supported around 0.7635 levels and currently trading at 0.7680 levels. It hit session high at 0.7685 and made session lows at 0.7648 levels. Australian dollar rose against US dollar in the US session on Tuesday as investors took profits on greenbacks initial rally and traders waited on fresh catalysts from a slew of data and central bank events. The Australian dollar was last trading at $0.7680. It went as far as $0.7732 last week, a level last seen in November, on a string of bright economic data and a brisk rally in the price of iron ore the country's top export earner. The Reserve Bank of Australia (RBA) sounded optimistic on Tuesday about the prospects of the country's economic growth when it held rates at record low this month, minutes of its February meeting showed. The Aussie has outperformed the greenback since the beginning of 2017, rallying 6.6 percent compared with a near 1 percent fall in the US dollar index in the period. Investors are looking ahead to data on wages growth and construction work due Wednesday, followed by business investment and two appearances by governor Philip Lowe later in the week.
Equities Recap
European shares rose to their highest in over 14 months on Tuesday, with optimism generated by encouraging manufacturing surveys outpacing a steep decline in shares after a slump in the heavyweight bank's annual pre-tax profit.
UK's benchmark FTSE 100 closed down by 0.2 percent, the pan-European FTSEurofirst 300 provisionally closes up by 0.66 percent, Germany's Dax ended up by 1.1 percent, France’s CAC finished the day up by 0.4 percent.
U.S. stocks rose to fresh record highs on Tuesday, boosted by strong earnings reports from Wal-Mart and other retailers and continued optimism about the economic agenda of President Donald Trump.
Dow Jones closed up by 0.55 percent, S&P 500 ended up by 0.58 percent, Nasdaq finished the day up by 0.44 percent.
Treasuries Recap
U.S. Treasury debt yields edged higher in range bound trading on Tuesday ahead of a U.S. two-year note auction, supported by generally improved market appetite for risk as stocks and commodities gained.
U.S. 10-year notes were last down 2/32 in price to yield 2.432 percent, up from 2.425 percent on Friday. U.S. 30-year bond prices slipped 5/32, yielding 3.039 percent, up from Friday's 3.031 percent. U.S. two-year note prices were flat, yielding 1.206 percent.
Commodities Recap
Gold prices pared losses on weaker-than-expected U.S. economic data on Tuesday, after falling 1 percent on renewed expectations of an increase in U.S. interest rates next month that pushed the dollar higher.
Spot gold was down 0.2 percent at $1,235.85 an ounce by 3:23 p.m. EST (2023 GMT), but has gained more than 7 percent since the start of the year. U.S. gold futures settled down 0.02 percent at $1,238.90.
Oil prices ended about 1 percent higher after touching three-week highs on Tuesday on OPEC's optimism for greater compliance with its deal with other producers including Russia to curb output in an effort to clear a glut that has weighed on the market.
Brent crude ended the session at $56.66 a barrel, up 48 cents or 0.9 percent, after hitting its highest since Feb. 2 at $57.31.
The U.S. March crude contract expired 66 cents, or 1.2 percent, higher at $54.06, after peaking at $54.68, its highest since Jan. 3.
