Spreadex Market Update
March FOMC Pricing Turns Less Hawkish
The US Dollar starts the new week under pressure following Friday’s February US labour market data. While the headline NFP was seen coming in above forecasts at 311k vs 204k expected, a surprise lift in the unemployment rate (3.6% vs 3.4% expected) and a drop in average hourly earnings (0.2% vs 0.3% expected) saw USD coming under offer. The drop in earnings drew the most attention with traders taking the data as a sign that inflation is likely to have cooled last month following the lift in January. Market pricing has now swung back in favour of expecting a smaller 25bps hike from the Fed this month, down from the 50bps hike expected on the back of hawkish comments from Powell last Tuesday.
Key Factors for Today
- USD down as March FOMC expectations turn less hawkish following jobs data and SVB collapse
- Equities supported by news of US intervention
- AUD rallies on risk rebound – JPY weakens along with USD
- Metals and gold turn higher
Coming Up
- EUR – Eurogroup Meetings
- AUD – Westpac Consumer Sentiment
Equities Rebound on SVB-Intervention News
Along with the fallback in USD, owing to a less hawkish outlook for the Fed, equities markets have been supported somewhat by news of US intervention around the collapse of SVB bank. The US treasury said that it will guarantee all customers have access to their capital today and also detailed other measures including a new Bank Term Funding Program aimed at shoring up liquidity in the financial sector. Fears over the health of other lenders remain paramount this week and traders can expect ongoing headlines around this story to have a big market impact. In the UK, HSBC today announced that it will purchase the UK arm of SVB for £1 in a liquidation deal, ensuring client capital.
AUD Takes the Lead In FX
The move lower in USD has fuelled a reversal of recent themes across FX markets. AUD has emerged as the strongest performer over early trading on Monday, bolstered by the better risk backdrop we’re seeing today. NZD and EUR are both seeing better demand also, the latter boosted by still-hawkish ECB expectations. Along with USD, JPY has been the weakest performer so far today. The rebound in risk appetite is seeing weaker demand for the safe-haven which also came under pressure last week in response to the BOJ keeping rates on hold and signalling no intended changes to come near-term.
Metals & Oil Turn Higher
In the metals and commodities space, gold and silver have both been firmly higher across the European open on Monday, extending gains from the end of last week. With USD likely to continue lower into tomorrow’s CPI data, metals should stay supported near-term with the data likely to set the tone for the rest of the week. Crude prices have started the week on a stronger footing amidst a weaker USD and a less-hawkish outlook for the Fed against the backdrop of fresh liquidity issues in the financial sector.
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