USD Higher on Friday Ahead of Core PCE

The US Dollar is trading slightly ahead of tonight’s FOMC minutes. Yesterday saw a muted, yet positive, session though the big focus was on the movement we saw in equities markets as asset prices plunged over the day. The fall in stock markets came despite a slew of better-than-forecast PMI readings out of the eurozone, UK and US. These readings were seen as feeding into the narrative of hawkish central bank expectations, driving yields higher and therefore pulling stock prices lower. In the US in particular, further strong data is boosting market pricing for a larger 50bps hike from the Fed in March. Traders will now look to tonight’s FOMC minutes to see if there had been any support for a larger hike last time around.

Key Factors for Today

- USD quiet ahead of FOMC minutes today – hawkish expectations for March fuelled by further strong data
- Equities fall despite PMI beats as yields rally on hawkish central bank expectations
- Walmart shares soar on strong Q4
- AUD sinks in FX – NZD rallies on fresh RBNZ hike
- Metals stabilise – oil falls further

Coming Up

- EUR – German IFO business climate
- USD – FOMC Minutes
- NZD – RBNZ Governor Orr speaks

Equities Vulnerable Following Heavy Sales

Equities markets were mostly lower yesterday against a backdrop of higher global yields, fuelled by better business survey data. Today’s FOMC minutes hold the potential to drive the sell-off deeper if they are seen supporting the idea of a larger hike in March. The FTSE and the DAX both recoiled further from YTD highs yesterday with the Nikkei now also down around 3% from highs. Despite the broader sell off, Chinese stocks held up rather well with the Shanghai Composite holding at highs, currently around the 3291.1477 level.

US Earnings Continue – Zoom On Watch

In the US earnings season landscape, Walmart was the big focus yesterday. The company saw its stock jump 3% on the session after pre-market earnings showed an EPS of 1.71 vs 1.52 expected on revenues of $164.04 billion vs $15975 billion expected. Looking ahead, the company issued a warning over the US economic outlook amidst high inflation and high interest rates and noted that it would be taking a cautious approach this year. Today, focus shifts to Etsy, Fiverr and NVIDA which all report Q4 earnings.

JPY Rallies, AUD Falls

The fall back in risk appetite on Wednesday has seen JPY the strongest currency across the European open, bolstered by safe-haven demand. AUD has been the clear loser today, losing ground across the board on the back of the latest hike from the RBNZ which has driven demand into NZD. The RBNZ hiked rates by 50bps overnight, above the 25bps the market was looking for. Looking ahead, the bank signalled that it will further slow the pace of tightening to a quarter-point hike in April and, while maintaining its 5.5% peak rate target, noted that it now expects to take longer to get there (slower tightening).

Metals Declines Pauses, For Now

In the metals and commodities space, both gold and silver remain at the foot of recent declines after we saw metals heavily sold once again last week. With USD exposed to further upside risks this week from fresh data releases, metals are vulnerable to further losses. Crude prices are seeing a quieter start to the week. The market is on the back of two days of gains into the end of last week, despite a further EIA inventories surplus being recorded. The upside move comes in response to reports that Russia will further slash crude production as retaliation for Western sanctions.