Here is what you need to know on Friday, March 17:
The stock market stole volatility on Thursday. Wall Street indexes opened in the red to finish in the green with a gain of more than 1%. The Nasdaq led with a rally of 2.48%. Systemic risk fears eased, helping the market’s mood. Contributing to the improvement, 11 of the largest US banks announced a $30 billion deposit into First Republic Bank. The First Republic stock reversed a 36% drop to close the day up 10%.
Regarding US data, the Federal Reserve Bank of Philadelphia's Manufacturing Business Index for current general activity improved in March to -23.2 from -24.3 in February, a reading worse than the -14.5 of market consensus; Initial Jobless Claims pulled back after surging last week; Housing Starts rebounded unexpectedly to 1.45 million, significantly above the 1.31 million of market consensus.
As expected, the European Central Bank raised interest rates by 50 basis points. The words of the monetary policy statement and Lagarde’s were chosen carefully. In the first sentence, the ECB recognized that inflation is projected to remain too high for too long. At the same time, they are “monitoring” recent developments. The reaction in the currency market was limited. The Euro fell modestly following the ECB meeting.
On Friday, the final reading of Eurozone consumer inflation should bring no surprises. Also in the docket are US Industrial Production and the University of Michigan’s Consumers Sentiment report.
It was a quiet American session in the currency market despite what happened in Wall Street. Most of currency majors moved in small ranges. EUR/USD consolidated around 1.0600 while GBP/USD held firm above 1.2100.
Higher government bond yields and risk pushed USD/JPY back above 133.00, with the Japanese Yen flipping across the board.
NZD/USD bottomed at 0.6131 after New Zealand reported weaker-than-expected Q4 GDP numbers; it then rebounded toward 0.6200. On the contrary, Australian employment data boosted the Aussie, sending AUD/USD to 0.6650.
Gold tested recent highs but it pulled back, as yields moved to the upside; XAU/USD remains firm around $1,920/oz. The improvement in market sentiment helped modestly Crude Oil prices; WTI rose 1% to settle above $68.00.
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EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
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