Morning Update – 23/02/2017 – by Arjun Lakhanpal
February 23, 2017Morning all.. Wall St was quiet as we had little new from the Fed minutes and pricing for March remains low at just 7bps. Many thought rate increase might be appropriate fairly soon; many saw only modest risk inflation pressures will rise significantly; many judged they have ample time to respond if inflationary pressures emerged; generally agreed on need to begin discussions at upcoming meetings on how to change balance sheet reinvestment policy; agreed that even with Govt policy uncertainty, near term economic risks roughly balanced; increasing upside risks to economy given possible expansionary fiscal policy; several saw downside economic risks associated with potential USD appreciation. Not much to get your teeth into but if they really do want to hike 3 times this year they better get a move on. Asian stocks were also very quiet with the Nikkei more or less unchanged and USDJPY remained rather soft but holding above 113.00 for now. Oil was higher overnight as Exon suggested they will have to cut reserves and US yields were quiet with the 10yr at 2.405%.. The WSJ ran a comment from US Trsy Sec Mnuchin : strong USD a reflection of confidence in US economy & its performance compared with rest of world and is a “good thing” in the long run.. Little reaction to this though. Fed’s Powell (Voter, Neutral): March FOMC on the table for rate hike; could raise rates ‘fairly soon’ if economy continues on current path; shrinking balance sheet a way to remove accommodation; expects stable economic growth, inflation up to 2% target over next 2 years; expects modest drop in unemployment, further labor market tightening; US needs non-monetary policies to encourage labor participation. This morning we get confidence data from France and Italian retail sales. Looks like being a quiet morning.. Good luck
