The JPY is the strongest and the GBP is the weakest as the NA session begins

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The strongest to the weakest of the major currencies

As the North American session begins the JPY is the strongest and the GBP is the weakest. The USD is mostly lower with only a modest gain vs the GBP and unchanged vs the CAD.

In the UK preliminary GDP data for the fourth quarter showed a contraction of 0.3% quarter-on-quarter, which was worse than the expected decline of 0.1%. On a year-on-year basis, GDP fell by 0.2%, contrary to the anticipated slight growth of 0.1%. This underperformance not only reaffirms that the UK entered a technical recession in the latter half of the previous year but also highlights 2023 as a year of minimal economic growth, with GDP estimated to have increased by merely 0.1%. This marks the weakest annual change in GDP for the UK, excluding the Covid pandemic period, since 2009. Justin noted that the disappointing outcome challenges the notion of economic resilience towards the end of the fourth quarter and could potentially increase pressure on the Bank of England (BOE) to consider cutting interest rates sooner, especially if this downward trend continues into the current year. yesterday, BOE Governor Baily was tilted to the dovish side.

BoE’s Greene expressed a cautious stance on loosening monetary policy, indicating a need for further evidence that inflation persistence is diminishing before considering such a move. Emphasizing the necessity of maintaining a restrictive policy to ensure inflation returns to target sustainably, Greene acknowledged that inflation persistence poses a greater threat in the UK than in the US. However, recent observations suggest some easing in inflation persistence, particularly in core services inflation excluding energy costs, which have started to show signs of softening. These developments, including indicators like wage growth and services inflation, have encouraged Greene to support maintaining the Bank Rate at 5.25% in the latest decision. Greene noted that these positive signs might not align with market-implied rate paths for the BoE and the Fed, which currently show similar expectations over the forecast period. Greene moved her vote from tightening to maintaining rates at the last policy meeting.

ECB President Christine Lagarde spoke in the European morning session and and emphasized the bank’s commitment to a data-dependent approach in guiding its monetary policy decisions. She noted that recent data suggest a continuation of subdued economic activity in the near term, aligning broadly with the ECB’s assessments from December. Despite the expectation that the current disinflation process will persist, Lagarde stressed the importance of ensuring this trend will reliably lead to achieving the ECB’s 2% inflation target sustainably. She highlighted ongoing strong wage pressures, as indicated by the ECB’s forward-looking wage tracker, which complicates the inflation outlook. Lagarde expressed her caution against making premature decisions that could risk reigniting inflation, underlining that there remains insufficient evidence to conclusively state that inflation is on a path to stabilize at the 2% target.

Meanwhile, Pablo Hernandez de Cos, a policymaker at the European Central Bank (ECB), projected that inflation is expected to continue its downward trend, aligning around the ECB’s target of 2% but not until years 2025 to 2026.

In the Asian Pacific market, Japan released preliminary GDP data estimates which came in weaker than expectations (the 2nd consecutive decline). Despite the weakness, the USDJPY fell (stronger JPY) as the markets struggle with the USDJPY above 150.00

In Australia, they announced a weaker-than-expected jobs report. The AUD is trading mixed today.

Japan Prelim GDP Price Index (Year-over-Year):

  • Actual: 3.8%
  • Expectations: 4.0%
  • Prior: 5.3%

Japan Prelim GDP (Quarter-over-Quarter) fell for the 2nd consecutive quarter:

  • Actual: -0.1%
  • Expectations: 0.2%
  • Prior: -0.7%

Australia Employment Change:

  • Actual: 0.5K (500 jobs)
  • Expectations: 26.4K
  • Prior: -62.7K

Australia Unemployment Rate:

  • Actual: 4.1%
  • Expectations: 4.0%
  • Prior: 3.9%

The economic calendar is full today with US retail sales, Empire manufacturing index, Philly manufacturing index and the weekly unemployment claims or released at 8:30 AM ET. Canada will also release their manufacturing sales data at that time. At 9:15 AM, industrial production and capacity utilization will be released, and at 10 AM, business inventories and the NAHB housing market index will be released in the US.

A snapshot of the markets as the North American session begins currently shows:

  • Crude oil is trading down $0.86 or -1.14% at $75.77. At this time yesterday, the price was trading at $77.98. Yesterday crude oil inventories surged by 12 million barrels helping to pressure oil prices.
  • Gold is trading up $5.77 or 0.29% at $1997.70. At this time yesterday, the price was trading at $1991.24
  • Silver is trading up $0.29 or 1.30% at $22.61. At this time yesterday, the price was trading at $20.02
  • Bitcoin trades at $52,257. At this time yesterday, the price was trading at $51,556

In the premarket for US stocks, the major indices are all trading higher after retracing some of the large declines after the US CPI data on Tuesday:

  • Dow Industrial Average futures are implying a gain of 71.73 points. Yesterday, the index gained 151.52 points or 0.40% at 38424.28
  • S&P futures are implying a gain of 7.88 points. Yesterday, the index rose 47.47 points or 0.96% at 5000.63
  • Nasdaq futures are implying a gain of 29.62 points. Yesterday, the index rose 203.55 points or 1.30% at 15859.15

In the European equity markets, the major indices are trading higher:

  • German DAX, + 0.66%
  • France CAC + 0.90%
  • UK FTSE 100, + 0.06%
  • Spain’s Ibex, -0.02%
  • Italy’s FTSE MIB, 0.89% (delayed by 10 minutes).

Shares in the Asian Pacific markets were higher (China closed):

  • Japan’s Nikkei 225, +1.21%
  • China’s Shanghai composite index , Bank holiday market closed
  • Hong Kong’s Hang Seng index, +0.41%
  • Australia S&P/ASX, +0.77%

Looking at the US debt market, yields are continuing the move lower after declining yesterday:

  • 2-year yield 4.554%, -2.3 basis points. At this time yesterday, the yield was at 4.64%
  • 5-year yield 4.207%, -3.9 basis points. At this time yesterday, the yield was at 4.291%
  • 10-year yield 4.220% -4.7 basis points. At this time yesterday, the yield was at 4.300%
  • 30-year yield 4.391% -5.1 basis points. At this time yesterday, the yield was at 4.460%
  • The 2-10 year spread is at -33.5 basis points. At this time yesterday, the spread was at -32.1 basis points
  • The 2-30 year spread is at -15.8 basis points. At this time yesterday, the spread was at -16.4 basis points.

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