The NZD is the strongest and the JPY is the weakest as the NA session begins | Forexlive

The NZD is the strongest and the JPY is the weakest as the NA session begins. The USD is lower to mixed.

German IFO business climate came in lower than expectations at 86.4 vs 87.6 estimate. That was less than 87.3 last month. Despite the decline the EUR is modestly higher vs the USD

Last week, the Fed, BOE and ECB all announced unchanged policy. The Fed was perceived as the most dovish, but since then the Fed speakers have walked back some of Chair Powell’s dovishness. UK was the least dovish/most hawkish and the ECB was in between and probably closer to the BOE end of the spectrum.

So what did respective central bankers say today?

In the UK, BOEs Ben Broadbent, discussed the challenges faced by the BOE in responding to economic shocks. He noted that in the real world, economic measurement often contains a degree of inaccuracy, leading to a delayed policy response compared to an ideal scenario. Currently, there is more uncertainty than usual regarding unemployment behavior, and official wage growth estimates have been fluctuating. Other indicators have shown slightly lower growth rates throughout the year. Broadbent emphasized that understanding the dynamics of the economy, particularly in areas like services inflation and wage growth, takes time. He suggested that a more extended and evident decline in wage growth data would be necessary before confidently asserting a downward trend in these economic factors.

In the US, Loretta Mester, President of the Cleveland Federal Reserve, indicated that the financial markets might be prematurely anticipating rate cuts by central banks. Her remarks highlighted that the current focus should not be on when to reduce rates—a sentiment already prevailing in the markets—but rather on determining the duration for which restrictive monetary policies need to be maintained to achieve the 2% inflation target. Mester expressed concern that markets are too quick to assume a return to normalcy, emphasizing that while the Federal Reserve’s policy settings are currently appropriate, there is a risk of becoming unintentionally more restrictive than intended.

On Friday, Atlanta Fed President Raphael Bostic said he anticipates two quarter-percentage-point interest rate cuts in 2024, likely starting in the third quarter, depending on continued progress in controlling inflation. He forecasts modest GDP growth, a stable unemployment rate, and PCE inflation slightly above the target for 2024. Fed officials agree that the policy rate has likely peaked, conditional on further inflation reduction. While recent data suggests approaching the appropriate inflation level for rate reductions, the Fed remains cautious, needing several months to confidently assess inflation trends and consider rate cuts. The risk of a new inflation spike has diminished, and the economy’s risks are seen as fairly balanced. Bostic emphasizes the importance of not overreacting to short-term market movements.

Meanwhile, ECBs Kazimir emphasized the need for cautious and measured actions in monetary policy. He stressed the importance of observing clear signs of wage moderation before making any significant policy changes. Kazimir highlighted that while the ECB is closely monitoring economic indicators, it intends to avoid hasty decisions. He warned against the policy mistake of premature easing, suggesting that it would be more consequential than the risk of maintaining a tight stance. Despite acknowledging a positive decline in inflation in recent months, Kazimir believes it’s premature to declare victory and shift to the next stage of policy. He also mentioned the possibility of achieving a soft-landing scenario in the economy, though he noted that this progress is still subject to various risks. In addition to Kazimir, ECBs Boštjan Vasle expressed concern that the market’s expectations for interest rate cuts in 2024 are overly optimistic. He emphasized that the current market pricing, which anticipates both the start and totality of rate cuts next year, is excessive and not aligned with the ECB’s policy stance aimed at bringing inflation back to its target. Vasle indicated that the ECB expects inflation to rebound in the first half of 2024 and that the ECB should only reassess its policy outlook after this period, with wage formation in the first quarter of 2024 playing a crucial role in shaping the policy outlook.

Despite this pushback from the ECB, which began last week, market pricing still reflects a significant expectation of rate cuts in the ECB, with a 57% probability of a cut in March and 154 basis points worth of cuts anticipated for the next year.

A snapshot of the markets to kickstart the North American session shows:

• Crude oil is trading up $0.49 or 0.67% at $72.25. At this time Friday, the price was at $72.45. For last week, crude oil was up 0.77%
• Spot gold is trading up $3.38 or 0.16% at $2022.78. At this time Friday, the price is at $2043.85. For last week, the price was up 0.76%.
• Spot silver trading up $0.07 or 0.32% at $23.92. At this time Friday, the price was at $24.24. For week the price was up 3.76%
• Bitcoin is trading at $42,741. At this time Friday, the price was trading at $42,741. For week the price was down -6.0%

In the US stock market, the major indices futures imply a marginally higher opening after closing mixed on Friday. All the major indices closed the week with gains. Each of the three major indices have risen 7 consecutive weeks. The S&P did close marginally lower on Friday snapping its 6-day up streak. The Dow and Nasdaq rose for the 7th consecutive day.

• Dow Industrial Average futures are implying a gain of 54 points. On Friday, the Dow Industrial Average rose 56.81 points or 0.15% at 37305.17. The Dow Industrial Average rose 2.92%
• S&P index futures are implying a gain of 5.3 points. On Friday, the S&P index snapped a 6-day gain streak by falling -0.36 points or -0.01% at 4719.18. For the week, the index is up 2.49%.
• NASDAQ index futures are implying a gain of 3 points. On Friday, the Nasdaq Index rose 52.36 points or 0.35% at 14813.92. For the week, the index was up 2.85%

In the European equity markets, the major indices are trading lower. Last week, the major indices were mixed:

• German DAX, -0.42%. For last week, the index fell -0.05%
• France’s CAC, -0.39%. For last week, the index rose +0.93%.
• UK’s FTSE 100, -0.49%. For last week, the index rose 0.29%..
• Spain’s Ibex, -0.29%. For last week, the index fell -1.25%
• Italy’s FTSE MIB,-0.35% (10 minute delay).

In the Asia Pacific market, major indices closed lower:

• Japan’s Nikkei index, fell -0.64%.
• China’s Shanghais composite index fell -0.40%.
• Hong Kong’s Hang Seng index, -0.97%
• Australia’s S&P/ASX index, -0.22%.

• US 2Y T-NOTE: 4.419%, -3.6 basis point. At this time Friday, the yield was at 4.371%.
• US 5Y T-NOTE: 3.893%, -3.7 basis points. At this time yesterday, the yield was at 3.874%.
• US 10Y T-NOTE: 3.905%, -2.1 basis points. At this time Friday, the yield was at 3.899%%.
• US 30Y BOND: 4.016%, -1.1 basis points. At this time Friday, the yield was at 4.022%%.
• 2 – 10-year spread is trading at -51.0 basis points. At this time yesterday, the spread was at -47.3basis points
• 2 – 30 year spread is trading at -40.0 basis points. At this time yesterday, the spread was at -34.2 basis points

In the European debt market, benchmark 10-year yields are trading lower.