A number of markets across the Asia Pacific are closed for the Lunar New Year holiday. However, those that are open are showing gains in equities buoyed by an overall positive market risk sentiment tone. Over the weekend, the Wall Street Journal reported that US Fed members were “preparing to slow interest rate increases for the second straight meeting”, building on similar comments that have been made by Fed officials of late. Equity futures point to positive gains on European exchanges at the open.
The more positive mood that has been seen in markets since the start of the year was again evident over the past week although market moves have generally been modest. Bond market yields have continued to slip on hopes that easing inflationary pressures mean that central banks will soon call a halt to the present cycle of interest rate hikes. Federal Reserve policymakers continue to express caution about an early peak in rates. A number have suggested that the pace at which rates are raised is likely to slow further to 25 basis points at the next policy update in early February (from 50 basis points in December). But they have also said that it is too early call a halt to tightening and certainly premature to expect a cut in rates. Possibly most significantly, markets are discounting earlier and more sizeable cuts in interest rates in the US than in the UK or the Eurozone.
With the early February monetary policy updates fast approaching Fed policymakers will go into their pre-announcement blackout from today. Bank of England officials will also go into their silent period from the second half of the week and no speeches from BoE rate-setters are scheduled ahead of then. That suggests we are not going to learn anything more about their respective policy intentions before their updates on 1st and 2nd February that will shift current market expectations of a 25bp rate hike in the US and a 50bp move in the UK.
Several speeches are expected from ECB policymakers this week including ones from Vujcic, Visco, Panetta, Holzmann and Lagarde today, but those seem unlikely to move expectations of another 50bp ECB rate rise on 2nd January. Today is short of major data releases with only the US leading index for December and the preliminary read of January Eurozone consumer confidence of note. The latter is expected to show a modest rise.
The positive market risk tone has continued to weigh on the US dollar, with the Bloomberg Dollar Index now down around 2% since the start of the year. GBP/USD has edged above 1.24 in early trading, while EUR/USD has moved up to around 1.09.
