Asian equity markets are mostly higher and Treasury yields and the US dollar lower ahead of Fed Chair Powell’s interview later today. The Fed’s Bostic yesterday said last Friday’s strong jobs data could lead to a higher peak in policy rates. The Reserve Bank of Australia overnight increased interest rates by 25bp to 3.35% as expected and indicated that further hikes will be needed. Strong Japanese wage data showing a jump up to 4.8% in December compared with a year earlier further fuelled speculation of a policy change by the Bank of Japan later this year.
The British Retail Consortium (BRC) overnight released its ‘unofficial’ January retail sales figures. They showed total sales growth of 4.2%, down from 6.9% in December. Still, the BRC outturn is not adjusted for inflation and is flattered by rising prices. There are no other major UK data releases today, but the focus will be on December and Q4 GDP data on Friday. The Bank of England MPC’s Ramsden and Pill will speak at a UK Women in Economics event. Deputy Governor Cunliffe will speak separately about central bank digital currencies.
Principal market attention will be an interview with Fed Chair Powell at the Economic Club of Washington scheduled for 17:00GMT. Following last week’s Fed update, Powell indicated that there is ‘more work to do’, but he acknowledged that inflation had ‘eased somewhat’. It will be interesting to see his reaction to last Friday’s US labour market report (released after the Fed meeting) showing stellar monthly jobs growth and a five-decade low in the unemployment rate, and how confident he is that wage growth continues to moderate. The only notable US data release today is the December trade report which is forecast to show a widening of the deficit to around $68bn in line with the advance goods figures.
In the Eurozone, German December industrial production, released earlier, fell 3.1% which confirms a weak end to the year. Ahead this morning, the ECB will release latest results of its Consumer Expectations Survey. The last survey showed a fall in inflation expectations at both one year and two years ahead but remaining elevated above the 2% target. The ECB’s Villeroy and Schnabel are scheduled to speak at separate events, with investors looking for confirmation of another probable 50bp hike at the next policy meeting in March and the likelihood of more tightening in Q2.
US President Biden will give his annual State of the Union address this evening (ET). The Democrats’ loss of control of the Senate limits his ability to pursue any new policy initiatives. He may, however, use the opportunity to urge Congress to raise the federal debt ceiling and warn of the potential negative economic consequences if this is not done.
US Treasury yields and the dollar pulled back overnight after gains following Friday’s US jobs data. EUR/USD and GBP/USD edged higher and are trading above 1.07 and 1.20, respectively.
