Stocks across the Asia-Pacific region are mostly trading lower this morning as financial markets continued to react to Friday’s stronger-than-expected US labour market report. Concerns of a resurgence in US-China tensions have also weighed on sentiment following the recent weather balloon incident across the US. US Secretary of State Blinken cancelled his expected trip to China in response, though there are reports that the Biden administration is mulling over whether to still send Mr Blinken to China with a much firmer message.
Prior to the US jobs report, last week’s policy announcements from three of the major global central banks – the US Fed, Bank of England (BoE) and European Central Bank (ECB) – had done little to alter the positive market mood music. Despite each of them raising interest rates, the key message from all three was clear that inflation had probably peaked. That reinforced market expectations that interest rates are also therefore at or not too far from their peaks and saw a further fall in bond yields. However, the much stronger than expected US employment report late on Friday provided a timely reminder that the fight against inflation was far from won and that there still remained substantial upside risks.
The Bank of England raised rates for a tenth successive meeting last week, this time by 50bp to take Bank Rate up to 4.00%, but also suggested that rates may now have peaked, although it still warned of further tightening if inflationary pressures proved more persistent. Later today, the BoE’s Chief Economist, Huw Pill, is due to speak on a live webinar at which markets will be watching closely for further clues on the policy outlook, particularly how high or low the barrier to further rate increases is, and also whether interest rates could be cut later this year/early in 2024 – as markets are currently expecting. Speaking on Friday, Mr Pill noted that policy makers must avoid going too far in lifting borrowing costs.
Ahead of that, Catherine Mann, an external member of the MPC, is due to speak this morning (08:40 GMT). Ms Mann has been one of the most hawkish members of the Committee in recent months, having advocated for larger increases in a number of meetings last year. However, at the February meeting, she moved in line with the majority and supported the decision to hike rates by 50bp. Markets will be watching her comments closely for an explanation of her vote and how strongly she implies that further hikes may or may not be forthcoming.
Data wise, today’s calendar is restricted to second-tier releases, in the shape of the UK construction PMI, Eurozone Sentix investor confidence survey and retail sales reports. Overnight, the Reserve Bank of Australia is expected to raise interest rates at its first meeting of the year with forecasts centred on a 25bp increase in the cash rate to 3.35%, which would take it to its highest level since late-2012. Domestically, the BRC will release its UK retail sales report for January.
The softening in risk sentiment has boosted the US dollar with the Bloomberg USD index trading at its highest in almost a month. As a result, GBP/USD has fallen to just above 1.20 after having started last week around 1.24. Meanwhile, EUR/USD has eased below 1.08.
