The corrective momentum that have been developing on the dollar in recent sessions has just been put on pause for now in the wake of last night’s FOMC minutes for the January meeting. The minutes did not contain any real surprises, but with regard to the balance sheet normalisation there was a section to say that “almost all participants thought it would be desirable to announce before too long a plan to stop reducing…asset holdings later this year”. The minutes also reflect a more sensitive Fed given global economic conditions. This suggests that the Fed will not be engaging in a massive run-down of its balance sheet and will help to maintain liquidity. Treasury yields have pulled higher on the Fed minutes and this has helped to lend some support to the dollar. This has pulled the reins on the rallies on EUR/USD and gold especially. Equities have also held some support with this, although Wall Street has only given tentative gains on the futures. Perhaps more than anything, it now means that markets can breathe a sigh of relief that the Fed is not going to be aggressive with its balance sheet normalisation and attention can turn back to the US/China trade negotiations.
Wall Street closed mildly higher last night with the S&P 500 +0.2% at 2785 with US futures similarly higher today. There has been a mixed session in Asia, with the Nikkei +0.2% and the Shanghai Composite -0.3%, however, European markets are following the line from the US with the FTSE futures +0.2% and DAX futures +0.6% higher. In forex, there is a slight claw back of some of the dollar losses of recent sessions, with the yen a very mild outperformer. The Aussie is under pressure despite pretty solid looking employment data, with some chatter about reduced rate expectations from Westpac. In commodities, there is a nod to the slightly stronger dollar as the rally on gold has just stalled for now. Oil is again supported higher.
Today is jam packed with data on the economic calendar and a day where the flash PMIs are once more a key focus. First up are the key Eurozone economies throughout the early part of the session building to the Eurozone Flash Manufacturing PMI for February at 0900GMT which is expected to deteriorate to 50.3 (from a final reading of 50.5 in January), whilst the Eurozone flash Services PMI is expected to improve to 51.4 (from a final reading of 51.2 in January). The Eurozone flash Composite PMI is expected to tick mildly higher to 51.1 (from a final reading of 51.0 in January). The UK’s Public Borrowing Requirement for January is at 0930GMT and is expected to claw in +£11.1bn of net tax receipts (January 2018 +£11.7bn). The ECB monetary policy meeting accounts are t 1230GMT. US Core Durable Goods (ex-transport) is at 1330GMT which is expected to grow by +0.3% on the month of December (having fallen by -0.4% in November). The US Flash PMIs are at 1445GMT with US flash Manufacturing PMI expected to slip a touch to 54.7 (from 54.9 in January) whilst the flash Services PMI is expected to improve a shade to 54.3 (from 54.2 in January). Existing Home Sales at 1500GMT are expected to improve to 5.00m (from 4.99m in January). The EIA weekly oil inventories are at 1600GMT