Staff economic ests were revised up and members "expressed greater confidence that the econ recovery would be sustained and would gradually strengthen." Some
said strength in winter data, such as more exports and auto sales, could prove temporary, thus medium term econ to remain restrained. Some worry about energy/commodities as upside inflation risks, but others said pass-thru is small and large resource slack will restrain prices. On QE: "A few members remained unsure of the likely effects of the asset purchase program on the economy, but felt that making changes to the program at this time was not appropriate." Members emphasized will "regularly review" QE. Some said "a sufficiently strong recovery could make it appropriate to consider reducing the pace or overall size of the purchase program. However, others pointed out that it was unlikely that the outlook would change by enough to substantiate any adjustments."
FOMC central tendency ests for econ & inflation were rev up, as mkt expected, but at expense of '12 ests. 2011 real GDP now +3.4%-3.9% (vs 3.0%-3.6% in Nov est); 2012 real GDP now +3.5%-4.4% (vs +3.6%-4.5% Nov).
Unemployment rate now 8.8%-9.0% in '11 (vs 8.9%-9.1% Nov est) and 7.6%-8.1% in '12 (vs 7.7%-8.2% Nov), still gradually declining. PCE core inflation seen +1.0%-1.3% in '11 (vs 0.9%-1.6% in Nov est) and +1.0%-1.5% in '12 (vs 1.0%-1.6% Nov), up a tad but little changed overall.
Small-cap stocks and mid-cap stocks are out in front of the broader market with gains of 0.7% and 0.6%, respectively. Small-cap issues are currently led by La-Z-Boy (LZB 10.15, +1.87), Photronics (PLAB 9.59, +1.42), and Syneron Medical (ELOS 13.71, +2.03). Mid-cap plays are presently led by Aaron's (AAN 23.48, +3.11), ValueClick (VCLK 16.23, +1.43), and Frontier Oil (FTO 27.72, +1.70). Save for FTO, which reports next week, every one of those names made news for their strong quarterly results.
The dollar fell against most of its major counterparts after U.S. builders began work on more homes at an annualized rate than forecast in January and manufacturing rose, fueling appetite for higher-yielding assets.
U.S. builders broke ground on 596,000 homes at an annualized rate last month, according to Commerce Department data. The median forecast was for a rate of 539,000.
Manufacturing rose 0.3 percent in January, data from the Federal Reserve showed. Overall industrial production unexpectedly declined 0.1 percent as utilities, which had a decline in demand because of milder temperatures, and mining fell, the figures showed.
“Gradually the market seems to be more bullish on the world economic recovery, and so the risk-on trade will come more and more into fashion,” said Mamoru Arai, a senior currency trader at Mizuho Financial Group Inc. in New York.
The Swiss franc briefly gained versus the euro after Israel said two Iranian warships plan to sail through the Suez Canal and called the move a “provocation.” The pound slid against all of its most-traded counterparts after Bank of England Governor Mervyn King said inflation will peak this year and ease in 2012, damping speculation interest rates will rise.
“The big mover was sterling, with a less-hawkish-than- expected inflation report and mildly weaker employment data,” said Firas Askari, head currency trader in Toronto at Bank of Montreal.
A recent flurry of selling caused stocks to roll over to session lows. Stocks are still in positive territory, though.
Treasuries have finally turned positive. The move has taken the yield on the benchmark 10-year Note out of its recent range to below 3.60%.
GBP/USD has nudged up to $1.6038 area after falling to session lows on $1.5988. Some fresh supply emerges from corporate and real-money names ahead of $1.6050.
USD/JPY declines after it failed to break above Y84.00. Rate currently holds around Y83.85 after printing highs on Y83.98. Risk may be that market suffers a little bit of indigestion if fresh buyers don't show up in aggressive fashion.
EUR/USD $1.3235, $1.3435, $1.3600, $1.3620, $1.3700
USD/JPY Y82.00, Y82.95, Y83.00, Y83.50, Y84.90, Y85.75
GBP/USD $1.6000, $1.6100
AUD/USD $0.9800, $0.9835, $0.9910, $1.0115, $1.0200
AUD/JPY Y82.00, Y83.75
U.S. stocks were set to open higher Wednesday, as investors welcomed a $20 billion merger in the pharmaceutical sector.
After a long flirtation, French drugmaker Sanofi-aventis agreed to buy Genzyme for $20.1 billion in cash. The deal was announced before the opening bell. Sanofi (SA) shares rose 1.4% higher, while Genzyme (GENZ, Fortune 500)'s stock edged up about 1% in premarket trading.
Tech stocks will likely gain some traction as well after Dell (DELL, Fortune 500) reported a fourth-quarter profit that more than doubled from a year earlier, even as revenue came in just shy of estimates. Shares of Dell jumped 7% in premarket trading.
Companies: Discount retailer Family Dollar (FDO, Fortune 500) confirmed Wednesday that it had received an unsolicited proposal from Nelson Peltz's Trian Group, to buy the company for a price between $55 and $60 per share in cash.
Economy: Before the bell PPI report showed index rose 0.8% in Jan with core rose +0.5% (above the median +0.2%).
Separate report showed Jan housing starts rose 14.6% to 596k, well above 540k expected but permits fell 10.4% to 562k.
At 1530GMT, the EIA Crude Oil Stocks data is released.
Also on traders radar screens will be the 1900GMT release of the Fed's January 26 FOMC meeting minutes.
GBP/USD broke under $1.6000 after triggering stops through $1.6010 on the way. Below here are bids towards $1.5960 with stops set on a break. Cable trades $1.6000/03.
09:30 UK Claimant count (January) 2400 -2000 -3400 (-4100)
09:30 UK Claimant count rate (January) 4.5% 4.5% 4.5%
09:30 UK Average earnings (3 months to December) Y/Y 1.8% 2.0% 2.1%
09:30 UK Average earnings ex bonuses (3 months to December) Y/Y 2.3% - 2.3%
09:30 UK ILO Jobless rate (December) 7.9% 7.9% 7.9%
10:30 UK BoE quarterly inflation report
The yen reached a two-week low versus the euro as stocks rose on optimism that the global recovery is gaining momentum.
“Confidence in the global economy is certainly improving, and that’s resulting in safe-haven currencies such as the yen and dollar weakening,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd.
The pound slid after Bank of England Governor Mervyn King said inflation will peak this year and ease in 2012.
The Bank of England today said its central forecast is for inflation to peak at about 4.4% this year before easing to the 2% goal by the middle of 2012, and undershoot the target within two years.
“The best collective judgment of the committee is that the chances of inflation being above or below the target are broadly equal,” King told reporters today. “The recovery is unlikely to be smooth.”
Sterling is still up 2.8% against the dollar this year as accelerating inflation has spurred speculation policy makers will be forced to raise borrowing costs.
A U.K. report yesterday showed consumer prices rose an annual 4% last month, the fastest since November 2008 and twice the central bank’s 2% target. Data today showed British unemployment claims unexpectedly rose in January.
Australia’s dollar pared its gains after Moody’s Investors Service said it may cut credit ratings on the nation’s biggest banks, including Westpac Banking Corp. and National Australia Bank Ltd.
An Australian index of leading indicators increased in December as the economy expanded before flooding struck the nation’s northeast. The index rose 0.8% from a month earlier. The index grew at an annual rate of 4.2% in December, accelerating from 3.6% in November.
EUR/USD printed session lows on $1.3570, but it failed to hold higher. As a result rate fell to support at $1.3500.
GBP/USD sharply fell down from $1.6186 to the lows around $1.6146 after BoE inflation report. Later rate recovered to $1.6176, but sales dragged the pound down to earlier lows.
USD/JPY holds within the narrow range, limited by Y83.60/83.
The main US releases are at 1330GMT, with the Producer price data and housing start numbers.
Producer prices are expected to jump 0.8% in January. The core PPI is expected to rise 0.2%.
EUR/USD probes $1.3500 as euro sterling slips back from post BOE report highs of stg0.8429 and the pound tested strong support at $1.6040. Cross trading stg 0.8414 now with euro dollar at $1.3510.
GBP/USD heading lower again into the retail demand zone $1.6040/50. Cable trades $1.6046. Channel support line from Jan 07 coming today at $1.6040 (strong support).
Sterling extended its losses to $1.6050 following the dovish BOE report.
Earlier the pound gained as rising UK inflation cemented expectations of an early rate hike. But Mervyn King whittled those expectations when he said that no decision made on Mar rate decision and people running ahead of themselves on rate hikes.
Sterling rallied to a 5-½ month peak against a currency basket after data showing UK inflation jumped to twice the Bank of England's target.
Meanwhile, money markets have already priced in three rate hikes by the end of the year.
The dollar held firm against the yen, after rising steadily in the past nine sessions.
"USD/JPY took out resistance at Y83.68, and one now starts to look at levels such as Y84.51 and even the 200-dma is coming into focus at Y85.14. However, there is a lot of ground to cover between here and there," said David Watt, a strategist at RBC Capital Markets.
Analysts Expect CPI To Overshoot On Flat Rates
Analysts Expect Modal Projection To Show CPI Undershoot
BOE King Reveals Equal Chance CPI Above/Below Target 2 yrs Ahead
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