Daily Market Outlook, February 17, 2022

Overnight Headlines

Asian equity markets are little changed overnight. Minutes released yesterday of the US central bank’s January policy meeting indicated that while the Federal Reserve is poised to raise interest rates in March at that point there was no discussion of a larger than usual interest rate hike of 50 basis points. They also suggested that Fed policymakers are unsure just how aggressively to tighten monetary policy following a first move. In Australia, the January labour market release showed a rise in employment of 12.9k (down from 64.8k in December), while the unemployment rate held steady at a pandemic low of 4.2%.

There are no notable data releases in the UK or the Eurozone today but there are a number in the US. Possibly of most interest will be the weekly report on new jobless benefit claims. After rising sharply in early January, possibly indicating a negative impact on employment from rising Omicron cases, claims have now fallen for three weeks in a row. A further decline is forecast for this week, which if realised will boost expectations for the February labour market report that is due less than two weeks before the Fed’s next monetary policy meeting.

The Philadelphia Fed manufacturing survey will provide a further indication of the extent to which US activity is picking up as the Covid situation improves. The New York equivalent disappointed earlier this week but the two surveys do not always move together. Finally, US housing starts, which seem to have been on an uptrend of late, may have slipped at least modestly in January.

Speeches from central bank officials in both the US and the Eurozone will be watched for further clues on the extent of potential interest rate rises. In the US, regional Fed Presidents Bullard and Mester, both of whom vote on monetary policy this year, are scheduled to comment. Bullard has already said that he thinks aggressive near-term interest rate hikes are now required to regain credibility, whereas it is less clear what Mester thinks. In contrast, ECB Chief Economist Lane seems likely to point to the need for only a very gradual tightening in policy.

UK retail sales data for January will be released early Friday. The last couple of reports have seen particularly large swings with sales falling by 3.7% in December after rising by 1% in November. The December slip may have been primarily due to Omicron and so a rebound seems likely in January. Given upbeat footfall reports look look for an above-consensus rise of 2.3% on the month. However, the ongoing squeeze to consumers’ spending power from the rise in inflation means the outlook for the rest of the year is cloudier.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1260 (215M), 1.1390-00 (520M), 1.1430-35 (1.01BLN) 1.1450 (783M), 1.1500 (407M), 1.1520 (654M), 1.1600 (425M)
USD/JPY: 114.90-00 (1.45BLN), 115.30 (260M), 115.70-75 (940M) 116.00 (1.29BLN), 117.00 (250M).
GBP/USD: 1.3325 (482M) 1.3400 (1.02BLN), 1.3450 (422M), 1.3500 (1.05BLN)
EUR/GBP: 0.8390 (783M)
USD/CAD: 1.2475 (260M), 1.2515-25 (350M), 1.2555-60 (276M)
AUD/USD: 0.7000 (251M), 0.7250 (414M)