Daily Market Report 12/02/2014

A fairly quiet day on the news front yesterday with no data being released form the UK or Europe. The big market moving news was new Federal Reserve Chairman Janet Yellen testifying in front of congress.

USD

Janet Yellen declined to give any specifics about whether or not the Fed would slow the pace of cuts it is making to its now $65bn a month quantitative easing (QE) stimulus program. Yellen said the Fed will likely reduce the pace of asset purchases in further measured steps at future meetings. But she also noted that the bond-buying program was “not on a pre-set course”. She said a “notable change in the economic outlook,” could cause the Fed to pause in the pace of its cuts.

She was also surprised by the recent poor job figures released in January and suggestion it could well be due to the extremely bad weather seen in the US over these months. And while unemployment in the US has fallen, she stated that those out of a job for more than six months continued to make up an unusually large fraction of the unemployed, and the number of people who are working part time, but would prefer a full-time job, remains very high.

During the trading day prior to and during her speech we did see the dollar weaken off.

An extension of the US debt ceiling passed its first hurdle last night, with the US House of Representatives approving a one year extension of the Federal debt ceiling limit. The issue will now be passed onto the senate for consideration. On 27th of February the US treasury are expected to exhaust their borrowing capacity.

CNY

Earlier this morning we has some excellent trade balance figures form China showing a US$31.8bn surplus, far exceeding the an estimated US$23.65bn surplus. This was largely off the back of much higher than expected international trade in January with Exports rising 10.6% and Imports 10%. Off the back of this news the Australian and New Zealand dollars both strengthened.

Today

All eyes will be on Mark Carney this morning when the Quarterly Inflation Report is released and he gives an update on Forward Guidance. Under the current program, the Bank won’t consider raising borrowing costs until the UK unemployment rate has fallen to 7%, which the Bank envisioned sometime in 2016. It now stands at 7.1%. Many economists expect Carney to argue that the recovery is still not yet strong enough. With real wages still not rising and there still considerable spare capacity in the UK economy. With both of these conditions in place it is unlikely interest rates will rise any time soon.

Key Announcements:

10.00am – EUR – Industrial Production (Dec): Expected to fall to 1.8%. 

10.30am – GBP – Bank of England Quarterly Inflation Report and Mark Carney Speech.

15.30pm – EUR – ECB President Mario Draghi Speech.