- Asian equity markets higher this morning on better-than-expected Chinese trade data.
- RBA lowers growth and inflation outlook in its quarterly statement on monetary policy.
- EUR/USD stabilised around 1.34 overnight after the big drop yesterday.
The ECB is becoming a master of verbal intervention and yesterday Mario Draghi managed to dampen recent de facto tightening without taking any action. The ECB views the rise in short rates as a sign of confidence but is ready to provide liquidity as needed. Most surprising was that Draghi specifically mentioned the euro exchange rate as a downside risk to inflation. The short end of the euro money market rates declined and the euro depreciated against most major currencies. See Flash Comment: ECB masters verbal intervention, 7 February, for more details.
Reserve Bank of Australia, RBA, reduced its growth and inflation forecasts in its quarterly statement on monetary policy that was released overnight. The RBA noted that the global outlook has become more positive in recent months as the Chinese economy has stabilised but it is less optimistic about the Australian economy. The strong Australian dollar is mentioned as one of the main factors that will weigh on growth. Finally, the RBA repeated that the restrained outlook for inflation gives scope for further rate cuts if needed.
Chinese CPI inflation was in line with expectations in January, easing to 2.0% y/y from 2.5% y/y in December. Food prices usually increase in connection with the Lunar New Year public holiday. This year the public holiday is in February (next week, last year it was in January). Hence, inflation will spike in February before normalising again in March. Nonetheless, the conclusion remains that inflation will be modest but we expect it to increase moderately throughout 2013 to around 3% y/y.
U.S. Equity Markets closed with minor losses as some profit-taking entered the market after disappointing U.S. data showed a rise in weekly jobless claims and a drop in productivity. S&P500 dropped 0.2% while Dow Jones ended the day 0.3% lower.
In Asia, most regional indices outside Japan are up this morning on better-than-expected Chinese foreign trade data, which showed a substantial rise in both imports and exports. However, seasonal distortion plays a big role in these data due to the Chinese New Year holiday and not too much should be read into it.
Overnight, EUR/USD stabilised after a more than 1.3% drop in the European trading session and is currently hovering slightly above 1.34. AUD/USD temporary slipped below 1.026 after the dovish statement from the RBA. However, the Aussie regained its losses as risk sentiment improved after the better-than-expected Chinese trade data.
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