Oil prices fluctuated as traders were torn between output and geopolitical tensions. The front-month WTI crude oil prices initially rose to a 1-month high of 54.37 before ending the day at 53.54, down -0.63%. The Brent crude soared to as high as 57.45 before settling at 56.56, down 0.42%, for the day. Comment from Donald Trump’s administration that Iran is put “on notice” had lifted oil prices on heightened. geopolitical concerns. Wall Street was range-bound with DJIA slipping -0.03% while the S&P 500 index up +0.06%. On the FX market, British pound slumped as BOE sounded less hawkish than expected. Trading at 1.2518 at the time of writing this report, GBPUSD plunged to a 2-day low of 1.2514 Thursday before settling at 1.2520, down -1.04%. EURGBP rallied to as high as 0.8625 before ending the day at 0.8581, up +0.96%.
The US condemned a recent Iranian ballistic missile test launch and warned of new US sanctions. As National Security Adviser Mike Flynn indicated, the missile launch was a violation of United Nations Security Council Resolution 2231, which endorsed the nuclear deal and “called upon”. Flynn called Iran as “destabilizing influence and noted that “as of today, we are officially putting Iran on notice”. According to Iran, however, the program only has “conventional warheads that are within the legitimate defense domain”.
In Europe, BOE voted unanimously (9-0) to leave the Bank rate unchanged at 0.25% and the asset purchases program at 435B pound for UK gilts and 10B pound for non-financial GBP investment-grade corporate bonds. The members revised the growth forecasts significantly higher but left the inflation outlook largely unchanged. The members now expect the economy to expand +2% in 2017, up from +1.6% previously, and +1.6% in 2018, up from +1.5% previously. Optimism comes mainly from better consumer spending expectations, as well as fiscal support, improved global growth outlook and financial conditions. The inflation outlook was largely unchanged. Headline CPI might reach +2.7% in 2017 and +2.6% in 2018, down -0.1 percentage point each from previous estimates, before slipping to +2.4% in 2019. The members believed that that labor market slack was more than previously expected. Meanwhile, Governor Mark Carney warned of the uncertainty over Brexit, cautioning that “there will be twists and turns along the way”.
Concerning ECB’s monetary and QE policy outlook, Executive Board member Coeure indicated that the Governing Council would “continue to monitor closely the evolution of prices and costs in the coming weeks and months in order to assess any second-round effects of energy prices and also to judge the extent to which the increase in inflation represents a sustainable adjustment towards our objective”. Meanwhile, Executive Board member Praet suggested that Eurozone’s “firming recovery is not yet sufficiently robust to ensure a self sustained convergence of inflation rates to levels closer to 2%”.
On the dataflow, Challenger estimated that the number of US job cuts declined -38.8% y/y in January, following a +42.4% increase a month ago. Separately, non-farm productivity grew +1.3% in 4Q16, compared with consensus of +0.9% and +3.1% previously. Initial jobless claims fell to 246K in the week ended January 28, from the upwardly revised 260K a week ago. The market had anticipated a milder drop to 251K. Today’s focus is on the US employment report. The market now expects non-farm payrolls to have gained +175K in January, up from 156K addition in December. The unemployment rate probably stayed unchanged at 4.7%.
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