Market wrap: Draghi said inflation had yet to show a sustained uptrend - Westpac

Analysts at Westpac noted that the European and US equity markets continued to recover but FX and bond markets were mixed. 

Key Quotes:

"EUR/USD rolled over as ECB president Draghi struck a wary tone on inflation while AUD/USD's rally fell short of 0.79, retreating to 0.7850. Fed chairman Powell's testimony is the global focus today but we also see the Bank of Korea decision and various second-tier US data releases."

Most market moves didn’t seem obviously linked to data or events though the euro’s cause was not helped as ECB president Draghi stuck to a cautious script, saying that inflation had yet to show a sustained uptrend, although he did note the improvement in labour markets.

US new home sales fell 7.8% in Jan (vs +3.5% expected). While there were positive revisions and Q4 included highs since 2007, this is an area worth noting since the tax package that took effect in January included higher taxes for many borrowers using mortgage deductions.

St. Louis Fed president Bullard remained a lot more dovish than his colleagues, saying he is concerned the Fed is moving too far, too fast on interest rates. He did concede that the economy is looking very good.

US 10yr treasury yields extended Friday’s decline to 2.83%, then ticked back to 2.86%. Fed fund futures yields continued to price the chance of another rate hike in March as effectively a done deal with a total of four hikes priced by end-2019. Markets are expecting Powell to indicate the tightening path will remain gradual.

EUR/USD made a roundtrip from 1.2300/10 to 1.2355 and back. AUD/USD followed a similar path, rising as far as 0.7893, sliding to a 0.7826 low then steadying around 0.7850, flat over the day. NZD/USD probed 0.7345 before retracing to 0.7310. AUD/NZD is flat on the day at 1.0740.

GBP/USD reached 1.4070 then slid to the mid-1.39s. USD/CAD broke the mould, rising almost 1 cent to above 1.2700, CAD the weakest G10 currency Monday despite a recovery in crude oil prices. NAFTA negotiations are in close focus. USD/JPY rebounded from 106.38 in early London trade to 107.00."