Stock markets rise as key central banks turn dovish
After yesterday’s sharp gain against the USD, the Swiss Franc eased today after the Swiss National Bank (SNB) made its interest rates decision. The bank left interest rates unchanged at minus 0.75% where they have been since 2014. In addition, the bank lowered the inflation target again and warned that economic growth could worsen again this year. The bank has lowered its inflation target for the fourth straight month. On economic growth, the bank expects the economy to grow by 0.3% this year and 0.6% in the coming year. In addition, the bank maintained that the franc was significantly overvalued. Still, the bank is in a difficult situation because rates are still low, which makes more cuts unlikely. This decision comes at a time when central banks around the world are becoming more dovish. Just yesterday, the Fed said that it was unlikely to hike rates this year.
In the United Kingdom, Theresa May’s tough week continued as she traveled to Brussels to attend a meeting by EU leaders. The goal of the visit is to ask for a three-month extension on Brexit if the March 29 deadline passes. The prime minister has been unable to find backing for the deal she has negotiated over the last two years. The EU leaders have warned that this extension will increase uncertainty in the region, which will hamper investments. This is because it will be unlikely for the two sides of parliament to reach a consensus.
The Bank of England delivered its interest rates decision today, with all the nine members voting against a hike. The officials also voted unanimously to maintain the current pace of asset purchases at £10 billion. They also said that 80% of businesses surveyed had made preparations for a no-deal Brexit, up from the previously reported 50%. In the statement, the bank said:
CPI inflation rose slightly to 1.9% in February and is expected to remain close to the 2% target over coming months. The labour market remains tight and annual pay growth, having risen through 2018, has remained around 3½%. Given continuing weakness in productivity growth, growth in unit wage costs has also risen, although other indicators of domestically generated inflation have remained modest.
The rate decision came after data showed that core retail sales increased by 3.8% as people continued to stockpile ahead of March 29. The headline retail sales numbers rose by 4.0%, which was better than the expected 3.3%. At the same time, data showed that public sector borrowing dropped to a 17-month low. Meanwhile, in the United States, data showed that the initial and continued jobless claims reduced in the past week by 221K and 1,750K respectively, beating expectations. The Philadelphia Fed manufacturing index came in at 13.7, which was better than the expected 4.6.
The kiwi and the Aussie declined today after the release of weak data from the two countries. The final reading of the New Zealand Q4 GDP numbers showed that the economy expanded by an annualized rate of 2.3%, which was lower than the expected 2.5%. The GDP expenditure for the quarter was 0.5%, which was lower than the expected 0.6%. In Australia, while the unemployment rate declined to 4.9%, the participation rate was at 65.6%, which was lower than the expected 65.7%. The employment change for February was 4.6K, which was lower than the expected 14.8K.
After rising sharply yesterday, the AUD/USD pair declined sharply today after the release of weaker jobs numbers. The pair reached a low of 0.7125, which was between the 100% and 61.8% Fibonacci Retracement level. This happened after the impulse wave of the Elliot Wave came to an end. The current price is along the middle line of the Bollinger Bands. There is a likelihood that the pair will test the 61.8% Fibonacci level, which is also close to the lower line of the Bollinger Bands.
After rising sharply yesterday, the EUR/USD pair pared some of those gains and declined by about 20 basis points today. The pair is now trading at 1.1390, which is below the upper line of the Bollinger Bands. It is also slightly above the important support shown in red below. While the momentum indicator is above the 100 level, it is moving in the downward direction. The pair will likely test the important support of 1.1350 and then resume the upward trend.
After forming an important symmetrical triangle pattern, the GBP/USD downside prevailed today, with the sterling falling to a weekly low. This is after fears of a hard landing on Brexit rose. The pair is now trading at 1.3110, which is along the lower line of the Bollinger Bands and below the Envelopes indicator. The pair is likely to continue moving lower although this could change depending on the outcome of deliberations in Brussels.