REGISTER
LOGIN
Rangebound markets await geopolitical news
Updated Updated Mon, 2025 February 17 09:50
- France’s Macron hosts emergency European summit on Ukraine
- China President Xi hosts Jack Ma, China private sector chiefs in show of support
- RBA poised to kick off rate cutting cycle with a 25bps rate cut
- UK wage growth seen sticky as GBPUSD rises above 1.26
FX: USD was rangebound trading very narrowly on the US President’s holiday. There were little fresh catalysts as markets digested the barrage of geopolitical news from last week. This includes upcoming meetings with the US and Russia over the Ukraine conflict gathering in Saudia Arabia. EU leaders are also meeting in Paris to formulate a coordinated response. Friday US retail sales didn’t help dollar bulls. The major calendar event is the FOMC minutes on Wednesday.
EUR traded in a tiny range with much of the above also applying to the world’s most popular major currency pair. Europe is reeling from the US Vice-President’s speech which was said to have “ripped up the Transatlantic relationship”. We remind ourselves of the ‘escalate to negotiate’ phrase. Initial resistance sits around 1.05. PMI figures are the main data release, on Friday.
GBP was bid with cable getting up above 1.26. UK jobs data, CPI and retail sales all get published this week. BoE Governor Bailey also speaks today. Inflation is expected to rise over the next few months, while growth struggles. There were weekend reports that UK Chancellor Reeves is considering a stealth income tax rise in the Spring statement, with “nothing off the table”.
USD/JPY outperformed with the major falling back close to recent lows after three straight days of selling. The US CPI spike has virtually fully reversed from above 154 to the low 151s. Much stronger-than-expected GDP (0.7% vs 0.3%) was better than the BoJ’s current GDP forecast (0.6% y/y for FY24). Rate hike bets are picking up with CPI data on Thursday expected to highlight rising price pressures.
AUD ticked up to highs last seen in mid-December above 0.6350. The RBA is fully expected to cut rates for the first time in this cycle by 25bps to 4.10%. The pace of the following moves is key, with one a rate cut every quarter predicted. USD/CAD consolidated its recent breakdown with a quiet day around the recent lows below 1.42.
US stocks: In this week’s webinar, we talked about the leadership of the Magnificent 7 which has been lost in recent weeks. This has been due to several factors, including the surprise outperformance of European equities, as well as rising concerns over elevated valuations among big tech, their growth prospects and plans for huge spending on data centres and other infrastructure to chase the AI boom. The Mag 7 have added just around 1% this year, with losses for Tesla (-8.78% y-t-d), MSFT (-4.02% y-t-d) and Alphabet (-2.41% y-t-d) offset by the 24%+ rally for Meta. Bank stocks, healthcare, euro stocks and smaller tech have also outperformed with breadth in stocks increasing.
Asian stocks: Futures are mixed. Stocks were also mixed with a lack of major drivers over the weekend. The ASX 200 declined on the drag from gold miners and from Westpac after its results. The Nikkei 225 was choppy with consensus beating GDP data firming up more BoJ rate hikes and a stronger yen. The Hang Seng and Shanghai Comp were also choppy with tech strong after President Xi met Chinese tech entrepreneurs, though Baidu was seemingly excluded from talks.
Gold found a bid after a negative looking close last week at $2882. But the range was relatively small with an inside day printing, after the biggest % drop since mid-December on Friday.
Day Ahead – RBA, UK Jobs
The RBA is set to finally kick off its long-awaited easing cycle with a quarter point rate cut. That takes the cash rate to 4.10%. A gentle path of reductions is expected, likely one 25bps move per quarter. The board is predicted to note faster expected progress in returning to the inflation target. Lower inflation allows monetary policy to be less tight, as the economy is not weak. The message will probably be cautious as the job is not quite down on those price pressures, with wider global trade war uncertainties looming – a “hawkish” cut. Markets currently see the terminal level at 3.10%, which could also be a neutral policy rate.
Reliability issues still mean the unemployment data is looked through. The headline figure is seen ticking higher to 4.5% from 4.4% but the payroll figures show some easing. Wage growth is the key metric for the BoE and remains sticky with ex-bonus earnings seen rising to 5.8% from 5.6%, while a headline outrun of 6.3% would match the MPC’s forecast. There might be more focus on the jobs data given MPC former hawk Catherine Mann’s focus on a ‘non-linear’ adjustment in UK employment.
Chart of the Day – AUDUSD bounces
The major fell in a clean bear channel since topping out in September at 0.6942. A series of lower highs and lower lows pushed prices down to a low at 0.6130 in mid-January. Prices broke to the upside of the downward channel a week later but then printed a spike low at 0.6087 earlier this month. Since then, the dollar has weakened as Trump’s bark is so far proving bigger than his bite regarding tariffs and a possible trade war. AUDUSD crossed through resistance at the first Fib level (23.6%) of the September to January decline at 0.6288, as well as through the 50-day SMA at 0.6264., which have become support. A more hawkish RBA could see bulls targeting the next major retracement level (38.2%) is 0.6413, with the 100-day SMA just above at 0.6441.
