Financial markets dodged a few bullets overnight. US Core Inflation came in a smidge lower than expected at 1.30% YoY, and the headline printed at 1.70% YoY as expected. That was enough to offset a weaker bid-to-cover ratio at the US 10-year note auction, with US yields easing slightly, lifting equity markets and allowing the US dollar to retrace some recent gains.
The Biden stimulus package passed the House of Representatives and will likely be signed off by the President tomorrow. The USD1.9 trillion will make an immediate impact and should show up in the March data post-haste. Those inflation fears that markets are so myopically focused on aren’t going anywhere in a hurry. Wall Street has one more inflation bullet to dodge this evening in the shape of the US 30-year bond auction where bid-to-cover rations will once again be in focus. If US Initial Jobless Claims show a rapid improvement, we could be back to square one on inflation concerns if the auction is weak.
Asian markets appear to be focusing, though, on the announcement that senior officials will meet next week in Anchorage, Alaska. Regional markets have seized on hopes that Sino-US relations could be about to improve, which will be bullish for trade and, by default, positive for Asia. Those hopes may be premature, but that hasn’t stopped animal spirits from being released across mainland China equity markets, and their equally FOMO neighbours in Hong Kong, Taiwan and South Korea.
The European Central Bank releases its latest monetary policy decision this evening. Headline rates will remain unchanged, but given ECB officials pushback on higher European yields, the chance remains that the ECB may choose to frontload its QE programme to cap recent rises. That would be negative for the euro in the short-term, unwinding some of its recent gains, having flirted uncomfortably with critical support in the 1.1800/50 earlier in the week.
The data calendar is quiet in Asia today, with Japan PPI coming in slightly lower. Simultaneously, Australian Consumer Inflation Expectations printed marginally higher, giving us a nil-all draw on inflation insights for Asia today. That leaves Asia to bask in China-US hopes while markets await further developments in the US this evening.