European Summary and Highlights 15 Mar

European morning session

JPY weakness on the crosses was the main feature of the European morning, with USD/JPY gaining 40 pips to 148.80 while EUR/USD gained 15 pips to 1.0890, briefly testing 1.09. Other European currencies gained with the EUR, but the AUD was little changed and the CAD only marginally higher. There was no obvious trigger for JPY weakness other than the continued strength of equity markets , with European equities rallying through the morning, but staying short of yesterday’s multi year highs.

There was no news of any real note, with the final French CPI data for February revised slightly higher but the Italian HICP revised slightly lower. The BoE quarterly inflation expectations survey showed a drop to 3.0%, the lowest since Q4 2021.

Asia session

Suzuki says Japan is no longer in deflation as strong trend of wage hikes happening now, which seems to prove earlier local media report right. It is a walk over as the Japanese government denied such report last week. However, the headline has limited impact as market participants have already priced in a policy change in April the latest. A hawkish tilt would be a signal for March hike, an official change in rhetoric is not enough. Apart from Suzuki, we also heard from Japan Chief Cabinet Secretary Hayashi saying he expects the BoJ to stably hit its inflation target. The stars are lining up but our central forecast remains a March forward guidance change and April hike as very likely BoJ would wait for the 2nd and 3rd round of negotiation to ensure small and medium firms hike by similar magnitude. USD/JPY erased earlier gains to still trade 0.06% higher at 148.39 with JGBs yields outpacing U.S. T-yields.

Global risk sentiment is weak on Friday morning with regional equity indexes falling the hardest, HSI by 2.1%. PBoC tried to fix the onshore Yuan but still see the currency slightly weakens even with the biggest gap in fixing expectations for almost a year. Combined with stronger USD, the AUD/USD is down 0.27% to 0.6563, NZD/USD drop more by 0.48% to 0.6100 while USD/CAD rose 0.04%. Else, EUR/USD is down 0.06% and GBP/USD is down 0.12%.