Safe Haven assets gain on terror attacks in Brussels

Daily Analysis - 23/03/2016

Dollar gains against EUR, CHF and the GBP


The US Dollar, along with Gold and the Japanese Yen, gained against most of the European currencies on Tuesday following the terror attacks in Brussels, as the incident raises concerns that the Eurozone's economy could be hit while further cracks are likely to emerge among the European Union partner countries.

Hungary joins Negative Interest rate club

The Hungarian National Bank, in a surprise move, cut its overnight deposit rates to -0.05% on Tuesday, a 15bps rate cut while also lowering its overnight lending rates from 2.10% previously to 1.45% with the key base rate lowered to 1.20%, a 15bps cut. The broad rate cuts took the markets by surprise, where expectations were for no major policy changes to be made by the central bank. By cutting the deposit rates to -0.05%, the Hungarian National bank joins the ranks of the SNB, BoJ, ECB, Sweden's Riksbank and Denmark’s Danmarks Nationalbank. The markets are now expecting to see another 20bps rate cut over the coming months with yesterday's move being seen as a new easing cycle. The Hungarian Forint weakened significantly against both the Euro and the US Dollar on the surprise move.


Eurozone flash composite PMI rises 53.7 in March

Economic activity in the Eurozone saw signs of revival as German businesses showed more optimism on their prospects, highlighting the fact that falling exports to China and other economies hasn't yet stalled the recovery in the Eurozone. The Purchase Managers Index data released by Markit showed that the composite PMI increased to 53.7 from 53.0 in February. However, businesses continued to cut prices albeit at a moderate pace. Chris Williamson, Markit's chief economist said that there was plenty of worrying signs persisting. Eurozone's flash manufacturing PMI increased to 51.4, matching expectations and rising above 51.2 in February while the flash services PMI increased to 54.0, up from 53.3 a month ago.


UK Inflation stays weak in February

The UK inflation rate data remained unchanged, staying at 0.30% in February, falling below estimates of 0.40% on the headline on a year over year basis. Core inflation remained unchanged at 1.20% according to data published by the Office for National Statistics. Cheaper automobile prices were offset by an increase in food prices. The latest inflation data at 0.30% marks a continued weakness in consumer prices since December 2014. The Bank of England expects inflation to stay below 1.0% in 2016. The British Pound was trading weaker for a second day this week erasing the gains made from a week ago where average wages showed an optimistic pickup in the three months ending January 2016.


Richmond Fed manufacturing index hits a 6-year high

Manufacturing activity in the central Atlantic surged to a 6-year high in March on resurfacing demand, in a sign that US manufacturing could be stabilizing. Data released by the Federal Reserve Bank of Richmond on Tuesday showed that the manufacturing index rose to 22, following a decline to -4 last month in February. A reading above zero is expected to show expansion in the manufacturing sector. The data beat market estimates of 1.0. The Richmond Fed manufacturing index follows other reports which suggest that the forces keeping US manufacturing subdued may be showing signs of easing.


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