Two Fed members, including a dove, get more hawkish. Eyes turn to US jobs data and ECB policy settings

By Jason Wong

US 10-year Treasuries have traded a 2.84-2.88% range and currently sit at 2.86%, near the level of the NZ close. 

ADP employment was stronger than expected, setting the scene for a strong payrolls figure (200k+?) on Friday. 

Overnight, the Fed’s Bostic said that he had adjusted his rate hike forecast to 3 hikes from the 2 hikes that he projected in December.  Later when probed by reporters he indicated that a potential trade war could dampen the need for rate hikes and he was taking a “wait-and-see” approach. 

Yesterday, perennial dove Brainard sounded more upbeat than usual, talking of headwinds turning into tailwinds for the economy.  This was seen to add to the case for continued gradual increases in the Fed Funds rates. 

Yesterday, NZ rates were down slightly, supported by the risk-off mood.

The key release on the calendar ahead is the ECB meeting.  Policymakers are likely to discuss a small tweak in their communications but no major policy shift is expected. The pledge to possibly increase asset purchases if conditions deteriorate might well be removed.  Last week Reuters reported that concern about recent market turbulence, the strong euro and a dip in both headline and underlying inflation, suggest officials prefer waiting, perhaps as late as July, before starting to signal the end of asset purchases. 


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