Markets React as Tensions Rise Between White House and Federal Reserve Over Interest Rate Pressure 
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OCBC Raises Gold Price Forecast to $5,600 as Structural Demand and Uncertainty Persist 
Morgan Stanley Raises KOSPI Target to 5,200 on Strong Earnings and Reform Momentum 
Federal Reserve Faces Subpoena Delay Amid Investigation Into Chair Jerome Powell 
Global Markets React to Strong U.S. Jobs Data and Rising Yields 
European Stocks Rally on Chinese Growth and Mining Merger Speculation 
UBS Predicts Potential Fed Rate Cut Amid Strong US Economic Data 
China Holds Loan Prime Rates Steady in January as Market Expectations Align 
Bank of England Expected to Hold Interest Rates at 3.75% as Inflation Remains Elevated 
Bank of Korea Expected to Hold Interest Rates as Weak Won Limits Policy Easing 
Bank of Canada Holds Interest Rate at 2.25% Amid Trade and Global Uncertainty 
US Futures Rise as Investors Eye Earnings, Inflation Data, and Wildfire Impacts 
The disappointing US retail sales figures yesterday weighed on Treasury yields, but the impact on the currency markets appeared to be more muted, as markets also digested dovish comments from ECB President Mario Draghi and Chief Economist Peter Praet.
The ECB press conference was rather uneventful with dovish undertone to it. As expected, the ECB removed the QE easing bias but supplemented it by stating that this was a backward-looking measure and does not necessarily indicate a change in the ECB reaction function. Euro area economy still needed ample amount of stimulus. ECB staff kept the core inflation for 2018, 2019, and 2020 forecast unchanged versus December at 1.1, 1.5, and 1.8%oya, respectively.
However, headline inflation for 2019 was revised marginally lower to 1.4% from a previous forecast of 1.5%; the 2020 number was left unchanged at 1.7%. Draghi was visibly cautious in his language with the focus on avoiding any unwarranted misinterpretation of their communique.
The ECB removed the QE easing bias but caveated it by stating that to be a backward-looking decision. The link between inflation and QE was left in place. We acknowledge risks of the ECB moving slower than expected but for now, keep our baseline call of the first hike in March 2019.
Sub 2Y EONIA is fair with around 40bp of cumulative hike priced by December 2019; stay neutral.
Keep longs in Dec19 EURIBOR in a 1Y wide EURIBOR fly to position for the EURIBOR curve pricing more hikes in 2020 versus 2019.
Focus carry trades in reds EONIA which offer superior risk-adjusted carry characteristics and have limited risk of selling off given our ECB call.
Bund swap spreads are trading expensive vs. fundamental drivers; keep Jun18 Bund swap spreads narrower which is also supported by expected pick up in swapped issuance activity. Courtesy: JPM
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