Wall Street drifted lower after climbing to new high. We believe this was mainly due to profit-taking as US macroeconomic data remained solid. US dollar slipped while Treasury prices rose, pressuring yields. US 2-year and 10-year yields dropped -5 bps to 1.21% and 2.45% respectively. European peripheral bonds firmed, with yields lower, after release of the ECB minutes. The central bank indicated that it would be "possible and inevitable" for "limited and temporary" deviations from the capital key during the implementation of the QE program. Capital key is a system used to buy bonds based on the size of a country's economy. Spanish and Italian yields fall to two-week lows, while German-US yield spreads soared to the highest in 3 weeks. On the commodity sector, crude oil prices were mixed. The front-month WTI crude oil contract added +0.47% while the Brent contract was down -0.18%. Precious metals roses across the board. The benchmark Comex gold contract gained +0.67% while the silver contract added +0.65%. USD's weakness lent support to the complex.
ECB minutes for the January meeting unveiled that policymakers were in no hurry to reduce stimulus. Indeed, to facilitate the asset purchase measures, the central bank signaled willingness to deviate from the capital key policy. As noted in the minutes, "there was some room for a trade-off between relative deviations from the capital key across jurisdictions and limiting the extent of purchases below the DFR... This baseline approach could be reconsidered by the Governing Council should undue market effects materialize". Originally, the purchases are based on the amount of capital each country has paid into the ECB. Recent improvement in inflation should not alter ECB stance. Policymakers acknowledged that "the recent increases in energy prices had thus far not translated into indirect or second-round effects on broader inflation... This suggested second-round effects would unfold rather slowly".
On the dataflow, US housing starts fell -2.58% m/m to 1.25M in January. Yet, the annual growth rate remained in double-digit, at +10.5%. Building permits rose +4.6% m/m to 1.29M, from a year ago, the growth rate was +8.2%. Separately, the Philly Fed manufacturing index jumped +19.7 points to a 33-year high of 43.3 in February. This marks the biggest one-month gain since June 2009. Looking into the details, the new orders index soared +12 points to 38 whilst the shipment index added +8 points. On some weekly data, initial jobless claims increased +5K to 239K in the week ended February 11. This came in less than expectations of 245K. The 4-week moving average rose to 245.25K from 244.75K from the prior week. Continuing claims slipped to 2.051M in the week ended February 4, from 2.079M a week ago.
Today, New Zealand's retail sales grew +0.8% q/q in 4Q16, same pace as in the prior quarter. This came in less than consensus of +1%. The country's business manufacturing index slipped to 51.6 in January, from a downwardly revised 54.2 in the prior month. In Europe, UK's retail sales probably expanded +1% y/y in January, following a -1.9% contraction a month ago. The Eurozone would release it current account report for December. the US would release it's the Conference Board would release the leading economic index for January.