Daily Market Brief 3 Apr 2017

Sterling holds onto gains

April 3rd: Highlights

  • Heavy data week culminates with U.S. employment report
  • Trump in China
  • A chair or table more likely to win than Le Pen

FOMC Speeches suggest dovish monetary policy

As we have said before, traders are always on the lookout for the next piece of data or the next monetary policy decision. No sooner have we had a rate hike, than they want to know when the next one will be.

That sentiment has characterized the market over the past few days as successive speeches by FOMC members have given no indication of the next tightening of monetary policy.

The dollar climbed back over 100 last week but any further increase is likely to come from events overseas.

The pound has weathered the first few days of Brexit. It has held onto gains and is trading in the mid 1.25’s.

The euro suffered from an inflation report that showed a fall in consumer prices. This dampened calls for a rate hike and hurt the single currency which fell to 1.0680.

This disappointment over FOMC monetary policy has given way, for no reason, to a bearish concern over this week’s employment report. The consensus view if for 180k new jobs to have been added in March. This is lower than the average 200k+ that has been seen over the past few months. Hourly earnings are likely to have risen by close to 3%.

The Fed seem to be being second guessed given the lack of “advance guidance” being provided by Mrs. Yellen recently.

There are several data releases in the Eurozone today; unemployment, producer prices and manufacturing activity. Following last week’s surprising fall in Eurozone wide inflation, traders will be eager to see how the prices paid and activity at the factory gate affect future inflation.

Employment in the Eurozone has been around 9.5% – 9.8% for the past few readings. This combined reading tends to mask the lack of economic growth in member states that are still struggling to grow. Unemployment is closer to 20% in Spain and even higher in Greece!

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Trump in China this week but the rhetoric has already begun

President Trump will make his first official overseas visit this week. Rather controversially, he has chosen China. Of course, the U.K. had invited him, with this week slated. However, “security concerns” meant that his visit was postponed until the Autumn.

On Friday, Trump sought to push his crusade for fair trade and more manufacturing jobs back to the top of his agenda by ordering a study into the causes of U.S. trade deficits and a clampdown on import duty evasion.

He has also been muttering that he may use trade to force China to the negotiating table to discuss North Korea. China is a past master at playing the long game. They are well prepared to wait The President out. The U.S. is a vitally important market for China but, equally, Chinese imports have become a vital part of the structure of the American economy.

The U.S. Treasury will issue its next currency report on April 15. Any hint that China, Japan even Germany may be named as “currency manipulators” could weaken the dollar. President’s Xi and Merkel together with Prime Minister Abe will rebuff such preposterous showboating since there is no practical steps America can take to weaken its own currency to any degree.

French election looms

The leader of one of the small left wing socialist parties in France has been out trying to gather votes over the weekend. Left wing firebrand Jean-Luc Melenchon told a political rally in Chateauroux, central France, he was convinced Le Pen stood no chance of winning the election.

“A chair, a table, or a bench would be elected rather than her in this country,” he said.

Meanwhile Ms. Le Pen called the single currency a “knife in the ribs” of the French economy and repeated her promise to take France out of the Euro and hold “Frexit” referendum.

Japanese Tankan Report expects stronger JPY

The Bank of Japan’s “tankan” survey released earlier this morning, showed that large Japanese manufacturers expected the dollar to average 108.43 in this fiscal year.

Business sentiment in Japan rose to its highest in eighteen months. Following a slightly higher read for inflation recently, traders will look out for comments from officials hinting at a tightening of Japan’s ultra-easy monetary policy.

This week’s events of note

  • Eurozone: Activity indexes – Following a fall in inflation. This will be a useful indicator for future consumer prices.
  • Eurozone: Employment report – Employment report: possibility of a rise to over 10% following last month’s 9.6% read.
  • Eurozone: Producer prices – Producer prices: A further indicator of future inflation.
  • U.S.: Manufacturing activity index – Following encouraging Q4 GDP a continued rise in confidence likely.

  • Australia: RBA rate decision – No change likely but press conference will give some indication about when monetary policy will be tightened.
  • U.S.: Trade report – An unchanged $48.8bn deficit won’t excite the President too much. Any jump will likely bring out the currency manipulation and protectionist rhetoric.

  • Eurozone: Non-Monetary policy ECB meeting – Enough said!
  • Japan: BoJ Governor speech – Following encouraging inflation data Governor Kuroda will flesh out his comments about the data.

  • U.S./China: Trump meets Jinping – Trumps first trip overseas won’t be plain sailing.
  • Eurozone: ECB Minutes – What do they talk about at those non-policy meetings? On a more serious note, what are the Councils views on inflationary outlook?

  • U.K.: Manufacturing data – Continuing slowdown in manufacturing driven by ultra-high producer prices. A likely fall of 0.5% following Feb’s 0.9% drop.
  • U.S.: Employment Report – Better late than never! 200k+ increase will keep the FOMC satisfied. Increase on a 2.8% rise in hourly earnings would be welcome.

Have a great day!

About Alan Hill

Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”