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Market panorama. 18 April 2018

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I. Market focus:

Relative calm prevailed in the global financial markets at the beginning of Wednesday's session due to the lack of reports and data that could cause strong movements. The most noticeable movement in the foreign exchange market during the Asian session was the weakening of the yen. The yen's fall was associated with a further reduction in geopolitical risks in the world (there is still no escalation of the conflict in the Middle East; negotiations are expected on the issue of denuclearization of the Korean Peninsula), as well as the absence of reports related to the deteriorating trade conditions between the U.S. and China.

The shift of global themes to the back burner raises the importance of regional events. The main event of the European session will be the release of inflation data in the UK (08:30 GMT). Economists forecast that the UK’s inflationary pressures in March will remain at the level of the previous month.

The main event of Wednesday will be the meeting of the Bank of Canada (BoC), the results of which will be announced at 14:00 GMT. The press conference of the regulator’s governor will begin at 15:15 GMT. Although the Canadian central bank is unlikely to make any changes to the parameters of its monetary policy, leaving its interest rate at 1.25 percent, the announcement of the meeting’s outcomes and the comments of the governor will have to support the Canadian dollar. Such forecasts are based on expectations of more hawkish rhetoric of the regulator, which, amid some progress in talks on the revision of the North American Free Trade Agreement (NAFTA), is likely to begin to prepare the markets for further tightening of monetary policy.

Another important event today will be the release of New Zealand’s inflation data, scheduled for 22:45 GMT.

In addition, attention should be paid to the comments of the Fed officials William Dudley (19:15 GMT) and Randal Quarles (20:15 GMT).

The stock market will focus on quarterly reports of companies. IBM (IBM) posted quarterly results after the bell yesterday. Both revenue and profit topped analysts’ estimates, but weaker-than-expected guidance for 2018 EPS caused a drop in IBM's stock in after hours. Morgan Stanley (MS) will publish its earnings before the market opens, and Alcoa (AA) and American Express (AXP) will release their financials after the close of today's trading.


II. The market highlights are:

  • Statistics Canada released its Monthly Survey of Manufacturing on Tuesday, which showed that the Canadian manufacturing sales rose 1.9 percent m-o-m in February to CAD55.77 billion, following a revised 1.3 percent m-o-m drop in January (originally a 1.0 percent m-o-m decline). Economists had anticipated an increase of 1.1 percent m-o-m for February. According to the survey, the February gain was primarily attributable to higher sales in the motor vehicle (+8.9 percent m-o-m) and motor vehicle parts (+4.8 percent m-o-m) industries. Manufacturing sales excluding motor vehicles, parts and accessories rose 1.1 percent m-o-m. Overall, sales went up in 14 of 21 industries, representing 72.2 percent of the manufacturing sector. Sales of durable goods increased 3.4 percent m-o-m in February, while sales of non-durable goods edged up 0.3 percent m-o-m.

  • The Commerce Department reported on Tuesday the building permits issued for privately owned housing units rose by 2.5 percent m-o-m in March to a seasonally adjusted annual pace of 1.354 million, while housing starts increased by 1.9 percent m-o-m to an annual rate 1.319 million. Economists had forecast housing starts growing to a 1.270 million-unit pace last month and building permits increasing to a 1.323 million-unit rate. According to the report, permits for single-family homes, the largest segment of the market, decreased 5.5 percent m-o-m to 840,000 in March, while approvals for the multi-family homes segment surged 19.0 percent m-o-m to a 514,000 unit-rate. In the meantime, groundbreaking on single-family homes fell 3.7 percent m-o-m to an 867,000-unit pace in March, while housing starts for the multi-family segment rose 14.4 percent m-o-m to a 452,000-unit pace.

  • The Federal Reserve announced on Tuesday that the U.S. industrial production rose 0.5 percent m-o-m in March after a downwardly revised 1.0 percent m-o-m gain in February (originally a 1.1 percent m-o-m advance). Economists had forecast industrial production would increase 0.4 percent m-o-m. According to the report, utilities output climbed 3.0 percent m-o-m in March after being suppressed in February by warmer-than-normal temperatures. Mining output rose 1.0 percent m-o-m, mostly as a result of gains in oil and gas extraction and in support activities for mining, while manufacturing production edged up 0.1 percent m-o-m. Capacity utilization for the industrial sector increased 0.3 percentage point m-o-m in March to 78.0 percent. That was 0.1 percentage point above economists' expectations but 1.8 percentage points below its long-run (1972–2017) average. In y-o-y terms, the industrial production rose 4.3 percent in March, following an unrevised 4.4 percent increase in the prior month.

  • The Ministry of Finance of Japan announced on Tuesday that the country’s trade balance came in at a surplus of a JPY797 bln in March, compared to an unrevised surplus of JPY3 bln in February and a surplus of JPY604 billion in March of 2017. Economists had projected a JPY498 bln surplus for March. The report showed Japan’s exports rose last month, while its imports fell. Exports increased 2.1 percent y-o-y in March, following a 1.8 percent y-o-y gain in the prior month. Meanwhile, imports dropped 0.6 percent y-o-y last month, compared to a 16.5 percent y-o-y jump in February.


III. Market Situation
Currency Market
The currency pair EUR/USD traded near the opening level, as investors took a breather after yesterday's decline in the pair while awaiting new catalysts. The pair fell yesterday in reaction to weak data on economic sentiment for Germany and the Eurozone from the ZEW Institute, as well as the broad strengthening of the U.S. currency and upbeat data releases in the United States. Today, investors will focus on inflationary data for the Eurozone, comments by the Fed officials William Dudley and Randal Quarles, and the Federal Reserve survey of the nation's economic conditions Beige Book. According to the economists’ forecasts, the Eurozone’s consumer price index (CPI) in March rose by 1.0 percent m-o-m and by 1.4 percent y-o-y. Overall, experts expect that the pair will grow in the medium term in response to the normalization of the ECB monetary policy, the acceleration of the growth of the euro-zone economy, inflation dynamics and the large positive balance of the current account. Resistance level - $1.2421 (low of March 28). Support level - $1.2299 (low of April 12).

The currency pair GBP/USD consolidated near the opening level, after a significant drop in the previous session, which was caused by partial profit-taking after the pound’s rally that started on April 6. Mixed report on the UK’s labor market and increased demand for the U.S. currency also put pressure on the pair. Today, the focus of market participants will be on the British data on consumer prices. Inflation still plays a key role in the Bank of England's (BoE) projections, as Britain is one of the few developed countries where inflation is now much higher than the central bank's target. Recently, inflation showed signs of a reversal, as the effect of the sharp depreciation of the pound after the Brexit referendum began to wane gradually. According to forecasts, the consumer price index in March rose by 2.7 percent y-o-y, the same pace as in February. Resistance level - $1.4400 (psychological level). Support level - $1.4219 (low of April 13).

The currency pair AUD/USD fell slightly at the beginning of the session but then retreated to the opening level. Some pressure on the pair was put by the data from Australia. The Westpac-Melbourne Institute Leading Economic Index in Australia dropped 0.2 percent m-o-m in March from an upwardly revised 0.4 percent m-o-m rise in February (originally a 0.3 percent m-o-m gain). Meanwhile, the six months annualized growth rate in the index, which indicates the likely pace of economic activity three to nine months into the future, declined to 0.69 percent last month from 1.43 percent in February. Westpac’s Chief Economist, Bill Evans, commented, “The growth rate in the Leading Index remains in positive territory signaling above-trend growth over much of the remainder of 2018. Drivers of the slowdown in the month have been from the domestic components - a slowing labour market; and some weakness in housing while rising short-term interest rates have reflected liquidity pressures from global markets.” Resistance level - AUD0.7808 (high of April 13). Support level - AUD0.7738 (low of April 12).

The currency pair USD/JPY rose sharply, reaching a high of April 16, due to increased investor risk appetite and a fall in demand for a "safe" yen. Meanwhile, market participants ignored positive data on Japan's trade balance. The Ministry of Finance of Japan reported that the country’s trade balance came in at a surplus of a JPY797 bln in March, compared to an unrevised surplus of JPY3 bln in February and a surplus of JPY604 billion in March of 2017. Economists had projected a JPY498 bln surplus for March. The report showed Japan’s exports rose last month, while its imports fell. Exports increased 2.1 percent y-o-y in March, following a 1.8 percent y-o-y gain in the prior month. Meanwhile, imports dropped 0.6 percent y-o-y last month, compared to a 16.5 percent y-o-y jump in February. Resistance level - Y107.91 (high of February 21). Support level - Y106.61 (low of April 9).


Stock Market

Index

Value

Change

S&P

2,706.39

+1.07%

Dow

24,786.63

+0.87%

NASDAQ

7,281.10

+1.74%

Nikkei

22,158.20

+1.42%

Hang Seng

30,269.60

+0.69%

Shanghai

3,090.39

+0.77%

S&P/ASX

5,861.40

+0.34%


U.S. stock indexes closed noticeably higher on Tuesday, as solid quarterly results from UnitedHealth (UNH; +3.6%) and Netflix (NFLX; +9.2%) raised investors' optimism that Q1 earnings season would be the strongest in seven years. The focus also was on March data on housing starts, building permits and industrial production. The Commerce Department reported the building permits issued for privately owned housing units rose by 2.5 percent m-o-m in March to a seasonally adjusted annual pace of 1.354 million, while housing starts increased by 1.9 percent m-o-m to an annual rate 1.319 million. Economists had forecast housing starts growing to a 1.270 million-unit pace last month and building permits increasing to a 1.323 million-unit rate. The Federal Reserve announced that the U.S. industrial production rose 0.5 percent m-o-m in March after a downwardly revised 1.0 percent m-o-m gain in February (originally a 1.1 percent m-o-m advance). Economists had forecast industrial production would increase 0.4 percent m-o-m. In y-o-y terms, the industrial production rose 4.3 percent in March, following an unrevised 4.4 percent increase in the prior month.
Asian stock indexes closed higher on Wednesday, inspired by a solid performance by the markets in the United States. Meanwhile, geopolitical concerns waned.

European stock indexes are expected to trade higher in the morning trading session.


Bond Market
Yields of US 10-year notes hold at 2.84% (+1 basis points)
Yields of German 10-year bonds hold at 0.51% (0 basis points)
Yields of UK 10-year gilts hold at 1.44% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in May settled at $67.11 (+0.89%). The crude oil prices rose, supported by the latest report from the American Petroleum Institute (API), which revealed an unexpected weekly reduction in the U.S. crude supplies. According to the API, the U.S. crude supplies fell by 1 million barrels for the week ended April 13, compared with analysts’ expectations for a decrease of 1.4 million barrels. Meanwhile, gasoline stockpiles dropped by 2.5 million barrels, and inventories of distillates fell by 854,000 barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).

Gold traded at $1,344.90 (-0.21%). Gold prices fell slightly, due to decreased demand for safe-haven assets amid easing geopolitical risks. Meanwhile, the dynamics of the U.S. currency provided some support to the gold. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell 0.03 percent to 89.49. Since gold prices are tied to the dollar, a weaker dollar makes the precious metal cheaper for holders of foreign currencies.

IV. The most important scheduled events (time GMT 0)


08:30

United Kingdom

Producer Price Index - Output

08:30

United Kingdom

Producer Price Index - Input

08:30

United Kingdom

Retail Price Index

08:30

United Kingdom

HICP ex EFAT

08:30

United Kingdom

HICP

09:00

Eurozone

Construction Output

09:00

Eurozone

Harmonized CPI ex EFAT

09:00

Eurozone

Harmonized CPI

12:30

U.S.

FOMC Member Dudley Speak

14:00

Canada

Bank of Canada Monetary Policy Report

14:00

Canada

Bank of Canada Rate

14:00

Canada

BOC Rate Statement

14:30

U.S.

Crude Oil Inventories

15:15

Canada

BOC Press Conference

18:00

U.S.

Fed's Beige Book

19:15

U.S.

FOMC Member Dudley Speak

20:15

U.S.

FOMC Member Quarles Speaks

22:45

New Zealand

CPI


Market Focus

  • Canadian union leader says three NAFTA nations are still far away from resolving the most complex issues
  • Swiss Producer and Import Price Index fell 0.2% in March
  • OPEC Sec-Gen says oil inventories in February below 50 mln barrels above 5-year-average, decline trend to continue in coming months
  • Earnings Season in U.S.: Major Reports of the Week
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All posted material is a marketing communication solely for informational purposes and reliance on this may lead to loss. Past performance is not a reliable indicator of future results. Please read our full disclaimer.

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