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Market panorama. 2 April 2018

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I. Market focus:

02/04/2018

Despite a bunch of important reports and data releases, Monday’s session in the foreign exchange market began quite calmly, and the main currency pairs hovered in the ranges formed on Friday. Among the most important news that attracted the attention of market participants, it should be noted the Chinese indexes, tracking business activity in the manufacturing and service sectors, which turned out to be mixed, and the Japanese Tankan indices, which were slightly below median forecasts, but remained near 10-year highs.

At the same time, a key event for the markets was the response of the PRC government to the tariffs imposed by the U.S. government on the Chinese imports. The day before, the Customs Tariff Commission of the State Council decided to impose a 15 percent tariff on 120 goods imported from the United States, including fruits and related items, as well as a tariff of 25 percent on eight other American products, including pork. Such a decision was explained by the need to protect the interests of the state, as well as to balance the losses caused by the U.S. measures. China said in the statement on the introduction of tariffs that the country’s suspension of its tariff concessions was a legitimate action adopted under the WTO rules to safeguard its interests. The imposition of countermeasures by the Chinese government was expected, so there was no big surprise for the markets, but it shifted market participants’ attention to the problem of aggravation of trade wars in the world, which continues to weigh down on the market sentiments.

Monday’s session will very busy with macroeconomic events and data. Moreover, the financial markets of most European countries will still be closed today. The main scheduled event of the first session of the week may be the release of the U.S. data on the ISM manufacturing index at 14:00 GMT. At 22:00 GMT, investors will pay attention to the publication of the New Zealand business confidence index.


II. The market highlights are:

  • The Bank of Japan's (BoJ) business sentiment survey, known as the Tankan, revealed Sunday the big Japanese manufacturers' sentiment deteriorated slightly over the first quarter of 2018. According to the survey, the headline index for large manufacturers' sentiment fell to plus 24 in this quarter from the previous quarter's reading of plus 26 and was below economists’ forecast for plus 25. That marked the first decline in the index in two years. Meanwhile, sentiment in the non-manufacturing sector worsened to plus 23 in the March quarter from plus 25 in the prior quarter, while economists had forecast the indicator to come in at plus 24. That was the first quarterly drop in the index in six quarters. The survey also showed that both big manufacturers and non-manufacturers forecast business conditions to deteriorate in the next three months. The Q1 outlook index among large manufacturers came in at 20 and that in non-manufacturing at 20.

  • China's Customs Tariff Commission of the State Council decided on Sunday to impose a 15 percent tariff on 120 goods imported from the United States, including fruits and related items, as well as a tariff of 25 percent on eight other American products, including pork and scrap aluminum. Such a decision was explained by the need to protect the interests of the state, as well as to balance the losses caused by the U.S. measures. China said in the statement on the introduction of tariffs that the country’s suspension of its tariff concessions was a legitimate action adopted under the WTO rules to safeguard its interests. The measures will become effective from April 2.

  • Final data released by IHS Markit showed on Monday that activity growth in Japan’s manufacturing sector continued to improve during March, albeit to a softer extent. The Nikkei Japan Manufacturing purchasing manager's index (PMI) came in at 53.1 last month, compared to a preliminary reading of 53.2 and a final reading of 54.1 in February. Economists had expected the reading to stay unrevised at 53.2. That marked the slowest pace of expansion in Japan’s manufacturing sector since October 2017. A reading above 50 signals an expansion in activity, while a reading below this level signals a contraction. According to the report, the rate of production growth eased to an eight-month low during the latest survey period, while new business expanded at a softer rate. Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said: “Latest survey data presented a second successive decline in the Manufacturing PMI for Japan. That said, the overall picture remains upbeat. The reading of 53.1 still indicates a fairly solid pace of improvement in business conditions. Moreover, the average across Q1 is consistent with a robust growth rate and bodes well for official data.”

  • Markit/Caixin’s survey revealed on Monday that activity in China’s manufacturing sector eased to a four-month low in March. The Caixin/Markit manufacturing purchasing managers' index (PMI) came in at 51.0 in March, down from  51.6 in February, signaling only a marginal improvement in overall operating conditions at the end of the first quarter of 2018. The 50 mark divides contraction and expansion. Economists’ had predicted the reading to edged up to 51.8. Among components, production and new orders both expanded at the weakest rates for four months. At the same time, employment dropped at the fastest pace since last August amid reports of cost-cutting plans. Meanwhile, inflationary pressures weakened further, with input costs growing at the slowest rate for nine months, and factory gate prices increasing only modestly. Dr. Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, noted: “Overall, the manufacturing PMI reading in March showed that demand was not as strong as expected, leading to a lower willingness of manufacturers to produce and restock. However, the ability of manufacturers to make a profit was beefed up by the stable increase in new orders and the much slower jump in input costs. The growth momentum of the Chinese manufacturing economy may have weakened in March, but at a marginal pace.”


III. Market Situation
Currency Market
The currency pair EUR/USD traded in a narrow range, near the opening level, due to the lack of new drivers. Meanwhile, the pair continued to see some pressure amid the worries that the further appreciation of the euro, potential global trade war, and tighter financial conditions could slow the recovery of the Eurozone’s economy. Meanwhile, the differences between the growth rates of GDP in the euro-area countries can prevent the ECB from curtailing the stimulus measures and gradual shifting to higher interest rates. Today, investors will pay attention to the U.S. data on the ISM manufacturing index (14:00 GMT) and a speech of the FOMC member Kashkari (22:00 GMT). According to economists’ forecast, the ISM’s index fell to 60.1 points in March from 60.8 points in February. Resistance level - $1.2421 (low of March 28). Support level - $1.2239 (low of March 20).

The currency pair GBP/USD traded marginally higher, as trading activity was low due to the Easter holiday. With an empty economic calendar in the UK ahead, investors will focus today on news about Brexit talks, the dynamics of the U.S. currency and the general market sentiment toward risky assets. Later this week, market participants will pay attention to the UK’s PMIs for manufacturing (on Tuesday), construction (on Wednesday), and services (on Thursday) sectors. Economists forecast, manufacturing PMI fell to 54.8 in March from 55.2 in February, construction PMI edged down to 51.2 from 51.4, and services PMI dropped to 54.2 from 54.5. Resistance level - $1.4243 (high of March 27). Support level - $1.3981 (low of March 20).

The currency pair AUD/USD fell slightly, refreshing Friday's low, due to the release of weak economic data in China, Australia's main trading partner. Markit/Caixin’s survey revealed that activity in China’s manufacturing sector eased to a four-month low in March. The Caixin/Markit manufacturing purchasing managers' index (PMI) came in at 51.0 in March, down from  51.6 in February, signaling only a marginal improvement in overall operating conditions at the end of the first quarter of 2018. The 50 mark divides contraction and expansion. Economists’ had predicted the reading to edged up to 51.8. Traders’ are gradually shifting their focus to monetary policy meeting of the Reserve Bank of Australia RBA), which will be held tomorrow. Economists expect that the RBA will keep its monetary policy unchanged at the meeting. Resistance level - AUD0.7756 (high of March 27). Support level - AUD0.7637 (low of December 15, 2017).

The currency pair USD/JPY traded near the opening level, despite the weakness in the U.S. currency. The pair’s performance was somewhat impacted by Bank of Japan's (BoJ) business sentiment survey, known as the Tankan, which showed the big Japanese manufacturers' sentiment deteriorated slightly over the first quarter of 2018. According to the survey, the headline index for large manufacturers' sentiment fell to plus 24 in this quarter from the previous quarter's reading of plus 26 and was below economists’ forecast for plus 25. That marked the first decline in the index in two years. Meanwhile, sentiment in the non-manufacturing sector worsened to plus 23 in the March quarter from plus 25 in the prior quarter, while economists had forecast the indicator to come in at plus 24. That was the first quarterly drop in the index in six quarters. The survey also showed that both big manufacturers and non-manufacturers forecast business conditions to deteriorate in the next three months. The Q1 outlook index among large manufacturers came in at 20 and that in non-manufacturing at 20. Resistance level - Y107.28 (high of March 13). Support level - Y105.32 (low of March 27).


Stock Market

Index

Value

Change

S&P

-

-

Dow

-

-

NASDAQ

-

-

Nikkei

21,388.58

-0.31%

Hang Seng

-

-

Shanghai

3,163.86

-0.16%

S&P/ASX

-

-


U.S. stock market was closed on Friday.

Asian stock indexes closed lower on Monday on thin trading volumes. The market sentiment was weighed down by concerns of escalating trade tensions, following the reports about imposition by China of tariffs on the U.S. agricultural and steel products in response to U.S. duties on imports of steel and aluminum.

European stock markets will be closed for the Easter holidays.


Bond Market
Yields of US 10-year notes hold at 2.76% (+2 basis points)
Yields of German 10-year bonds hold at 0.50% (0 basis points)
Yields of UK 10-year gilts hold at 1.35% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in May settled at $65.17 (+0.35%). The crude oil prices rose moderately, amid the weakness in the U.S. dollar and low trading activity due to the celebration of Easter Monday in many countries. Traders also continued to analyze the latest data from Baker Hughes, which showed that the number of active U.S. rigs drilling for oil fell by seven to 797 during the week ended March 29. That marked the first drop in three weeks. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, dropped only by two to 993, as the gas rig count rose by four to 194 last week, and the miscellaneous rig count increased by one to 2. The U.S. rig count is up 169 rigs from this time last year when it stood at 824.

Gold traded at $1,328.70 (+0.25%). Gold prices rose slightly, helped by the negative dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, dropped 0.18 percent to 89.99. 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)

13:45

U.S.

Manufacturing PMI

14:00

U.S.

Construction Spending

14:00

U.S.

ISM Manufacturing

22:00

U.S.

FOMC Member Kashkari Speaks

23:30

Australia

AIG Manufacturing Index


Market Focus

  • U.S consumer sentiment slipped in early July but remained nearly equal to the average in the prior twelve months
  • Earnings Season in U.S.: Major Reports of the Week
  • Fed's Kaplan: Could be convinced of need for fourth rate hike in 2018 depending on outlook
  • Fed: Prospective economic conditions call for further gradual removal of monpol accommodation
April 2018
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Quotes

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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