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Market panorama. 3 April 2018

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I. Market focus:

03/04/2018

The outcomes of the Reserve Bank of Australia’s (RBA) monetary policy meeting were the main event in the financial markets at the beginning of Tuesday’s session. As widely expected, the Australian central bank did not make any changes to the policy stance, leaving the cash rate unchanged at 1. 50 percent. The regulator's accompanying statement contained expectations that “inflation is likely to remain low for some time,” the thesis about the uncertainty of the outlook for household consumption, and the already familiar comments that the appreciation of the Australian dollar could result in a slower pick-up in economic activity. Overall, there was no new information after the completion of the April meeting of the RBA, and this event had a very moderate impact on the Australian dollar, which rose before the announcement of the outcomes. The most important point of the RBA‘s latest meeting was that market participants’ confidence that the Australian central bank would not consider the tightening of its monetary policy in the near term strengthened.

Market participants’ focus is now on the U.S. labor market data, the publication of which is the main scheduled event of the current week. The report will be traditionally published on Friday, and until this time, market participants will be tracking other data that may allow foreseeing the official figures. One such report is the ISM’s survey on business activity in the manufacturing sector of the American economy, published yesterday. The headline indicator was slightly below the median forecast and the reading for the previous period (59.3 points versus 60.1 and 60.8 points, respectively), but it indicated that the activity continues to expand. Meanwhile, the employment component of the indicator decreased more significantly. The corresponding subindex came in at 57.3 points in March versus 59.7 points in February. The next important report will be tomorrow's statistics on employment in the private sector of the U.S. economy from the ADP and the ISM’s report on business activity in the nonmanufacturing sector.

Today, the main scheduled events will be the releases of the German retail sales data (06:00 GMT) and the UK statistics on the activity in the manufacturing sector of the country (the PMI index, 08:30 GMT), as well as a speech of the member of the U.S. Federal Reserve's Board of Governors Lael Brainard (20:30 GMT).


II. The market highlights are:

  • A report from Institute for Supply Management (ISM) revealed on Monday the U.S. manufacturing sector expanded in March, albeit at a slower pace than in February. The ISM's index of manufacturing activity came in at 59.3 percent last month, down 1.5 percentage points from the unrevised February figure of 60.8 percent, missing economists' forecast for a 60.1 percent reading. A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction. The monthly decline by the headline index was attributable to a slowdown in the employment index (-2.4 percentage points m-o-m to 57.3 percent in March), the new orders index (-2.3 percentage points m-o-m to 61.9 percent) and the production index (-1.0 percentage point m-o-m to 61.0 percent). Meanwhile, the prices index surged to its highest level since April 2011 (+3.9 percentage points m-o-m to 78.1 percent). Of the 18 manufacturing industries, 17 reported growth in March. Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee said, “The past relationship between the PMI and the overall economy indicates that the PMI for March (59.3 percent) corresponds to a 4.9 percent increase in real gross domestic product (GDP) on an annualized basis.”

  • The Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 1.50 percent at its April monetary policy meeting. The move was widely expected by the markets. In the statement accompanying the decision, the governor of the policymakers reiterated that despite positive business conditions and increasing business investment, the outlook for household consumption remained continuing source of uncertainty. “Household income has been growing slowly and debt levels are high,” he noted. In regard to the consumer prices, the RBA noted that inflation was likely to stay low “for some time”, reflecting slow growth in labour costs and strong competition in retailing. It also added that a gradual pick-up in inflation was expected as the economy strengthened. The Bank also repeated concerns that appreciation of the Australian dollar might result in a slower pick-up in economic growth and inflation. Overall, the April meeting of the RBA expectedly provided no new information to the markets.

  • The Australian Industry Group (AiG) reported on Monday that its manufacturing index improved to 63.1 in March, up from 57.5 in February. A reading above 50 indicates expansion, while a reading below 50 signals a contraction in activity. That was an eighteenth consecutive month of expansion for the manufacturing sector and the highest monthly result for the Australian PMI since 2002. According to the report, all seven activity sub-indexes in the Australian PMI expanded in March, with new orders (+11.2 points to 66.6), deliveries (+10.6 points to 66.6) and employment (+2.2 points to 60.0) hitting new highs.


III. Market Situation
Currency Market
The currency pair EUR/USD traded slightly higher, due to the broad weakness of the U.S. dollar. Investors lack fresh catalysts that can cause significant movements in the pair. They are now awaiting the release of the German retail sales data for February and a report on business activity in the Eurozone’s manufacturing sector in March. According to economists’ forecast, Germany’s retail sales (seasonally adjusted) increased by 0.6 percent m-o-m in February after a drop of 0.7 percent m-o-m in January, while the Eurozone’s manufacturing PMI declined to 56.6 points in March from 58.6 points in February. Tomorrow, the Eurozone inflation data for March will be in focus. Economists forecast that consumer inflation accelerated to 1.4 percent y-o-y last month from 1.2 percent y-o-y in February. Particular attention will also be paid to the core consumer price index (CPI). If core inflation exceeds expectations, this could lead to a strengthening of the euro. It is expected that the core CPI will show an increase of 1.1 percent in y-o-y terms. Resistance level - $1.2421 (low of March 28). Support level - $1.2239 (low of March 20).

The currency pair GBP/USD consolidated near the opening level, as traders awaited the release of the UK’s PMI for manufacturing for March. According to economists’ forecast, the indicator fell to 54.8 in March from 55.2 in February. Apart from the PMI data, market participants will also follow the news about Brexit talks, the dynamics of the U.S. currency and the general market sentiment toward risky assets. Later this week, they will pay attention to the UK’s PMIs for construction (on Wednesday) and services (on Thursday) sectors. Economists expect construction PMI edged down to 51.2 in March from 51.4 in February, while 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 rose moderately, reaching yesterday's high, due to the weakening of the U.S. dollar and a renewed risk appetite. The outcomes of the Reserve Bank of Australia’s (RBA) latest meeting had little impact on the pair’s performance. As widely expected, the Australian regulator did not make any changes to the policy stance, leaving the cash rate unchanged at 1.50 percent. In the statement accompanying the decision, the governor of the policymakers reiterated that despite positive business conditions and increasing business investment, the outlook for household consumption remained continuing source of uncertainty. In regard to the consumer prices, the RBA noted that inflation was likely to stay low “for some time”, reflecting slow growth in labour costs and strong competition in retailing. The Bank also repeated concerns that appreciation of the Australian dollar might result in a slower pick-up in economic growth and inflation. Overall, there was no new information after the completion of the April meeting of the RBA. The most important point of the RBA‘s meeting was that market participants’ confidence that the Australian central bank would not consider the tightening of its monetary policy in the near term strengthened. Resistance level - AUD0.7756 (high of March 27). Support level - AUD0.7637 (low of December 15, 2017).

The currency pair USD/JPY traded flat. Investors took a breather after yesterday's tumble in the pair, which was caused by increased demand for safe-haven assets due to escalating tension in US-China trade relations and its risks to the global economy. The focus was also on the Japanese data on monetary base in March. The Bank of Japan (BoJ) reported that the monetary base in the country surged 9.1 percent y-o-y in March, following a 9.4 percent y-o-y jump in February. According to the report, banknotes in circulation rose 4.3 percent y-o-y last month, while coins in circulation increased 1.2 percent y-o-y. Current account balances grew 10.6 percent y-o-y. Resistance level - Y106.44 (high of April 2). Support level - Y105.32 (low of March 27).


Stock Market

Index

Value

Change

S&P

2,581.88

-2.23%

Dow

23,644.19

-1.90%

NASDAQ

6,870.12

-2.74%

Nikkei

21,292.29

-0.45%

Hang Seng

30,190.61

+0.32%

Shanghai

3,136.44

-0.85%

S&P/ASX

5,751.90

-0.13%


U.S. stock indexes closed sharply lower on Monday due to a sell-off in tech shares and the renewed trade concerns following China's decision to impose tariffs on the U.S. agricultural and steel products in response to U.S. duties on imports of steel and aluminum. The focus also was on the report from Institute for Supply Management (ISM), which revealed that the U.S. manufacturing sector expanded in March, albeit at a slower pace than in February. The ISM's index of manufacturing activity came in at 59.3 percent last month, down 1.5 percentage points from the unrevised February figure of 60.8 percent, missing economists' forecast for a 60.1 percent reading. A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.

Asian stock indexes closed mostly lower on Tuesday on the back of negative signals from Wall Street and resurgent worries of a global trade war.

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


Bond Market
Yields of US 10-year notes hold at 2.74% (+1 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 $63.06 (+0.08%). The crude oil prices edged up, helped by the weakening of the U.S. dollar and a partial profit-taking after yesterday's tumble. Market participants are awaiting data on oil inventories in the U.S. Today, the American Petroleum Institute (API) will publish its weekly data on the U.S. crude oil stockpiles. Tomorrow, the focus will be on official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA).

Gold traded at $1,339.50 (-0.08%). Gold prices fell slightly, due to the partial profit-taking after yesterday's rally. Meanwhile, the dynamics of the U.S. currency supported gold prices. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, dropped 0.08 percent to 89.98. 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)


07:15

Switzerland

Retail Sales

07:30

Switzerland

Manufacturing PMI

07:50

France

Manufacturing PMI

07:55

Germany

Manufacturing PMI

08:00

Eurozone

Manufacturing PMI

08:30

United Kingdom

Purchasing Manager Index Manufacturing

13:30

U.S.

FOMC Member Kashkari Speaks

19:00

U.S.

Total Vehicle Sales

20:30

U.S.

FOMC Member Brainard Speaks


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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