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Market panorama. 4 April 2018

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I. Market focus:

04/04/2018

The aggravation of a global trade war is the main topic in the financial markets at the beginning of Wednesday’s session. The reason for a new wave of fears were reports that the U.S. is ready to impose additional tariffs on approximately $50 billion worth of Chinese imports. Near 1,300 Chinese products are set to be targeted by 25 percent tariffs. The final decision on the imposition of new duties will be preceded by a discussion, which will determine which goods will be subject to restrictions. In response to these reports, the Chinese official news agency Xinhua reported that China is able to respond to any protectionist measures. Previously, the PRC’s officials warned about readiness to take comparable countermeasures, and they kept their promise by announcing at the weekend about the introduction of the tariffs on the U.S. imports. Therefore, it should be expected that the new step of the White House will also not be ignored. As of writing this, market participants were awaiting a press conference of Chinese officials, dedicated to the US-China trade relations. It is possible that new countermeasures will be announced at this event.

Among the main macroeconomic reports of the morning session, it should be noted the Australian data on retail sales, which were much better than forecast, supporting the Australian dollar. But the Australian dollar is not expected to continue its growth, as the prospects for international trade and the Chinese economy are seen to deteriorate due to an escalation of trade wars.

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. Such reports will be today’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. Other important reports of Wednesday's session will be the British data on activity in the construction sector (08:30 GMT), the preliminary estimate of the consumer price index (CPI) in the Eurozone (09:00 GMT) and the statistics on the U.S. crude oil inventories (14:30 GMT) as well.


II. The market highlights are:

  • The Australian Bureau of Statistics (ABS) also reported on Wednesday that Australia’s retail sales rose 0.6 percent m-o-m in February, following a revised 0.2 percent m-o-m gain in January (originally a 0.1 percent m-o-m advance). That was the fastest growth in retail sales since November 2017. Economists had forecast retail sales would increase 0.3 percent m-o-m in February. According to the ABS, all industries recorded rises in February, led by household goods retailing (+1.1 percent m-o-m), food retailing (+0.3 percent m-o-m), cafe's restaurants and takeaways (+0.7 percent m-o-m) and clothing, footwear and personal accessories (+1.1 percent m-o-m). In addition, sales increased at department stores (+1.5 percent m-o-m) and other retailing also rose (+0.2 percent m-o-m).

  • The Australian Bureau of Statistics (ABS) announced on Wednesday the total number of building permits issued in the country tumbled by 6.2 percent m-o-m in seasonally adjusted terms in February, following a revised 17.2 percent m-o-m surge in January (originally a 17.1 percent m-o-m climb). Economists had expected a 4.8 percent m-o-m decrease. According to the report, approvals for private sector dwellings excluding houses plunged 16.4 percent m-o-m in February, while private sector houses approvals rose 1.9 percent m-o-m. In y-o-y terms, total approvals fell 3.1 percent.

  • Markit/Caixin’s survey revealed on Wednesday that the Chinese services sector’s activity eased to a four-month low in March. The Caixin/Markit services purchasing managers' index (PMI) came in at 52.3 last month on a seasonally adjusted basis, down from 54.2 in February. Economists’ had predicted the reading to edged up to 54.5. The 50 mark divides contraction and expansion. According to the survey, new order growth decelerated, while employment rose the least in the current 19-month sequence of expansion. In the meantime, service providers’ sentiment dipped to a six-month low. The Caixin China Composite PMI, which covers both manufacturing and services, fell to 51.8 in March from 53.3 in February. Thar was the lowest reading since November 2017. Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group noted: “The headline Caixin China Composite PMI dropped to 51.8 in March, the lowest reading in four months but remaining in expansionary territory. The slowdown of output growth in the services sector was faster than that in the manufacturing industry. The increase in input costs slowed while that in output prices picked up, improving chances for companies to gain a profit. Overall, the growth momentum of the Chinese economy weakened in March.”


III. Market Situation
Currency Market
The currency pair EUR/USD rose moderately, helped by the broad weakening of the U.S. dollar, and partial profit-taking after yesterday's tumble. Investors were awaiting the release of the preliminary estimate of the consumer price index (CPI) in the Eurozone and the 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 U.S. non-manufacturing sector.  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. As for the ADP report, it is projected that the number of jobs increased by 205,000 in March after a gain of 235,000 in February. Resistance level - $1.2346 (low of April 2). Support level - $1.2239 (low of March 20).

The currency pair GBP/USD traded higher, near the peak of March 29, due to the broad weakening of the U.S. currency. In addition, investors were adjusting their positions ahead of the release of the UK’s PMI for construction sector for March. According to economists’ forecast, the indicator edged down to 51.2 in March from 51.4 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. Tomorrow, investors will focus on the PMI for the UK’s services sectors. Economists forecast services PMI dropped to 54.2 in March from 54.5 in the prior month. Resistance level - $1.4199 (high of March 28). Support level - $1.3981 (low of March 20).

The currency pair AUD/USD rose solidly, refreshing one-week high, but then lost some of the gains due to profit-taking. The initial growth was triggered by the upbeat retail sales data from Australia and the broad weakening of the U.S. dollar. The Australian Bureau of Statistics (ABS) also reported Australia’s retail sales rose 0.6 percent m-o-m in February, following a revised 0.2 percent m-o-m gain in January (originally a 0.1 percent m-o-m advance). That was the fastest growth in retail sales since November 2017. Economists had forecast retail sales would increase 0.3 percent m-o-m in February. According to the ABS, all industries recorded rises in February, led by household goods retailing (+1.1 percent m-o-m), food retailing (+0.3 percent m-o-m), cafe's restaurants and takeaways (+0.7 percent m-o-m) and clothing, footwear and personal accessories (+1.1 percent m-o-m). In addition, sales increased at department stores (+1.5 percent m-o-m) and other retailing also rose (+0.2 percent m-o-m). Resistance level - AUD0.7756 (high of March 27). Support level - AUD0.7637 (low of December 15, 2017).

The currency pair USD/JPY consolidated near the opening level. Market participants took a breather after yesterday's rally in the pair, which was caused by the strengthening of the U.S. dollar amid rising U.S. Treasury yields, as well as a weaker demand for safe-haven assets. Meanwhile, the yen was supported by the increased likelihood of a global trade war. Yesterday, the U.S. published a list of about 1,300 Chinese imports, worth an estimated $50 billion, which could be subject to a new 25-percent tariff. This measure was in accordance with President Trump’s memorandum on “Combating China's Economic Aggression,” he signed in March. The list mainly covers non-consumer products, including electronics, aircraft parts,  satellites, rail transport, medicine, machinery and other goods. The Chinese Ministry of Commerce has already promised to take countermeasures. Resistance level - Y106.99 (high of March 28). Support level - Y105.66 (low of April 2).


Stock Market

Index

Value

Change

S&P

2,614.45

+1.26%

Dow

24,033.36

+1.65%

NASDAQ

6,941.28

+1.04%

Nikkei

21,319.55

+0.13%

Hang Seng

29,738.10

-1.46%

Shanghai

3,131.84

-0.15%

S&P/ASX

5,761.40

+0.17%


U.S. stock indexes closed solidly higher on Tuesday, helped by a recovery in beaten-down technology and consumer discretionary stocks. Amazon (AMZN) climbed 1.5 percent, following reports that the White House was not considering action against the company. Automakers (General Motors (GM; +3.3%), Ford Motor (F; +2.7%), Fiat Chrysler (FCAU; +9.2%) and Tesla (TSLA; +6%)) also surged, supported by upbeat monthly/quarterly sales reports.

Asian stock indexes closed mixed on Wednesday on renewed worries of a trade war between the U.S. and China, the world’s top two economies.  

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


Bond Market
Yields of US 10-year notes hold at 2.78% (0 basis points)
Yields of German 10-year bonds hold at 0.50% (0 basis points)
Yields of UK 10-year gilts hold at 1.36% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in May settled at $63.33 (-0.28%). The crude oil prices fell slightly as investors digested the latest data from the American Petroleum Institute (API). The API reported that U.S. crude-oil inventories fell by 3.3 million barrels last week. Analysts had anticipated a build in crude oil inventories of 246,000 barrels. At the same time, gasoline inventories surged by 1.1 million barrels, and distillate inventories rose by 2.2 million barrels. Market participants are now awaiting weekly data on U.S. crude inventories from the U.S. Energy Information Administration (EIA).

Gold traded at $1,334.50 (+0.13%). Gold prices edged up, due to the broad weakening of the U.S. currency and a partial profit-taking after yesterday's decline. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, dropped 0.12 percent to 90.12. 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

PMI Construction

09:00

Eurozone

Harmonized CPI ex EFAT

09:00

Eurozone

Harmonized CPI

09:00

Eurozone

Unemployment Rate

12:15

U.S.

ADP Employment

13:45

U.S.

Services PMI

13:45

U.S.

FOMC Member James Bullard Speaks

14:00

U.S.

ISM Non-Manufacturing

14:00

U.S.

Factory Orders

14:30

U.S.

Crude Oil Inventories

15:00

U.S.

FOMC Member Mester Speaks

23:30

Australia

AIG Services Index


Market Focus

  • RBA minutes: Recent modest fall in AUD helpful for domestic economy
  • US to impose extra tariffs on China from September 24 , around US200bn
  • Foreign investment in Canadian securities reached $12.7 billion in July
  • Business activity continued to grow at a solid clip in New York State
April 2018
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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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