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Market panorama. 5 April 2018

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I. Market focus:

05/04/2018

Thursday’s session in the foreign exchange market began quite calmly, due to the lack of reports and data of high importance, closed financial markets in China and Hong Kong, as well as anticipations of the U.S. labor market, which will be released tomorrow.

The morning data on Australia's trade balance indicated a less significant reduction in its surplus than expected. But the downward revision of the reading for the previous month somewhat overshadowed the report, which, as a result, did not support the Australian dollar.

In the morning, the financial markets continued to see growing risk appetite, which began yesterday and is reflected in the growth of stock indices, as well as a decrease in the yen and gold. Such a trend, most likely, will continue during today's session.

Although Thursday’s session will be very busy with events and data releases, they are not expected to provoke significant movements in the markets. The most important reports will be data on activity in the service sector of the UK economy (08:30 GMT), as well as Canadian and American reports on trade balances (12:30 GMT). The focus of market participants remains on the report on the U.S. labor market, which will be released tomorrow. The information received at the current moment allows expecting strong data, although not as much as a month earlier.


II. The market highlights are:

  • The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed on Wednesday the U.S. private employers added 241,000 jobs in March. Economists had expected a gain of 205,000. The increase for February was revised up to 246,000 from 235,000. “We saw impressive momentum in the first quarter of 2018 with more jobs added per month on average than in 2017,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Midsized businesses added nearly half of all jobs this month, the best growth this segment has seen since the fall of 2014. The manufacturing industry also performed well, with its strongest increase in more than three years.” Meanwhile, Mark Zandi, chief economist of Moody’s Analytics, noted, “The job market is rip-roaring. Monthly job growth remains firmly over 200,000, double the pace of labor force growth. The tight labor market continues to tighten.”

  • The Institute for Supply Management (ISM) announced on Wednesday its non-manufacturing index came in at 58.8 in March, which was 0.7 percentage point lower than an unrevised February figure of 59.5. This pointed to continued growth in the non-manufacturing sector at a slightly slower rate. Economists forecast the index to drop to 59.2 last month. A reading above 50 signals expansion, while a reading below 50 indicates contraction. 15 of the non-manufacturing industries reported growth in March, while two recorded decline, the ISM said. According to the report, the ISM’s non-manufacturing business activity measure decreased to 60.6 percent, 2.2 percentage points lower than the February reading of 62.8 percent. That reflected growth for the 104th consecutive month, at a slower rate in March. The ISM’s new orders gauge fell by 5.3 percentage points to 59.5 percent last month, while the inventories index remained at 53.5 percent. At the same time, the employment indicator rose by 1.6 percentage points to 56.6 percent in March, while the prices gauge increased by 0.5 percentage point to 61.5 percent, indicating that prices increased in March for the 25th consecutive month. Commenting on the data, the Chair of the ISM Non-Manufacturing Business Survey Committee, Anthony Nieves, noted, "The past relationship between the NMI and the overall economy indicates that the NMI for March (58.8 percent) corresponds to a 3.6 percent increase in real gross domestic product (GDP) on an annualized basis."

  • The U.S. Commerce Department’s data showed on Wednesday that the value of new factory orders increased 1.2 percent m-o-m in February, following a revised 1.3 percent m-o-m decline January (originally a 1.4 percent m-o-m drop). Economists had forecast a 1.7 percent m-o-m advance. According to the report, durables orders surged by 3.0 percent m-o-m in February, boosted primarily by strong demand for transport equipment (+7.0 percent m-o-m), while nondurables orders fell 0.5 percent m-o-m. Total factory orders excluding transportation, a volatile part of the overall reading, edged up 0.1 percent m-o-m in February, while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, increased 1.4 percent m-o-m. The report also showed that shipments of factory goods grew 1.4 percent m-o-m in February. In y-o-y terms, factory orders rose 7.9 percent in February.

  • The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories dropped by 4.617 million barrels to 425.332 million barrels in the week ended March 30. Economists had forecast a decrease of 0.246 million barrels. At the same time, gasoline stocks fell by 1.116 million barrels to 238.477 million barrels, while analysts had expected a drop of 1.5 million barrels. Distillate stocks rose by 0.537 million barrels to 129.491 million barrels last week, while analysts had forecast a decline of 1.3 million barrels. Meanwhile, oil production in the U.S. increased to 10.460 million barrels per day from 10.433 million barrels per day in the previous week. U.S. crude oil imports averaged 7.9 million barrels per day last week, down by 250,000 barrels per day from the previous week.

  • The Australian Bureau of Statistics (ABS) announced on Thursday that Australia’s trade surplus in seasonally adjusted terms narrowed to AUD0.825 billion in February from a downwardly revised AUD0.952 billion surplus in January (initially a surplus of AUD1.055 billion). Economists had expected a surplus of AUD0.7 billion. According to the report, the exports were flat m-o-m in February, after surging 4.8 percent m-o-m in January. Meanwhile, imports edged up 0.4 percent m-o-m in February, following a 2.4 percent m-o-m decline in the prior month.


III. Market Situation
Currency Market
The currency pair EUR/USD fell slightly, as concerns of a potential trade war between the U.S. and China abated. Investors hope that the U.S. and China will manage to settle their trade disputes, while analysts believe that trade conflicts may be another factor hampering the dollar. Today, market participants will pay attention to the Eurozone’s data on retail sales and producer prices for February, as well as the U.S. trade balance statistics for February and weekly initial jobless claims. Tomorrow, investors will receive a key report on the U.S. labor market. The information received at the current moment allows expecting strong data. According to the forecast,  the unemployment rate dropped to 4.0 percent in March from 4.1 percent in February, while the nonfarm payrolls increased by 190,000 last month after a 313,000 gain in the prior month. These data may also indicate an acceleration of earnings growth and consumer inflation, which in turn may be an argument in favor of a more rapid increase in the Fed’s interest rates. Resistance level - $1.2346 (low of April 2). Support level - $1.2239 (low of March 20).

The currency pair GBP/USD traded slightly lower, due to a new wave of strengthening of the U.S. currency. In addition, market participants were adjusting their positions ahead of the release of the UK’s PMI for services sector for March. Since services account for more than 60 percent of the UK's GDP, this indicator is more important than the similar indicator for the manufacturing sector. Economists forecast services PMI dropped to 54.2 in March from 54.5 in the prior month. 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.  Resistance level - $1.4199 (high of March 28). Support level - $1.3981 (low of March 20).

The currency pair AUD/USD dropped sharply, erasing yesterday’s gains. The pair was weighed down by the falling prices of gold and copper, the strengthening of the U.S. dollar, as well as the Australian statistics on trade balance. The Australian Bureau of Statistics (ABS) announced that the country’s trade surplus in seasonally adjusted terms narrowed to AUD0.825 billion in February from a downwardly revised AUD0.952 billion surplus in January (initially a surplus of AUD1.055 billion). Economists had expected a surplus of AUD0.7 billion. According to the report, the exports were flat m-o-m in February, after surging 4.8 percent m-o-m in January. Meanwhile, imports edged up 0.4 percent m-o-m in February, following a 2.4 percent m-o-m decline in the prior month. Resistance level - AUD0.7756 (high of March 27). Support level - AUD0.7643 (low of March 29).

The currency pair USD/JPY rose slightly, continuing yesterday's dynamics, and refreshing a three-week high. Demand for the yen, which is traditionally regarded as a safe-haven asset, fell on the back of a recovery in risk aversion due to eased investor concerns of a trade war between the U.S. and China. Today, the U.S. President Donald Trump’s economic adviser, Larry Kudlow, said that the administration was in talks with China rather than a trade war. Meanwhile, the People's Daily, the official newspaper of the ruling Communist Party, reported in its editorial that China was confident that it could win a trade war with the United States. The article said that the U.S. economy would suffer from losing China as their largest consumer market. Resistance level - Y107.28 (high of March 13). Support level - Y105.66 (low of April 2).


Stock Market

Index

Value

Change

S&P

2,644.69

+1.16%

Dow

24,264.30

+0.96%

NASDAQ

7,042.11

+1.45%

Nikkei

21,645.42

+1.53%

Hang Seng

-

-

Shanghai

-

-

S&P/ASX

5,788.80

+0.48%


U.S. stock indexes closed solidly higher on Wednesday on increased hopes that the U.S. and China will manage to settle their trade disputes. Additional support was provided by the upbeat economic data. The employment report prepared by Automatic Data Processing Inc. (ADP) and Moody's Analytics showed that the U.S. private employers added 241,000 jobs in March. Economists had expected a gain of 205,000. The increase for February was revised up to 246,000 from 235,000. The Institute for Supply Management’s (ISM) report revealed that the U.S. non-manufacturing sector continued to expand in March, albeit at a slightly slower rate. According to the report, ISM non-manufacturing index came in at 58.8 in March, which was 0.7 percentage point lower than an unrevised February figure of 59.5. Economists forecast the index to drop to 59.2 last month. The U.S. Commerce Department’s data showed that the value of new factory orders increased 1.2 percent m-o-m in February, following a revised 1.3 percent m-o-m decline January (originally a 1.4 percent m-o-m drop). Economists had forecast a 1.7 percent m-o-m advance.

Asian stock indexes closed higher on Thursday, bolstered by solid gains on Wall Street overnight. China and Hong Kong markets were closed due to Ching Ming Festival.

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


Bond Market
Yields of US 10-year notes hold at 2.81% (+1 basis points)
Yields of German 10-year bonds hold at 0.50% (0 basis points)
Yields of UK 10-year gilts hold at 1.37% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in May settled at  $63.62 (+0.39%). The crude oil prices rose moderately as investors digested the latest data from the U.S. Energy Information Administration (EIA). The EIA reported that crude inventories dropped by 4.617 million barrels to 425.332 million barrels in the week ended March 30. Economists had forecast a decrease of 0.246 million barrels. At the same time, gasoline stocks fell by 1.116 million barrels to 238.477 million barrels, while analysts had expected a drop of 1.5 million barrels. Distillate stocks rose by 0.537 million barrels to 129.491 million barrels last week, while analysts had forecast a decline of 1.3 million barrels. Meanwhile, oil production in the U.S. increased to 10.460 million barrels per day from 10.433 million barrels per day in the previous week. U.S. crude oil imports averaged 7.9 million barrels per day last week, down by 250,000 barrels per day from the previous week.

Gold traded at $1,328.40 (-0.33%). Gold prices fell, due to reduced demand for safe-haven assets, as well as positive dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, edged up 0.06 percent to 90.20. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.

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


07:15

Switzerland

Consumer Price Index

07:50

France

Services PMI

07:55

Germany

Services PMI

08:00

Eurozone

Services PMI

08:30

United Kingdom

Purchasing Manager Index Services

09:00

Eurozone

Producer Price Index

09:00

Eurozone

Retail Sales

12:30

Canada

Trade balance

12:30

U.S.

Continuing Jobless Claims

12:30

U.S.

Initial Jobless Claims

12:30

U.S.

International Trade

17:00

U.S.

FOMC Member Bostic Speaks

23:30

Japan

Household spending


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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