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Market panorama. 6 April 2018

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I. Market focus:

06/04/2018

Market participants’ attention is focused on the U.S labor market data, set to be released at 12:30 GMT. We have the following picture ahead of their release:

- The U.S. economy is expected to add 188,000 jobs in March versus 313,000 jobs added in February (February’s reading will be revised twice: today and the next month);

- The average value of jobs added is 189,000 over the past 12 months. Over the past six months – 172,000. Over the past three months - 166,000;

Fig. 1 U.S. nonfarm payrolls, month-on-month (Source: The Bureau of Labor Statistics of the U.S. Department of Labor (BLS))

- Unemployment rate is expected to decrease to 4.0 percent from 4.1 percent;

- The private sector in the U.S. added 241,000 jobs in March, according to the ADP report on Wednesday. February’s figure was revised up to 246,000 jobs from a previous reading of 235,000. Analysts expected the private sector to add 208,000 jobs;

- The Institute for Supply Management's (ISM) manufacturing employment sub-index for the U.S. fell to 57.3 in March from 59.7 in February; the ISM’s services employment sub-index rose to 56.6 in March from 55.0 in February;

- Job openings increased to 6.31 million in January from 5.91 million in the previous month;

- Average initial jobless claims for four weeks is 225,000, remaining near 40-year lows;

- The Conference Board reported that 14.9 percent of the respondents experienced difficulties in finding a job in the last reporting month (versus 15.1 percent a month earlier). At the same time, some 39.9 percent of respondents said jobs were plentiful (versus 39.1 percent a month earlier).

Given the data available at the moment, the average forecasts for the payrolls report look somewhat understated, and it seems very likely that the data will be stronger than projections. However, it should be borne in mind that the payrolls report is based on an analysis of other reports. There are differences between these reports.

II. The market highlights are:

  • Statistics Canada announced on Thursday that Canada’s merchandise trade deficit stood at CAD2.69 billion in February, widening from a revised CAD1.94 billion gap in January (originally a CAD1.91-billion deficit). Economists had expected a deficit of CAD2.00 billion. According to the report, the country’s exports rose 0.4 percent m-o-m to CAD45.94 billion in February, with increases in exports of motor vehicles and parts (+5.0 percent m-o-m), and aircraft and other transportation equipment and parts (+19.6 percent m-o-m). However, these were largely offset by lower exports of farm, fishing and intermediate food products (-17.2 percent m-o-m), and of metal and non-metallic mineral products (-7.2 percent m-o-m). Exports excluding energy products rose 0.7 percent m-o-m. Meanwhile, imports boosted 1.9 percent m-o-m to a record CAD48.63 billion in February, primarily on higher imports of energy products (+15.4 percent m-o-m) and of motor vehicles and parts (+1.7 percent m-o-m), which were partially offset by lower imports of metal ores and non-metallic minerals (-11.9 percent m-o-m).

  • The Department of Commerce reported on Thursday the U.S. the goods and services trade deficit widened by 1.6 percent m-o-m (or $0.93 billion) to $57.59 billion in February from a revised $56.67 billion in January (originally a gap of $56.60 billion). That was the biggest trade gap since October of 2008. Economists had expected a deficit of $56.90 billion. According to the report, the February increase in the goods and services deficit reflected a gain in the goods deficit of 0.4 percent m-o-m (or $0.30 billion) to $77.01 billion and a decline in the services surplus of 3.1 percent m-o-m (or $0.63 billion) to $19.42 billion. February exports were $204.45 billion, up 1.7 percent m-o-m, while February imports stood at $262.04 billion, up 1.7 percent m-o-m. Year-to-date, the goods and services deficit increased 22.7 percent y-o-y (or $21.14 billion). Exports rose 5.9 percent y-o-y (or $22.2 billion), while imports surged 9.1 percent y-o-y (or $43.56 billion).

  • The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits rose more than expected last week, but the trend continued to point to tightening labor market conditions. According to the report, the initial claims for unemployment benefits increased 24,000 to 242,000 for the week ended March 31. Economists had expected 225,000 new claims last week. Claims for the prior week were revised upwardly to 218,000 from the initial estimate of 215,000. Meanwhile, the four-week moving average of claims rose only 3,000 to 228,250 last week. It was the 161st straight week that claims remained below the 300,000 threshold, the longest streak since 1970.

  • The Ministry of Internal Affairs and Communications announced on Thursday that the Japanese household spending rose less than expected in February. According to the official data, household spending edged up 0.1 percent y-o-y in February, following a revised 2.0 percent y-o-y surge in January. Economists had expected household spending to increase 0.3 percent y-o-y in February. Individually, spending was up for transportation and communication (+9.5 percent y-o-y), utilities (+6.1 percent y-o-y), furniture & household utensils (+2.6 percent y-o-y), apparel (+1.3 percent y-o-y) and food (+0.5 percent y-o-y), but decreased for education (-15.8 percent y-o-y), housing (-12.3 percent y-o-y), medical care (-0.8 percent y-o-y) and culture & recreation (-0.5 percent y-o-y).

  • Japan’s Ministry of Health, Labor and Welfare said on Friday its estimates showed that labor cash earnings rose faster than expected in February. According to report, total cash earnings increased 1.3 percent y-o-y in February, following a revised 1.2 percent y-o-y surge in January (originally a 1.2 percent y-o-y gain). Economists had expected the cash earnings would increase by 0.5 percent y-o-y. According to the report, contractual gross earnings rose 0.9 percent y-o-y in February, while special cash earnings climbed 33.0 percent y-o-y. At the same time, real cash earnings dropped 0.5 percent y-o-y in February, following a 0.9 percent y-o-y decline in January.


III. Market Situation
Currency Market
The currency pair EUR/USD rose slightly at the beginning of the session but then retreated to the opening level on the back of the recovery in the U.S. dollar, as well as adjustments of positions by investors ahead of the release of the 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. This may increase the dollar’s attractiveness, lifting its value up. Resistance level - $1.2346 (low of April 2). Support level - $1.2154 (low of March 1).

The currency pair GBP/USD traded slightly lower, as the U.S. currency firmed. With an empty economic calendar in the UK ahead, traders will focus today on the news about Brexit talks, the dynamics of the U.S. currency and the general market sentiment toward risky assets. In addition, they will be closely scrutinizing a speech from the Bank of England (BoE) governor Mark Carney, scheduled to start at 15:15 GMT. Overall, the key driver for the pair will be the U.S. employment report, which will be released at 12:30 GMT. in the report, market participants will pay particular attention to the data on earnings. Resistance level - $1.4199 (high of March 28). Support level - $1.3888 (low of March 16).

The currency pair AUD/USD traded without clear direction, reacting to the increased trade tensions between the U.S. and China (Australia's main trading partner) after the U.S. President Donald Trump ordered the U.S. Trade Representative Robert Lighthizer to consider $100 billion in additional tariffs against Chinese imports. "In light of China's unfair retaliation, I have instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate under section 301 and, if so, to identify the products upon which to impose such tariffs," Trump stated. Resistance level - AUD0.7756 (high of March 27). Support level - AUD0.7643 (low of March 29).

The currency pair USD/JPY fell sharply early in the session on the back of the renewed flight of investors from risks, but then recovered to the opening level, due to adjustments of positions by traders ahead of the release of the U.S. employment report. The pair's performance was also impacted by the Japanese data. The Ministry of Internal Affairs and Communications announced that the Japanese household spending edged up 0.1 percent y-o-y in February, following a revised 2.0 percent y-o-y surge in January. Economists had expected household spending to increase 0.3 percent y-o-y in February. Meanwhile, Japan’s Ministry of Health, Labor and Welfare said that labor cash earnings increased 1.3 percent y-o-y in February, following a revised 1.2 percent y-o-y surge in January (originally a 1.2 percent y-o-y gain). Economists had expected the cash earnings would increase by 0.5 percent y-o-y. At the same time, real cash earnings dropped 0.5 percent y-o-y in February, following a 0.9 percent y-o-y decline in January. Resistance level - Y107.67 (high of February 27). Support level - Y105.66 (low of April 2).


Stock Market

Index

Value

Change

S&P

2,662.84

+0.69%

Dow

24,505.22

+0.99%

NASDAQ

7,076.55

+0.49%

Nikkei

21,567.52

-0.36%

Hang Seng

29,854.35

+1.14%

Shanghai

-

-

S&P/ASX

5,788.70

0.00%


U.S. stock indexes closed higher on Thursday, as concerns of a possible trade war between the United States and China eased. Investor focus also was on the U.S. data. The Department of Commerce reported the U.S. the goods and services trade deficit widened by 1.6 percent m-o-m (or $0.93 billion) to $57.59 billion in February from a revised $56.67 billion in January (originally a gap of $56.60 billion). That was the biggest trade gap since October of 2008. Economists had expected a deficit of $56.90 billion. According to the report, the February increase in the goods and services deficit reflected a gain in the goods deficit of 0.4 percent m-o-m (or $0.30 billion) to $77.01 billion and a decline in the services surplus of 3.1 percent m-o-m (or $0.63 billion) to $19.42 billion. February exports were $204.45 billion, up 1.7 percent m-o-m, while February imports stood at $262.04 billion, up 1.7 percent m-o-m. Year-to-date, the goods and services deficit increased 22.7 percent y-o-y (or $21.14 billion). Exports rose 5.9 percent y-o-y (or $22.2 billion), while imports surged 9.1 percent y-o-y (or $43.56 billion). Meanwhile, the data from the Labor Department revealed the number of applications for unemployment benefits rose more than expected last week, but the trend continued to point to tightening labor market conditions. According to the report, the initial claims for unemployment benefits increased 24,000 to 242,000 for the week ended March 31. It was the 161st straight week that claims remained below the 300,000 threshold, the longest streak since 1970. Economists had expected 225,000 new claims last week.

Asian stock indexes closed mixed on Friday, as investors digested news the U.S. President Donald Trump had instructed the U.S. Trade Representative Robert Lighthizer to consider tariffs on an additional $100 billion worth of Chinese imports. In response, China stated it would counter the U.S. protectionism “to the end, and at any cost.” Shanghai stock exchange remained closed due to Ching Ming Festival Holiday.

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% (-2 basis points)
Yields of German 10-year bonds hold at 0.53% (0 basis points)
Yields of UK 10-year gilts hold at 1.42% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in May settled at  $63.02 (-0.82%). The crude oil prices fell on renewed risk aversion. Market participants are now awaiting weekly data on the U.S. oil rig count from Baker Hughes. Recall, the report, issued at the end of the previous week, showed that the number of active U.S. rigs drilling for oil fell by seven to 797 during the week ended March 29. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, dropped 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.

Gold traded at $1,327.40 (+0.08%). Gold prices edged up, due to the increased demand for safe-haven assets amid growing trade tensions between the U.S. and China. Meanwhile, the further growth of gold was limited by the dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.05 percent to 90.05. 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)


06:45

France

Trade Balance

07:00

Switzerland

Foreign Currency Reserves

12:30

Canada

Employment

12:30

Canada

Unemployment rate

12:30

U.S.

Manufacturing Payrolls

12:30

U.S.

Government Payrolls

12:30

U.S.

Average workweek

12:30

U.S.

Private Nonfarm Payrolls

12:30

U.S.

Labor Force Participation

12:30

U.S.

Average hourly earnings

12:30

U.S.

Unemployment Rate

12:30

U.S.

Nonfarm Payrolls

14:00

Canada

Ivey Purchasing Managers Index

15:15

United Kingdom

BOE Gov Mark Carney Speaks

17:00

U.S.

Baker Hughes Oil Rig Count

17:30

U.S.

Fed Chair Powell Speaks

19:00

U.S.

Consumer Credit


Market Focus

  • UK gross domestic product (GDP) grew by 0.4% in the three months to October
  • In December, the sentix overall index for the economy in Euro Area falls for the 4th time in a row to -0.3
  • St. Louis Fed Chief James Bullard Suggests Fed Hold Rates Steady
  • Fed's Brainard: Gradual Rate Increases Still Appropriate 'In the Near Term'
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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