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Market panorama. 8 February 2018

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I. Market focus:

08/02/2018

At the beginning of Thursday’s session, the main topic in the currency market was the outcomes of the Reserve Bank of New Zealand’s (RBNZ) meeting. As widely expected, New Zealand’s regulator did not make any changes to the policy stance, leaving the cash rate unchanged at 1.75 percent. At the same time, the tone of the accompanying statement and the comments of the regulator's policymakers turned out to be more "dovish" than the strong data on the New Zealand labor market that had been released this week allowed to expect. As for the national currency rate, the RBNZ stated that its current dynamics is quite “comfortable,” but if it starts to grow, the central bank may change its rhetoric. Overall, the RBNZ made it clear that it is too early to talk about a potential tightening of monetary policy, which had a negative impact on the dynamics of the New Zealand dollar.

The focus of market participants is on the meeting of the Bank of England (BoE), the outcomes of which will be announced today at 12:00 GMT. This will be the main event of Thursday. In addition, the regulator will publish its inflation letter. The British central bank raised interest rates for the first time in more than ten years in November. Some progress in the Brexit negotiations and improved forecasts for the country's economic growth bolstered investors’ expectations for further tightening of the BoE monetary policy. But it is unlikely that the regulator will take such an action at its February meeting. Moreover, given the recent weakening of the business activity in the UK economy, it is quite possible that the bank's rhetoric will be dovish, which may indicate the necessity the rates to remain low.

The stock market participants assess the quarterly results of companies, as the fourth-quarter earnings season continues. Today, the focus will be on the quarterly reports from Twitter (TWTR) and American Intl (AIG). The former will unveil its quarterly results before the market opens, while the latter will publish its earnings after the close of today's trading.


II. The market highlights are:

  • The U.S. Energy Information Administration (EIA) revealed Wednesday that crude inventories rose by 1.895 million barrels to 420.254 million barrels in the week ended February 2. Economists had forecast an increase of 3.189 million barrels. At the same time, gasoline stocks climbed by 3.4 million barrels to 245.5 million barrels, while analysts had expected a gain of 0.7 million barrels. Distillate stocks surged by 3.9 million barrels to 141.8 million barrels last week, while analysts had forecast a decline of 1.1 million barrels. Meanwhile, oil production in the U.S. increased to 10.251 million barrels per day from 9.919 million barrels per day in the previous week. U.S. crude oil imports averaged 7.9 million barrels per day last week, down by 538,000 barrels per day from the previous week.

  • Federal Reserve Bank of San Francisco President John Williams, who spoke at an event in Hawaii, said that the positive outlook for the U.S. economy allows the Fed to stick to its plan for “steady, gradual” interest-rate increases. “Given that the pace of growth is somewhat above trend, my view is that we need to continue on the path of raising interest rates. This will keep the economy on an even footing and reduce the risk of us getting to a point where things could overheat,” he stated in his speech. Mr. Williams also noted that the Fed has “a dual mandate of maximum employment and price stability”. According to the official, the regulator succeeded in meeting the employment goal of its dual mandate but inflation is a less glowing card. At the same time, he expressed encouraging expectations that the inflation will continue to pick up this year and the next.

  • The Reserve Bank of New Zealand (RBNZ) announced on Thursday its monetary policy decision, made at its November meeting. As widely expected, New Zealand’s regulator did not make any changes to the policy stance, leaving the cash rate unchanged at 1.75 percent. In the accompanying statement, the RBNZ stated that its monetary policy will remain accommodative for a considerable period as numerous uncertainties remain and policy may need to adjust accordingly. The regulator also noted that exchange rate had firmed since the November Statement, due in large part to a weak U.S. dollar, but said that the trade-weighted exchange rate was assumed to ease over the projection period. Regarding the outlook for consumer prices, the RBNZ said the CPI inflation is forecast to trend upwards towards the midpoint of the target range, whereas longer-term inflation expectations are well anchored at 2 percent.The regulator also revised down its estimates of the impact of government policies on economic activity. Overall, the economic growth is expected to strengthen, driven by accommodative monetary policy, high terms of trade, government spending and population growth, the statement said.

  • Japan’s Ministry of Finance (MoF) reported Thursday that the country’s current account surplus stood at JPY0.797 trillion in December 2017 compared to the JPY1.347-trillion surplus in November and JPY1.114-trillion surplus in the same month a year ago. That was the smallest current account surplus since January 2017. Economists had forecast for a surplus of JPY1.018 trillion. According to the MoF’s report, Japan’s goods trade surplus amounted JPY538.9 billion in December compared to a JPY181.0-billion surplus in the previous month and a surplus of JPY808.7 billion in December 2016. Goods exports rose 8.8 percent y-o-y, while imports surged 14.6 percent y-o-y. The services account showed a deficit of JPY204.5 billion in December compared to a surplus of JPY41.7 billion in November and a deficit of JPY288.6 billion in December 2016. Meanwhile, the capital account posted a deficit of JPY18.7 billion, while the financial account recorded a surplus of JPY1.885 trillion. Considering full 2017, Japan recorded a current account surplus of JPY21.874 trillion compared to FY2016 surplus of JPY20.342 trillion.

  • The report from the National Bureau of Statistics of China revealed Thursday the Chinese trade surplus narrowed in January. According to the report, China’s exports surged 11.1 percent y-o-y in January to $200.5 billion compared to a 10.9 percent increase in the prior month and economists’ forecast of a 9.6 percent growth. Meanwhile, the country’s imports jumped 36.9 percent y-o-y last month to $177.10 billion after a 4.5 percent gain in November, while economists had forecast a 9.8 percent increase. Those trade flows produced a trade surplus of $20.34 billion in January, compared to a surplus of $54.69 billion in December 2017 and $50.21 billion in January 2017. That was the smallest trade surplus since a gap in February 2017. Economists had expected trade surplus of $54.10 billion in January.


III. Market Situation
Currency Market
The currency pair EUR/USD traded in a narrow range, remaining near the opening level, as investors took a breather after a  sharp fall in the pair in the previous session in response to the broad strengthening of the U.S. currency on news that the Republicans and Democrats reached agreement on a two-year budget deal. The deal, if approved, would allow for $165 billion in extra defense spending and $131 billion more for non-military programs. Today the focus will be on the dynamics of the U.S. currency and the general market sentiment toward risky assets, the U.S. weekly jobless claims, as well as the comments of Bundesbank President Jens Weidmann and three FOMC members - Robert Kaplan, Patrick Harker and Neel Kashkari. Resistance level - $1.2404 (high of February 7). Support level - $1.2214 (low of January 22).

The currency pair GBP/USD rose slightly, retreating from yesterday's low, due to partial profit-taking and adjustments of positions by market participants ahead of the announcement of the outcomes of the Bank of England’s (BoE) meeting later today. Analysts believe that the Bank will leave its interest rates unchanged, but its statement may provide clues of a possibility of more aggressive monetary policy tightening. In view of the good economic recovery and improvement in the labor market situation, the policymakers may find it reasonable to damp accelerating inflation to the BoE’s 2 percent target. According to Reuters polls, no economist thinks the BoE to raise rates at this week's meeting. But markets see a 50 percent chance that there will be another move in May, a relatively quick follow-up to the BoE rate hike in November, the first for a decade. Resistance level - $1.3997 (high of February 6). Support level - $1.3731 (low of January 15).

The currency pair AUD/USD traded in a narrow range, near the low of January 10, due to the lack of new catalysts. In addition, investors remained cautious ahead of the speech of Reserve Bank of Australia (RBA) governor Philip Lowe, which is scheduled to begin at 09:00 GMT. It is expected that Mr. Lowe can provide additional context for the RBA’s accompanying statement published on Tuesday, in which some investors saw the increased optimism of the Australian central bank. The RBA again noted a record level of household debt and slow growth in wages. In addition, the regulator said it forecast a gradual rise in inflation. It is not expected that Lowe’s remarks will be hawkish. Resistance level - AUD0.7953 (high of February 5). Support level - AUD0.7788 (low of December 29).

The currency pair USD/JPY traded noticeably higher, updated yesterday's high, despite the fact a moderate risk aversion sentiment continued to fuel demand for the yen as a safe-haven asset. The Japanese data also impacted the pair’s performance. Japan’s Ministry of Finance (MoF) reported that the country’s current account surplus stood at JPY0.797 trillion in December 2017 compared to the JPY1.347-trillion surplus in November and JPY1.114-trillion surplus in the same month a year ago. That was the smallest current account surplus since January 2017. Economists had forecast for a surplus of JPY1.018 trillion. Resistance level - Y110.46 (high of February 2). Support level - Y108.28 (low of January 26).


Stock Market

Index

Value

Change

S&P

2,681.66

-0.50%

Dow

24,893.35

-0.08%

NASDAQ

7,051.98

-0.90%

Nikkei

21,890.86

+1.13%

Hang Seng

30,451.27

+0.42%

Shanghai

3,262.15

-1.42%

S&P/ASX

5,890.70

+0.24%


U.S. stock indexes closed lower on Wednesday, hurt by a new wave of risk aversion that arose at the end of the session. Investors are still spooked by the market’s recent retreat and wary more fallout is to come.
Asian stock indexes closed mostly higher on Thursday, despite Wall Street’s lackluster performance. Japan’s equity benchmark, the Nikkei, rose as buyers looked for bargains on shares which were beaten down heavily early in the week. The yen's weakness against the dollar also supported the stock market, lifting the export-oriented companies.

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


Bond Market
Yields of US 10-year notes hold at 2.83% (0 basis points)
Yields of German 10-year bonds hold at 0.75% (0 basis points)
Yields of UK 10-year gilts hold at 1.55% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in March settled at $61.75 (-0.05%). The crude oil prices fell slightly, as the U.S. dollar strengthened. The focus also was on the latest report from the U.S. Energy Information Administration (EIA), which revealed that the U.S. crude inventories rose by 1.895 million barrels to 420.254 million barrels in the week ended February 2. Economists had forecast an increase of 3.189 million barrels. At the same time, gasoline stocks climbed by 3.4 million barrels to 245.5 million barrels, while analysts had expected a gain of 0.7 million barrels. Distillate stocks surged by 3.9 million barrels to 141.8 million barrels last week, while analysts had forecast a decline of 1.1 million barrels. Meanwhile, oil production in the U.S. increased to 10.251 million barrels per day from 9.919 million barrels per day in the previous week. U.S. crude oil imports averaged 7.9 million barrels per day last week, down by 538,000 barrels per day from the previous week.

Gold traded at $1,312.90 (-0.41%). Gold prices fell, as the U.S. dollar strengthened, while the demand for safe-havens reduced. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose by 0.10 percent. 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 news that are expected (time GMT0)


08:45

Germany

German Buba President Weidmann Speaks

09:00

Australia

RBA's Governor Philip Lowe Speaks

09:50

U.S.

FOMC Member Kaplan Speak

12:00

United Kingdom

BoE Interest Rate Decision

12:00

United Kingdom

Asset Purchase Facility

12:00

United Kingdom

BOE Inflation Letter

12:00

United Kingdom

Bank of England Minutes

13:00

U.S.

FOMC Member Harker Speaks

13:15

Canada

Housing Starts

13:30

Canada

New Housing Price Index

13:30

U.S.

Continuing Jobless Claims

13:30

U.S.

Initial Jobless Claims

14:00

U.S.

FOMC Member Kashkari Speaks

17:45

Canada

Gov Council Member Wilkins Speaks



Market Focus

  • ECB's Weidmann says first ECB rate hike could follow the end of QE more closely than in the U.S
  • Industrial producer prices rose by 0.1% in the euro area (EA19) and by 0.2% in the EU28
  • European Commission forecasts Euro Zone inflation will accelerate to 1.6 pct y/y in 2019 from 1.5 pct y/y seen in 2018
  • UK service providers signalled a modest rebound in business activity - Markit
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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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