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Market panorama. 9 April 2018

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I. Market focus:

09/04/2018

Relative calm prevailed in the foreign exchange markets at the beginning of the new week. The main topic in the markets was the North Korea's readiness to discuss giving up its nuclear weapons. The Reuters news agency reported that the leader of the DPRK Kim Jong Un is prepared to discuss the denuclearization of the Korean Peninsula with the U.S. President Donald Trump. Earlier, the media informed about secret contacts between the DPRK and the United States to arrange a meeting of their leaders. The possibility of the meeting was first mentioned at the beginning of March. Then it was said that the meeting was planned to happen in May. Prospects for easing tensions on the Korean Peninsula had a positive impact on market sentiment, reducing the demand for safe-haven assets, which include the Japanese yen and gold as well.

The U.S. dollar remained under pressure in the morning. Weaker-than-expected data on the U.S. labor market, which were released on Friday, continued to weigh on the U.S. currency.

Monday’s session will not be very busy with events and data releases. The most significant report of the first half of the day will be the publication of the Eurozone's confidence index from Sentix (08:30 GMT). In the second half of the day, attention should be paid to the release of the quarterly review of economic conditions and business prospects from the Bank of Canada (14:30 GMT). At 22:00 GMT, the volatility in the New Zealand dollar may increase due to the publication of the indicator of confidence in New Zealand’s business circles from NZIER.


II. The market highlights are:

  • The Labor Department announced on Friday that nonfarm payrolls increased by 103,000 in February after an upwardly revised 326,000 gain in the prior month (originally an increase of 313,000). That was the smallest advance in payrolls since September 2017. According to the report, employment rose in manufacturing (+22,000 jobs in March), health care (+22,000), and mining (+9,000). Meanwhile, the unemployment rate was 4.1 percent for the sixth consecutive month. Economists had forecast 193,000 new jobs and the jobless rate to fall to 4.0 percent. The labor force participation rate decreased by 0.1 percentage point over the month to 62.9 percent, while hourly earnings for private-sector workers rose by 0.3 percent m-o-m (8 cents) to $26.82, after gaining 0.1 percent m-o-m in February. Economists had forecast labor force participation rate to come in at 63.5 percent and a 0.2 percent advance in the average hourly earnings. The average workweek was unchanged m-o-m at 34.5 hours in March, in-line with economists’ forecast.

  • The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, rose to 59.8 in March from a revised 59.6 in February (originally 58.4). Economists had expected the gauge to hit 60.2. A figure above 50 shows an increase while below 50 shows a decrease. Within sub-indexes, employment index surged to 60.6 last month (from 52.4  in March), and inventories indicator increased to 54.3 (from 52.4 in March), while deliveries gauge fell to 48.6 (from 53.7 in March), and prices measure declined to 60.0 (from 64.2 in March).

  • The weekly report from Baker Hughes, which was released on Friday, showed that the number of active U.S. rigs drilling for oil boosted by eleven to 808 during the week ended April 6. That was the highest level since March 2015. In the prior week, the oil-rig count decreased by seven. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, climbed by ten to 1003, as the gas rig count remained at 194 last week, and the miscellaneous rig count fell by one to 1. The U.S. rig count is up 164 rigs from this time last year when it stood at 839.

  • The Australian Industry Group (AiG) reported on Sunday that its construction index rose 1.2 points to 57.2 points in March. That was the highest reading since November 2017. A reading above 50 indicates expansion, while a reading below 50 signals a contraction in activity. According to the report, expansion was mainly supported by faster rises in new orders (+8.0 points to 59.9 in March) and selling prices (+5.1 points to 57.8). Meanwhile, employment (-3.0 points to 55.7) and deliveries (-3.6 points to 54.7) decelerated. Across the four construction sub-sectors, activity in commercial and engineering construction expanded, while house building slowed and apartment contracted slightly.

  • Japan’s Ministry of Finance (MoF) announced on Sunday that the country’s current account surplus stood at JPY2.076 trillion in February compared to the JPY0.607-trillion surplus in January and JPY2.911-trillion surplus in the same month a year ago. That was the highest current account surplus since October 2017. Economists had forecast for a surplus of JPY2.160 trillion. According to the MoF’s report, Japan’s goods trade surplus amounted JPY188.7 billion compared to a JPY666.6-billion deficit in the previous month and a surplus of JPY1.077 trillion in February 2017. Goods exports rose 0.9 percent y-o-y, while imports surged 17.8 percent y-o-y. The services account showed a surplus of JPY122.7 billion in February compared to a deficit of JPY168.2 billion in January and a surplus of JPY6.1 billion in February 2017. Meanwhile, the capital account posted a deficit of JPY12.3 billion, while the financial account recorded a surplus of JPY1.539 trillion.


III. Market Situation
Currency Market
The currency pair EUR/USD consolidated near the opening level, due to the lack of new catalysts. The pair’s stabilization was also underpinned by a softer U.S. rhetoric regarding import duties. The Trump administration, which previously threatened China with new import tariffs, noted that these measures had not yet been implemented and the sides had ample time to come to an agreement and prevent the outbreak of a trade war. The U.S. Treasury Secretary Mnuchin said he did not expect that there will be a trade war, as the U.S. intended to continue discussions with China. According to Mnuchin, if China is not ready to create conditions for “free and fair reciprocal trade,” the U.S. will aggressively defend its interests. Today, a certain influence on the pair’s performance could have the release of the Eurozone's confidence index from Sentix, as well as a speech by the ECB representative Vitor Constancio. Resistance level - $1.2345 (low of April 2). Support level - $1.2154 (low of March 1).

The currency pair GBP/USD traded near the opening level, as investors took a breather after the Friday rally, which was triggered by the broad weakening of the U.S. currency due to the release of weaker-than-expected data on the U.S. labor market and the escalation of the trade tensions between the U.S. and China. With an almost 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. Later this week, the UK will publish its data on industrial production for February (due on Wednesday), which will provide analysts more information about the state of the British economy in the first quarter. According to the forecast, industrial output in February rose by 0.3 percent m-o-m and by 2.9 percent y-o-y. Resistance level - $1.4199 (high of March 28). Support level - $1.3964 (low of April 5).

The currency pair AUD/USD rose slightly, approaching the Friday's high, helped by gains in prices of copper and oil, as well as the consolidation of the U.S. currency. In addition, the pair received some support from the release of the Australian data. The Australian Industry Group (AiG) reported that its construction index rose 1.2 points to 57.2 points in March. That was the highest reading since November 2017. A reading above 50 indicates expansion, while a reading below 50 signals a contraction in activity. According to the report, expansion was mainly supported by faster rises in new orders (+8.0 points to 59.9 in March) and selling prices (+5.1 points to 57.8). Meanwhile, employment (-3.0 points to 55.7) and deliveries (-3.6 points to 54.7) decelerated. Across the four construction sub-sectors, activity in commercial and engineering construction expanded, while house building slowed and apartment contracted slightly. Resistance level - AUD0.7756 (high of March 27). Support level - AUD0.7643 (low of March 29).

The currency pair USD/JPY traded slightly higher, due to a moderate appetite for risk and a partial profit-taking by investors after Friday's fall in the pair. In addition, market participants digested preliminary data on the Japanese current account. Japan’s Ministry of Finance (MoF) announced that the country’s current account surplus stood at JPY2.076 trillion in February compared to the JPY0.607-trillion surplus in January and JPY2.911-trillion surplus in the same month a year ago. That was the highest current account surplus since October 2017. Economists had forecast for a surplus of JPY2.160 trillion. According to the MoF’s report, Japan’s goods trade surplus amounted JPY188.7 billion compared to a JPY666.6-billion deficit in the previous month and a surplus of JPY1.077 trillion in February 2017. Goods exports rose 0.9 percent y-o-y, while imports surged 17.8 percent y-o-y. The services account showed a surplus of JPY122.7 billion in February compared to a deficit of JPY168.2 billion in January and a surplus of JPY6.1 billion in February 2017. Meanwhile, the capital account posted a deficit of JPY12.3 billion, while the financial account recorded a surplus of JPY1.539 trillion. Resistance level - Y107.67 (high of February 27). Support level - Y105.98 (low of April 4).


Stock Market

Index

Value

Change

S&P

2,604.47

-2.19%

Dow

23,932.76

-2.34%

NASDAQ

6,915.11

-2.28%

Nikkei

21,678.26

+0.51%

Hang Seng

30,160.42

+1.06%

Shanghai

3,139.33

+0.26%

S&P/ASX

5,808.70

+0.35%


U.S. stock indexes closed sharply lower on Friday, as the reports the U.S. President Donald Trump ordered trade officials to consider imposing additional tariffs on $100 billion worth of imports from China fueled concerns over a trade war between the world’s two largest economies. China responded it would counter the U.S. protectionism “to the end, and at any cost.” In addition, investors received weaker-than-expected data on the U.S. labor market. The Labor Department announced that nonfarm payrolls increased by 103,000 in February after an upwardly revised 326,000 gain in the prior month (originally an increase of 313,000). That was the smallest advance in payrolls since September 2017. Meanwhile, the unemployment rate was 4.1 percent for the sixth consecutive month. Economists had forecast 193,000 new jobs and the jobless rate to fall to 4.0 percent. Elsewhere, the labor force participation rate decreased by 0.1 percentage point over the month to 62.9 percent, while hourly earnings for private-sector workers rose by 0.3 percent m-o-m (8 cents) to $26.82, after gaining 0.1 percent m-o-m in February. Economists had forecast labor force participation rate to come in at 63.5 percent and a 0.2 percent advance in the average hourly earnings. The average workweek was unchanged m-o-m at 34.5 hours in March, in-line with economists’ forecast.
Asian stock indexes closed higher on Monday on hopes that the U.S. and China will resolve their trade dispute at the negotiating table. The Japanese equity benchmark, the Nikkei, rose moderately, as the yen’s decline against the U.S. dollar supported the Japanese large 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 2.80% (+2 basis points)
Yields of German 10-year bonds hold at 0.50% (0 basis points)
Yields of UK 10-year gilts hold at 1.40% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in May settled at $62.27 (+0.34%). The crude oil prices rose moderately, correcting after Friday’s tumble, which was caused by the release of the weekly report from Baker Hughes, which showed that the number of active U.S. rigs drilling for oil boosted by eleven to 808 during the week ended April 6. That was the highest level since March 2015. In the prior week, the oil-rig count decreased by seven. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, climbed by ten to 1003, as the gas rig count remained at 194 last week, and the miscellaneous rig count fell by one to 1. The U.S. rig count is up 164 rigs from this time last year when it stood at 839.

Gold traded at $1,331.50 (-0.10%). Gold prices fell slightly, due to the reduced demand for safe-haven assets amid renewed risk aversion, as well as the consolidation of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.01 percent to 90.13.

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


07:30

United Kingdom

Halifax house price index

08:30

Eurozone

Sentix Investor Confidence

12:15

Canada

Housing Starts

14:30

Canada

Bank of Canada Business Outlook Survey

15:00

Eurozone

ECB’s Vitor Constancio Speaks

22:00

New Zealand

NZIER Business Confidence



Market Focus

  • U.S consumer sentiment slipped in early July but remained nearly equal to the average in the prior twelve months
  • Earnings Season in U.S.: Major Reports of the Week
  • Fed's Kaplan: Could be convinced of need for fourth rate hike in 2018 depending on outlook
  • Fed: Prospective economic conditions call for further gradual removal of monpol accommodation
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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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