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I. Market focus:
The beginning of Tuesday’s session was marked by the increase in investors' risk appetite. The decline in negative sentiment in the markets was due to the comments of Chinese President Xi Jinping, who delivered a keynote speech at the opening ceremony of the Boao Forum for Asia, China’s answer to Davos. In his speech, the PRC leader stressed that China would never seek to threaten other countries or the existing world order, regardless of the level of its development. But the more important point was that Xi Jinping refrained from harsh rhetoric over tightening trade restrictions between the U.S. and China. The head of the PRC noted that China did not seek trade surplus and planned to increase imports, focusing on domestic demand. As a result, the fears of further aggravation of trade wars in the world eased. Against this backdrop, the yen and gold fell, since the demand for safe-haven assets reduced.
At the beginning of the European session, optimism in the markets continued to prevail. Market participants are awaiting the U.S. decision on the situation in Syria, and it can have a negative impact on market sentiment. Yesterday, the U.S. president announced that he would decide on the U.S. response to Syria gas attack “in the next 24 to 48 hours.” On the weekend, the Syrian regime carried out a chemical attack on a rebel-held town of Douma, which is believed to have killed at least 70 people.
Tuesday’s session will be busy with economic reports, although the releases of the data of high importance are not scheduled. The main macroeconomic reports on Tuesday will be Canadian data on the housing market (housing starts at 12:15 GMT and building permits at 12:30 GMT) and the U.S. data on the producer price index (at 12:30 GMT).
II. The market highlights are:
The Bank of Canada (BoC) published its business outlook survey on Monday, which indicated that business sentiment remained positive in the first quarter, supported by healthy sales prospects. The companies in most regions and sectors also noted that they saw capacity and labour pressures due to recent strong demand. However, some firms were predicting a moderation in sales activity from high levels in the past year. The BoC also found that only some companies cited rising protectionism and reduced competitiveness as factors limiting the impact on their sales. Meanwhile, employment and investment intentions remained high. Inflation expectations picked up but stood within the Bank’s inflation-control range of 1 to 3 percent. The companies cited rising labour costs (due to tighter labour markets and, to a lesser extent, minimum wage increases) and higher prices for some commodities as the main factors influencing expectations.
The New Zealand Institute of Economic Research (NZIER) reported on Monday its latest quarterly survey of business opinion showed the businesses continue to expect a deterioration in economic conditions in the coming months. A net 9 percent of businesses expect worsening economic conditions over the coming months in the first quarter, which was slightly less than the 11 percent in the previous quarter. This pessimism was pervasive across the most regions, the NZIER said. Continued weak profitability and higher labour costs were major contributors to this pessimism.
The National Australia Bank (NAB) reported on Tuesday its business confidence index fell by two points to +7 index points in March from an unrevised +9 last month. That was the lowest reading since November 2017, but above its historical average of +6. A reading above zero signals an improvement in business confidence, and a reading below zero indicates a deterioration. At the same time, the NAB’s business conditions index dropped by 6 points to +14 index points in March but remained well above its historical average. By component, sales (-4 points to +20 in March), profitability (-4 points to +14) and, in particular, employment conditions (-7 points to +9) all fell. Conditions worsened in all industries except for manufacturing and personal and recreational services. Commenting on the March Business Survey, Alan Oster, the NAB’s Chief economist, noted “The Survey results for March do not change our outlook for the Australian economy. The strength in business conditions and leading indicators are consistent with stronger economic growth in coming quarters and the Survey employment index is pointing to strong jobs growth which should reduce unemployment, and put gradual upwards pressure on private sector wages. We expect that towards the end of this year the RBA will be in a position to start increasing the current emergency low policy rate although it will depend heavily on the data flow – particularly for wages and inflation – and the risk is that any action by the RBA will be delayed.”
III. Market Situation
The currency pair EUR/USD fell slightly, retreating from its one-week high, which was reached yesterday on the back of the broad weakening of the U.S. currency, and upbeat statements by the European Central Bank (ECB) President Mario Draghi, who noted that a drop in stock markets this year had not materially impacted the Eurozone’s financial conditions. Today, the focus of market participants will be on the U.S. data on producer prices. Economists forecast the PPI rose 0.1 percent m-o-m and 2.9 percent y-o-y in March after gaining 0.2 percent m-o-m and 2.8 percent y-o-y in February. Inflation in the services sector was the main source of producer price increase in February, while commodity prices declined. However, higher transportation and storage costs offset this drop. Resistance level - $1.2421 (low of March 28). Support level - $1.2214 (low of April 6).
The currency pair GBP/USD consolidated near the opening level, due to the lack of new catalysts. 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. In addition, market participants will pay attention to the comments of the Bank of England’s (BoE) Monetary Policy Committee (MPC) member Andy Haldane. Tomorrow, the UK will publish its data on industrial production for February, 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 sharply, approaching a two-week high, as the statements by the Chinese president Xi Jinping eased the fears about the further aggravation of trade wars. At the Boao Forum for Asia, China’s leader discussed plans to further open up the Chinese economy, including lowering import tariffs for automobiles and other products, enforcing the legal intellectual property of foreign companies and improving the investment environment for international companies. He said that China would take the initiative to expand imports this year, especially those products that are required by the population. "China does not seek trade surplus. We have a genuine desire to increase imports and achieve greater balance of international payments under the current account," the Chinese president said. At the same time, Xi Jinping refrained from harsh rhetoric over tightening trade restrictions between the U.S. and China. He only noted that China was a country upon which other nations had imposed unfair trade penalties. Resistance level - AUD0.7756 (high of March 27). Support level - AUD0.7643 (low of March 29).
The currency pair USD/JPY rose sharply, refreshing yesterday's high, due to a decline in demand for safe-haven assets following the speech of the Chinese President Xi Jinping. In his speech, he noted that China planned to cut duties on a number of imported products this year, while import tariffs for autos would be "significantly" lowered. This helped to ease investor fears of a potential trade war between the U.S. and China. Nevertheless, the trade dispute between the U.S. and China remains an important problem for investors, and they are not sure about the further direction of the dollar. Resistance level - Y107.67 (high of February 27). Support level - Y105.98 (low of April 4).
U.S. stock indexes closed higher on Monday, as gains in technology and health stocks, as well as a softer stance by the Trump’s administration on China tariffs, caused a rebound from last week’s selloff.
Asian stock indexes closed higher on Tuesday, following Wall Street’s rebound and a conciliatory tone of the statement of China’s President Xi Jinping at the Boao Forum for Asia, which helped soothe investor worries about escalating U.S.-China trade tensions. 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.
Yields of US 10-year notes hold at 2.80% (+2 basis points)
Yields of German 10-year bonds hold at 0.51% (0 basis points)
Yields of UK 10-year gilts hold at 1.41% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in May settled at $63.81(+0.61%). The crude oil prices rose, helped by eased fears of a potential trade war between the United States and China. Market participants are now awaiting data on oil inventories in the U.S. Today, the American Petroleum Institute (API) will publish its weekly data on the U.S. crude oil stockpiles. Tomorrow, the focus will be on official report on crude inventories in the U.S. from the U.S. Energy Information Administration (EIA).
Gold traded at $1,332.30 (-0.31%). Gold prices fell, due to the reduced demand for safe-haven assets, as well as the recovery of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.09 percent to 89.92. 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)
FOMC Member Kaplan Speak
MPC Member Andy Haldane Speaks
PPI excluding food and energy
Core Machinery Orders
|remaining time till the new event being published|
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