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Market panorama. 12 April 2018

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I. Market focus:

Rising tension in the Middle East continued to be the main topic in the financial markets at the beginning of Thursday’s session. Markets continue to expect the U.S. strike against Bashar al-Assad's troops in Syria. According to the latest media reports, the British Prime Minister Theresa May is ready to join with the U.S. and France to attack Syria without seeking the consent of the country's parliament. It was also reported that a military strike against Syria could be launched already today. In connection with a possible missile strike on Syria, Russia has alerted the air defense and reconnaissance troops, as well as the strike forces of the Armed Forces. The tensions somewhat reduced on the reports the World Health Organization (WHO) could not confirm the use of chemical weapons in Syria, which is precisely the reason for possible military actions. The head of the Pentagon also informed about the continuation of the works to determine whether the chemical weapons were used. Nevertheless, the risks of escalation of the conflict remain extremely high, negatively affecting the market sentiment.

Although the trade tensions have receded into the background, they continue to worry market participants. After the conciliatory comments of the PRC’s president, which were voiced earlier this week, the Chinese commerce minister stated today that his country is well prepared and will not hesitate to fight back if the United States presses on with its tariffs for Chinese goods. These comments by the Chinese official reignited fears of market participants about the aggravation of global trade wars, but this issue remains secondary and will again come to the fore only after the risks of a military confrontation in the Middle East reduces.

The main scheduled events of Thursday will be the publication of the minutes of the ECB’s latest meeting (11:30 GMT), the release of data on the activity in the industrial sector of New Zealand’s economy (22:30 GMT), as well as comments by the Bank of England (BoE) governor Mark Carney (19:00 GMT). It should be taken into account that the reaction to the economic data in the light of the growing geopolitical risks in the world can be ambiguous.


II. The market highlights are:

  • The Labor Department reported on Wednesday the U.S. consumer price index (CPI) decreased 0.1 percent m-o-m in March after gaining 0.2 percent m-o-m in February. Over the last 12 months, the CPI rose 2.4 percent y-o-y last month, following a 2.2 percent y-o-y increase in the 12 months through February. That was the highest inflation rate in a year. Economists had forecast the CPI to be flat m-o-m last month and to rise 2.4 percent y-o-y in the 12-month period. According to the report, the seasonally adjusted decline in the headline index was attributable to a drop in the gasoline index (-4.9 percent m-o-m), which more than outweighed increases in the indexes for shelter (+0.4 percent m-o-m), medical care (+0.5 percent m-o-m), and food (+0.1 percent m-o-m). Meanwhile, the core CPI excluding volatile food and fuel costs increased 0.2 percent m-o-m in March, the same pace as in February. In the 12 months through March, the core CPI rose 2.1 percent after gaining 1.8 percent in the year through February. That was the highest rate since February 2017. Economists had forecast the core CPI to rise 0.2 percent m-o-m and 2.1 percent y-o-y last month.

  • The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories rose by 3.3 million barrels to 428.6 million barrels in the week ended April 6. Economists had forecast a decrease of 0.189 million barrels. At the same time, gasoline stocks increased by 458,000 barrels to 238.9 million barrels, while analysts had expected a drop of 1.4 million barrels. Distillate stocks fell by 1 million barrels to 128.4 million barrels last week, while analysts had forecast a decline of 200,000 barrels. Meanwhile, oil production in the U.S. increased to 10.525 million barrels per day from 10.460 million barrels per day in the previous week. U.S. crude oil imports averaged 8.7 million barrels per day last week, up by 752,000 barrels per day from the previous week.

  • The Federal Open Market Committee (FOMC) on Wednesday released the minutes of its meeting held on March 20-21, at which the committee decided to raise the target range for the federal funds rate 25 basis points to between 1.5 percent to 1.75 percent. The minutes revealed that all participants expected the economy to strengthen and inflation to move up in coming months. Most participants also noted that the stronger economic outlook and the somewhat higher inflation readings in recent months had increased the likelihood of progress toward the Committee's 2 percent inflation objective. With regard to the medium-term outlook for monetary policy, all participants saw some further firming of the stance of monetary policy as likely to be warranted. Almost all participants agreed that it remained appropriate to follow a gradual approach to raising the target range for the federal funds rate. At the same time, a number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected, the minutes said. The document also noted that “a strong majority of participants viewed the prospect of retaliatory trade actions by other countries, as well as other issues and uncertainties associated with trade policies, as downside risks for the U.S. economy”.

  • The Melbourne Institute’s survey on Australia’s consumer inflation expectation revealed Thursday the expected inflation rate fell by 0.1 percentage points to 3.6 percent in April from 3.7 percent in March. According to the report, the weighted proportion of respondents (excluding the ‘don’t know’ category) expecting the inflation rate to be within the 0‐5 percent range decreased by 1.2 percentage points to 67.9 percent. Meanwhile, the weighted mean of responses within this range declined by 0.1 percentage points to 2.3 percent.

  • The Australian Bureau of Statistics (ABS) announced on Thursday that the Australian home loans edged down 0.2 percent m-o-m in February, following an unrevised 1.1 percent m-o-m drop in January. Economists had expected a 0.3 percent m-o-m decrease. According to the report, the value of loans to owner-occupiers increased 1.3 percent m-o-m in February, while lending to investors rose 0.5 percent m-o-m. Meanwhile, the number of loan approvals to build new dwellings tumbled by 7.1 percent m-o-m in February, while approvals to buy new dwellings surged by 6.6 percent m-o-m and approvals for a purchase of established homes grew by 0.4 percent m-o-m.


III. Market Situation
Currency Market
The currency pair EUR/USD traded slightly lower. The U.S. dollar was supported by the minutes of FOMC’s meeting held on March 20-21, which revealed that all participants expected the economy to strengthen and inflation to move up in coming months. Most participants also noted that the stronger economic outlook and the somewhat higher inflation readings in recent months had increased the likelihood of progress toward the Committee's 2 percent inflation objective. The minutes also said that almost all participants agreed that it remained appropriate to follow a gradual approach to raising the target range for the federal funds rate. At the same time, a number of participants indicated that the stronger outlook for economic activity, along with their increased confidence that inflation would return to 2 percent over the medium term, implied that the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected. Today, investors will pay particular attention to the Eurozone’s data on industrial production in February, the minutes from the ECB’s latest monetary policy meeting, as well as the U.S. statistics on initial jobless claims and the import price index. Resistance level - $1.2421 (low of March 28). Support level - $1.2303 (low of April 10).

The currency pair GBP/USD rose moderately at the beginning of the session but then retreated to the opening level as the U.S. currency firmed. Market participants are also awaiting the publication of the Bank of England's (BoE) credit conditions survey the speech of the UK central bank's governor Mark Carney, who could give signals about further decisions on the monetary policy of the regulator. More hawkish than expected comments by Carney may support the pound, while a more cautious tone on further monetary policy moves may trigger a decline in the British currency. Additional important drivers for the pair will be the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.4243 (high of March 27). Support level - $1.4119 (low of April 10).

The currency pair AUD/USD declined moderately, reaching yesterday's low, due to a new wave of investors' flight from risks and falling prices for many commodities. The pair was also pressured by the Melbourne Institute’s survey on Australia’s consumer inflation expectation, which revealed the expected inflation rate fell by 0.1 percentage points to 3.6 percent in April from 3.7 percent in March. According to the report, the weighted proportion of respondents (excluding the ‘don’t know’ category) expecting the inflation rate to be within the 0‐5 percent range decreased by 1.2 percentage points to 67.9 percent. Meanwhile, the weighted mean of responses within this range declined by 0.1 percentage points to 2.3 percent. Resistance level - AUD0.7784 (high of March 22). Support level - AUD0.7643 (low of March 29).

The currency pair USD/JPY rose slightly, erasing some of the losses of the previous session. The demand for the yen as a safe haven asset recovered amid the investors' flight from risks due to the escalating tensions around Syria, as well as the trade dispute between the U.S. and China. Market participants also digested the comments of the Bank of Japan (BoJ) governor Haruhiko Kuroda at a quarterly meeting of the BoJ’s regional branch managers. Mr. Kuroda reiterated he would maintain the Bank's massive stimulus program for as long as needed to achieve the bank's 2 percent target. At the same time, he provided an optimistic view on the economic prospects. According to Kuroda, Japan’s economy will continue expanding moderately as growing household income triggers spending. Resistance level - Y107.49 (high of April 5). Support level - Y105.98 (low of April 4).


Stock Market

Index

Value

Change

S&P

2,642.19

-0.55%

Dow

24,189.45

-0.90%

NASDAQ

7,069.03

-0.36%

Nikkei

21,660.28

-0.12%

Hang Seng

30,779.34

-0.38%

Shanghai

3,180.20

-0.87%

S&P/ASX

5,815.50

-0.23%


U.S. stock indexes closed lower on Wednesday, amid growing concerns over a confrontation between the United States and Russia over military action in Syria. Focus also was on the U.S. consumer prices for March. The Labor Department reported the U.S. consumer price index (CPI) decreased 0.1 percent m-o-m in March after gaining 0.2 percent m-o-m in February. Over the last 12 months, the CPI rose 2.4 percent y-o-y last month, following a 2.2 percent y-o-y increase in the 12 months through February. That was the highest inflation rate in a year. Economists had forecast the CPI to be flat m-o-m last month and to rise 2.4 percent y-o-y in the 12-month period. Meanwhile, the core CPI excluding volatile food and fuel costs increased 0.2 percent m-o-m in March, the same pace as in February. In the 12 months through March, the core CPI rose 2.1 percent after gaining 1.8 percent in the year through February. That was the highest rate since February 2017. Economists had forecast the core CPI to rise 0.2 percent m-o-m and 2.1 percent y-o-y last month. The minutes from the latest meeting of the Federal Open Market Committee (FOMC) revealed a more hawkish view of its members on further interest-rate increases.

Asian stock indexes closed lower on Thursday, following Wall Street's weak lead and amid escalating tensions in the Middle East and the trade dispute between the U.S. and China.

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


Bond Market
Yields of US 10-year notes hold at 2.77% (-1 basis points)
Yields of German 10-year bonds hold at 0.50% (0 basis points)
Yields of UK 10-year gilts hold at 1.39% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in May settled at $67.11 (+0.43%). The crude oil prices rose, continuing yesterday's trend, due to increased geopolitical tensions and concerns over potential supply disruptions in the region. Overall, geopolitical problems overshadowed global oil reserves as the main driver of markets. Yesterday's bearish report on oil inventories in the U.S. was quickly wiped out by reports of intercepted missiles over Riyadh. The U.S. Energy Information Administration’s (EIA) report revealed a build of 3.3 million barrels in the U.S. crude inventories in the week ended April 6 (versus a 0.189 million barrels decline projected by economists) and an increase in oil production to  to 10.525 million barrels per day from 10.460 million barrels per day in the previous week.

Gold traded at $1,350.80 (-0.15%). Gold prices fell slightly, correcting after yesterday's increase to the highest level since January 25 on the back of escalating tensions around Syria. Gold prices were also pressured by the minutes from the March meeting of the U.S. Federal Reserve, which sparked worries that the path of future rate hikes could be slightly steeper than previously expected.

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


06:30

United Kingdom

MPC Member Dr Ben Broadbent Speaks

06:45

France

CPI

08:30

United Kingdom

BOE Credit Conditions Survey

09:00

Eurozone

Industrial production

11:30

Eurozone

ECB Monetary Policy Meeting Accounts

12:30

Canada

New Housing Price Index

12:15

Eurozone

ECB's Benoit Coeure Speaks

12:30

U.S.

Continuing Jobless Claims

12:30

U.S.

Initial Jobless Claims

12:30

U.S.

Import Price Index

16:00

Germany

German Buba President Weidmann Speaks

19:00

United Kingdom

BOE Gov Mark Carney Speaks

21:00

U.S.

FOMC Member Kashkari Speaks

22:30

New Zealand

Business NZ PMI


Market Focus

  • RBA minutes: Recent modest fall in AUD helpful for domestic economy
  • US to impose extra tariffs on China from September 24 , around US200bn
  • Foreign investment in Canadian securities reached $12.7 billion in July
  • Business activity continued to grow at a solid clip in New York State
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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