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Market panorama. 13 February 2018

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I. Market focus:

13/02/2018

The U.S. dollar continues to suffer losses amid investors’ worries about a significant increase in U.S. debt due to the implementation of the tax reform approved at the end of the previous year. Such fears intensified after the U.S. president’s administration presented a 10-year infrastructure plan, which calls for $200 billion in federal spending, as well as attracting investments of $1.5 trillion. The fate of this plan is uncertain, as it requires the approval of the Congress, where representatives of both parties are quite skeptical about Trump’s initiative: the Republicans do not want another increase in the national debt, while the Democrats do not like that the plan offers relatively little in the way of new federal money, compared with the amounts that will be invested by states, localities and the private sector.

The main scheduled event of Tuesday will be the publication of inflation data in the UK (09:30 GMT). Economists forecast the data will show a further weakening in the inflationary pressure in January after the inflation rate hit a five-year high a few months ago. Moreover, this trend is expected to continue in the coming months, which will alleviate the pressure on the Bank of England (BoE) to take actions to limit the inflationary pressures in the country. If such expectations are justified, this will be a negative factor for the pound.


II. The market highlights are:

  • The U.S. President Donald Trump Monday released his long-awaited infrastructure plan and his 2019 budget proposal on Monday. The infrastructure plan calls for $200 billion in federal spending over the next 10 years, which will be used as seed money to spur additional spending by state and local governments as well as private companies. Overall, the plan is projected to generate at least $1.5 trillion in total spending over a decade to rebuild “America’s crumbling infrastructure”. Meanwhile, the budget proposal calls for $4.4 trillion of spending. It proposes drastic reductions in environmental, research and diplomatic programs and a boost in defense spending. The budget blueprint projects the 2019 deficit nearly doubling from estimated last year to $984 billion.

  • The National Australia Bank (NAB) reported on Tuesday its business confidence index rose by two points to +12 index points in January from a downwardly revised +10 last month (originally +11). That was the reading’s highest level since April 2017. 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 climbed by six points to +19 index points in January, well above the long-run average of +5 index points. By component, sales and profitability recorded strong gains, while employment conditions were unchanged. Commenting on the November Business Survey, Alan Oster, the NAB’s Chief economist, noted “The Survey results for January are broadly in line with our view of the Australian economy. We are hopeful that Australia will see stronger economic growth in coming quarters, due to the strength in the labour market, business activity and infrastructure spending, despite the challenge of only modest consumption growth and the peaking in LNG exports and housing construction. This would probably prompt the RBA to consider a gradual removal of emergency policy stimulus, as long as there are signs of wages strengthening. We still expect the first RBA hike to come in the second half of this year if unemployment falls further and wages show improvement, although the risk is that the RBA will move later as it has indicated that it is in no rush to lift rates.”


III. Market Situation
Currency Market
The currency pair EUR/USD traded slightly higher, helped by a decline in the U.S. currency amid signs the global stock market stabilized after last week's losses, which were caused by fears about higher interest rates. Many investors are not convinced that the worst is already behind, while the U.S. Treasury yields remain at four-year highs ahead of tomorrow's data on consumer prices in the U.S., which can spark worries about inflation and will have a strong influence on the dollar’s further dynamics. Economists expect that the consumer price index (CPI) rose  1.9 percent y-o-y in January after jumping 2.1 percent y-o-y in December. On a monthly basis, the CPI is forecast to show a gain of 0.3 percent, following an increase of 0.1 percent in the prior month. Resistance level - $1.2404 (high of February 7). Support level - $1.2205 (low of February 9).

The currency pair GBP/USD rose slightly, reaching yesterday's high, on the back of the broad weakening of the U.S. currency.  In addition, investors are adjusting their positions ahead of the release of the UK’s inflation data for January. As a result of the slump in the pound in the immediate wake of the Brexit vote in June 2016, inflation in the country rose sharply, limiting consumer spending and putting pressure on the economy, which is more dependent on the consumer sector. Economists expect a slowdown in consumer price growth in January to 2.9 percent y-o-y from 3 percent y-o-y in the prior month. On a monthly basis, consumer prices are forecast to post a fall of 0.6 percent after a 0.4 percent gain in December. Resistance level - $1.4068 (high of February 8). Support level - $1.3731 (low of January 15).

The currency pair AUD/USD traded slightly higher, supported by the broad weakness in the U.S. dollar and positive data from Australia. The National Australia Bank (NAB) reported its business confidence index rose by two points to +12 index points in January from a downwardly revised +10 last month (originally +11). That was the reading’s highest level since April 2017. 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 climbed by six points to +19 index points in January, well above the long-run average of +5 index points. By component, sales and profitability recorded strong gains, while employment conditions were unchanged. Resistance level - AUD0.7953 (high of February 5). Support level - AUD0.7758 (low of February 9).

The currency pair USD/JPY fell significantly, reaching its low of February 9, as the drop of the Japanese equity benchmark, the Nikkei index, bolstered investors' demand for the “safe-haven” yen. Overall, risk-aversion sentiment continues to prevail in the markets, providing support to safe-haven assets. The yen also received support from Japanese data. The Bank of Japan (BoJ) reported that producer prices rose 0.3 percent m-o-m in January 2018, following a downwardly revised 0.1 percent m-o-m gain in December 2017 (originally 0.2 percent).  On a yearly basis, producer prices surged 2.7 percent after climbing a downwardly revised 3.0 percent in December (originally 3.1 percent). Both readings were in-line with economists’ forecasts. According to the BoJ, export prices fell 0.4 percent m-o-m but rose 1.8 percent y-o-y, while import prices dropped 0.4 percent m-o-m but increased 4.9 percent y-o-y. Resistance level - Y109.30 (high of February 9). Support level - Y107.32 (low of September 8, 2017).

Stock Market

Index

Value

Change

S&P

2,656.00

+1.39%

Dow

24,601.27

+1.70%

NASDAQ

6,981.96

+1.56%

Nikkei

21,244.68

-0.65%

Hang Seng

29,839.53

+1.29%

Shanghai

3,185.60

+1.00%

S&P/ASX

5,855.90

+0.60%


U.S. stock indexes closed higher on Monday, trimming a nice chunk of last week's losses. The announcement of the U.S. President Donald Trump’s infrastructure plan and budget proposal for 2019 helped sectors such as materials and industrials. The infrastructure plan calls for $200 billion in federal spending over the next 10 years, which will be used as seed money to spur additional spending by state and local governments as well as private companies. Overall, the plan is projected to generate at least $1.5 trillion in total spending over a decade to rebuild “America’s crumbling infrastructure”. Meanwhile, the budget proposal calls for $4.4 trillion of spending. It proposes drastic reductions in environmental, research and diplomatic programs and a boost in defense spending. The budget blueprint projects the 2019 deficit nearly doubling from estimated last year to $984 billion.

Asian stock indexes closed mostly higher on Tuesday, tracking overnight gains on Wall Street. Japan’s Nikkei started higher but then gave up its gains and closed at a four-month low, as the yen strengthened against the U.S. dollar, putting pressure on the Japanese 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 2.85% (-1 basis points)
Yields of German 10-year bonds hold at 0.76% (0 basis points)
Yields of UK 10-year gilts hold at 1.60% (0 basis points)

Commodity Markets
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in March settled at $59.62 (+0.56%). The crude oil prices rose moderately, helped by a rebound in the global stock markets and the weakening of the U.S. currency. Market participants are 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 $1,325.70 (+0.25%). Gold prices rose slightly, as the U.S. currency demonstrated the broad weakening. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, fell by 0.29 percent to 89.94. 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)


07:45

France

Non-Farm Payrolls

08:15

Switzerland

Producer & Import Prices

09:30

United Kingdom

Producer Price Index - Input

09:30

United Kingdom

Retail Price Index

09:30

United Kingdom

Producer Price Index - Output

09:30

United Kingdom

Retail prices

09:30

United Kingdom

HICP ex EFAT

09:30

United Kingdom

HICP

13:00

U.S.

FOMC Member Mester Speaks

21:45

New Zealand

Food Prices Index

23:30

Australia

Westpac Consumer Confidence

23:50

Japan

GDP (Preliminary)


Market Focus

  • U.S building permits and housing starts rose more than expected in January
  • Chicago Business Barometer rose to 67.6 in December, up from 63.9
  • U.S import and export prices rose more than expected in January
  • Canadian manufacturing sales declined 0.3% to $55.5 billion in December
February 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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