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I. Market focus:
The focus of market participants remains on Syria. Yesterday, the fears about the escalation of the conflict in the Middle East slightly decreased, on the comments of the U.S. President Donald Trump, who said that the military operation in Syria in response to a chemical attack in the town of Douma “Could be very soon or not so soon at all!” These comments were less resolute than the words of the American president at the beginning of the week when he stated about the impending missile strike against the forces of the Syrian military. Despite the contradictory statements from the U.S. president and some easing of tension, preparations for a strike on Syria are apparently continuing, so that the risks of an aggravation of the situation remain extremely high.
In the light of the temporary reduction of the fears about growing tensions in the Middle East, the attention of market participants has shifted to another important topic - the aggravation of global trade wars. Yesterday, the WSJ said, citing its sources, that the United States plans to increase the pressure on China by imposing new tariffs and threatening to block Chinese in the technological sector of the American economy. Earlier, China's Minister of Commerce said 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. Apparently, the trade conditions between the two countries will continue to deteriorate, and this will have a negative impact on market sentiment. But now the topic of aggravation of the trade war between the U.S. and China is of secondary importance. It will again come to the forefront only after a real reduction in the risks of a military confrontation in the Middle East.
The final session of the week will not be busy with events and data. The most significant reports on Friday will be the U.S. data on consumer sentiment and statistics on job openings and labor turnover. Both reports will be published at 14:00 GMT. Attention should be paid to the stock market. In the U.S., the corporate earnings season has started. JPMorgan Chase & Co. (JPM), Citigroup, Inc. (C) and Wells Fargo & Co. (WFC) will publish their quarterly results before the market opens.
II. The market highlights are:
Statistics Canada announced on Thursday the New Housing Price Index (NHPI) edged down 0.2 percent m-o-m in February, after flat m-o-m performance in January. That was the first drop at the Canada level since July 2010. Economists forecast a 0.1 percent m-o-m increase. The decline was mainly attributed to the mortgage rate increases along with tighter mortgage regulations, the report said. According to it, new house prices were unchanged in 14 of 27 census metropolitan areas, higher in six and lower in seven. Among the seven metropolitan areas, where new house prices fell, the largest decline was recorded in Toronto (-0.6 percent m-o-m), due to unfavourable market conditions. In y-o-y terms, NHPI surged 2.6 percent in February, down from 3.2 percent in January.
The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell less than expected last week, but the trend continued to point to tightening labor market conditions. According to the report, the initial claims for unemployment benefits decreased 9,000 to 233,000 for the week ended April 7. Economists had expected 230,000 new claims last week. Claims for the prior week were unrevised at 242,000. Meanwhile, the four-week moving average of claims rose only 1,750 to 230,000 last week. It was the 162nd straight week that claims remained below the 300,000 threshold, the longest streak since 1970.
The U.S. Labor Department reported on Thursday the import-price index, measuring the cost of goods ranging from Canadian oil to Chinese electronics, was unchanged m-o-m in March after a revised 0.3-percent m-o-m increase in February (originally a 0.4 percent gain). Economists had expected prices to go up 0.2 percent m-o-m last month. According to the report, higher non-fuel prices (+0.2 percent m-o-m) offset declining prices for imported fuel (-1.6 percent m-o-m) in March. Over the 12-month period ended March, import prices grew 3.6 percent. At the same time, the price index for U.S. exports recorded a 0.3 percent gain last month, after rising 0.2 percent the previous month. The March increase was led by growing prices for agricultural exports (+3.4 percent m-o-m), which more than offset lower nonagricultural export prices (-0.1 percent m-o-m). Over the past year, the price index for exports rose 3.4 percent.
The latest Bank of New Zealand’s (BNZ) survey showed Friday that expansion activity in New Zealand's manufacturing sector decelerated in March. The BusinessNZ Performance of Manufacturing Index (PMI) came in at 52.2 last month compared to a February’s reading of 53.3. A reading above 50 indicates expansion in economic activity, whereas a reading below that level represents contraction. Overall, the index has remained in expansion in all months since October 2012. Sub-indexes for production (-2.9 points m-o-m to 50.8), employment (-1.2 points m-o-m to 53.5) and new orders (-0.4 points m-o-m to 53.8) fell in March, while sub-indexes for finished stocks (+3.3 points m-o-m to 53.8) and deliveries (+0.5 points m-o-m to 53.2) rose. BusinessNZ’s executive director for manufacturing Catherine Beard noted that said that the manufacturing story of 2018 continues, whereby it is still showing expansion, but at a different level to 2017. Meanwhile, BNZ Senior Economist, Craig Ebert noted that "the weak spot in March’s PMI was its production index. With a seasonally adjusted outcome of 50.8 this was close to stalling. Compare this to February’s 53.7 and the exceptionally high reading of 61.0 back in November and a sense of sharp deceleration arises".
The Reserve Bank of Australia (RBA) released Friday its most recent Financial Stability Review. The document said that Australia's financial system is stable, and its banks are well capitalized and profitable, and the risks to banks’ overall resilience seem limited. The survey also noted that the high level of household debt and strong growth of riskier lending in previous years remain macro-financial risks. “However, the build-up of risks has abated somewhat of late, in part reflecting the Australian Prudential Regulation Authority’s (APRA’s) prudential measures in the residential mortgage market,” the report added. The RBA said that the risks to the Australian economy due to China remain high.
The report from the National Bureau of Statistics of China revealed Friday that China’s trade balance unexpectedly turned negative in March. According to the report, China’s exports reduced 2.7 percent y-o-y in March to $174.18 billion, while the country’s imports rose 14.4 percent y-o-y last month to $179.07 billion. Those trade flows produced a trade deficit of $4.98 billion in March, compared to a surplus of $33.75 billion in February and a surplus of $23.56 billion in March 2017. That was the first trade gap since February 2017. Economists had expected trade surplus of $27.10 billion in March.
III. Market Situation
The currency pair EUR/USD consolidated near the opening level. Investors took a breather after yesterday's tumble of the pair, which was triggered by the release of disappointing data on industrial production for Eurozone, a new wave of strengthening of the U.S. currency, as well as the minutes of the ECB March meeting, which the markets considered as dovish as the regulator expressed concern over the weak inflationary pressures. Today, the focus will be on the Eurozone’s data on the trade balance, as well as the U.S. statistics on consumer sentiment and job openings and labor turnover. It is expected that the Eurozone’s trade surplus (without seasonal adjustments) widened to EUR20.2 billion in February from EUR3.3 billion in January. Meanwhile, the consumer sentiment index, according to forecasts, fell to 100.5 in April from 101.4 in March, while the JOLTs Job Openings decreased to 6.173 million in February from 6.312 million in January. Resistance level - $1.2421 (low of March 28). Support level - $1.2214 (low of April 6).
The currency pair GBP/USD traded almost unchanged, staying close to its yesterday's high. Yesterday, the pair rose significantly, and approached to the highest level since February 2, due mainly to the drop of the cross-currency pair EUR/GBP to the minimum level since May 25, 2017. In addition, the dynamics of the EUR/GBP pair made it possible to offset the effect of the broad strengthening of the U.S. currency. With an empty economic calendar ahead, traders will focus on news about Brexit talks, the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.4278 (high of February 2). Support level - $1.4145 (low of April 12).
The currency pair AUD/USD rose noticeably, reaching its high of March 22 on renewed risk appetites, and strong import data from China, (Australia’s major trade partner). The report from the National Bureau of Statistics of China revealed China’s imports rose 14.4 percent y-o-y last month to $179.07 billion in March. Meanwhile, its exports reduced 2.7 percent y-o-y to $174.18 billion. Those trade flows produced a trade deficit of $4.98 billion in March, compared to a surplus of $33.75 billion in February and a surplus of $23.56 billion in March 2017. That was the first trade gap since February 2017. Economists had expected trade surplus of $27.10 billion in March. Resistance level - AUD0.7803 (high of March 16). Support level - AUD0.7738 (low of April 12).
The currency pair USD/JPY rose slightly, approaching its high of April 5. The demand for the yen as a safe haven asset reduced on the White House’s statement that the administration did not make a final decision on Syria. Overall, the pair remains highly prone to daily mood swings due to the risks of trade wars and geopolitical conflicts. Resistance level - Y107.91 (high of February 21). Support level - Y106.61 (low of April 9).
U.S. stock indexes closed higher on Thursday, helped by solid gains in the technological, financial and industrial sectors, as investors anticipated strong Q1 earnings due to tax cut. Focus also was on weekly data on initial jobless claims and March statistics on export/import prices. The data from the Labor Department revealed the number of applications for unemployment benefits fell less than expected last week, but the trend continued to point to tightening labor market conditions. According to the report, the initial claims for unemployment benefits decreased 9,000 to 233,000 for the week ended April 7. Economists had expected 230,000 new claims last week. It was the 162nd straight week that claims remained below the 300,000 threshold, the longest streak since 1970. The U.S. Labor Department reported the import-price index was unchanged m-o-m in March after a revised 0.3-percent m-o-m increase in February (originally a 0.4 percent gain). Economists had expected prices to go up 0.2 percent m-o-m last month. Over the 12-month period ended March, import prices grew 3.6 percent. At the same time, the price index for U.S. exports recorded a 0.3 percent gain last month, after rising 0.2 percent the previous month. Over the past year, the price index for exports rose 3.4 percent.
Asian stock indexes closed mostly higher on Friday, following Wall Street's strong performance and amid eased concerns over tensions in the Middle East.
European stock indexes are expected to trade higher in the morning trading session.
Yields of US 10-year notes hold at 2.82% (-2 basis points)
Yields of German 10-year bonds hold at 0.51% (-1 basis points)
Yields of UK 10-year gilts hold at 1.46% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in May settled at $66.91 (-0.24%). The crude oil prices fell moderately, due to partial profit-taking and the strengthening of the U.S. currency as well. Market participants are now awaiting weekly data on the U.S. oil rig count from Baker Hughes.
Gold traded at $1,340.30 (-0.12%). Gold prices fell slightly, due to partial profit-taking and the strengthening of the U.S. currency as well. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.09 percent to 89.84. 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)
Trade balance unadjusted
FOMC Member Rosengren Speaks
FOMC Member James Bullard Speaks
JOLTs Job Openings
Reuters/Michigan Consumer Sentiment Index
Baker Hughes Oil Rig Count
FOMC Member Kaplan Speak
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