Equity markets in the US turned back into positive territory Friday, the Dow up 1.4% although there is a way to go to match the late January high of 26,616. The Nasdaq is also trading above 1% for the day. The big mover was Crude, down 3.3% to trade back below 60.00 plunging more than $5.00 amid a surging US Oil production, suggesting the oversupply could be a theme over 2018. The US government has ended the short shutdown with the agreement of raising the federal budget cap by nearly $300 billion, signing a two-year spending deal. Meanwhile medical marijuana continues to grow in support across the US. Virginia last week allowed state residents to take cannabis oil for treatment of severe epilepsy and cannabis stocks are on the high with more widespread acceptance. The Canadian leader Trudeau spoke on Friday on NAFTA as he tries to win support from US lawmakers to keep trump from boycotting the North American free trade agreement as he has threatened to do several times, this comes where US trade representative Robert Lighhizer grows more frustrated with the government. The last session of the week was reasonably calm after a huge amount of volatility. The USD and the Japanese Yen (JPY) gained ground while the Pound (GBP), EUR, Aussie Dollar (AUD) and New Zealand Dollar (NZD) all depreciated following the stock market crash on Monday and again on Thursday. Expect risk currencies to lose further support this week if interest diverts back into Bonds from Equities. This week also sees a fairly busy economic calendar, we may see another week of extended movement in prices across the board.
The Australian dollar remained mainly offered through the Friday sessions. Equities were back in favor offering the Aussie support coming off its low of 0.7765 to close at 0.7804 in NY. China Trade surplus for January declined to 20B from 54B YoY exceeding expectations also contributed to boost risk. NAB Business confidence for the 4th quarter declined a little and had little effect on volatility. Tuesday should offer support for AUD to rebuild back toward post meltdown late January levels of 0.8100 if the Business confidence numbers prints well.
New Zealand (NZD)
The New Zealand Dollar continued its run lower against the majors late last week closing lower but regaining ground late during NY session Friday. The NZD showed resilience over its trading partners outperforming overall. Assistant governor McDermott spoke post rate announcement indicating a slightly dovish tone indicating a drop in inflation figures could raise the possibility of an interest rate cut. At home Wednesdays quarterly inflation expectations will be important to the NZD’s support, Thursday CPI inflation figures in line with Spencer’s comments last Thursday, and retails sales data will be crucial for NZD to sustain levels above 0.7200 against the USD and buoyant overall in the short to medium term.
United States (USD)
Friday saw another shutdown of the US Government, and although only brief, it pushed lawmakers to make a decision on budget caps. The agreement confirmed raising the federal budget cap by nearly $300 billion, signing a two-year spending deal. With a relatively quiet end to the week compared to the turmoil in equity markets earlier the Greenback took a well-earned breather. Moody credit rating agency warned that the US stable credit profile is in jeopardy due to fiscal deterioration and widening of the US budget, they added that the strength in the USD plays a pivotal role in global capital markets and does not coincide with the weakening fiscal stance. The USD index is trading just above 90.30 Monday and looks poised to make gains in the coming week if the slew of economic data including core CPI, Retail Sales and Building Permits this Thursday exceeds expectation.
EUR continued to be sold off from its high of 1.2512 last week declining to 1.2250 at the close of NY business. Dollar gains led to a sharp reversal in EUR fortunes triggered by strong wage growth. The move continued on risk aversion, as worldwide equities dropped like a bird highlighting in gains in the US Dollar. The only data to come out of Europe saw German Trade Surplus print 18.2Bln as opposed to 21Bln prior. The EUR has opened positively trading up through key resistance if 1.22580 Monday. This week we have German Prelim quarterly GDP and Flash quarterly GDP. EUR needs this these figures notably good for the current bullish trend to continue back through 1.2500
United Kingdom (GBP)
The Great British Pound fall away sharply late last week after the Bank of England left rates on hold. Indications were of a hawkish tone after suggesting they may need to raise rates earlier than expected citing inflationary pressures around CPI pushing above 3%. The Pound traded higher after the announcement to 1.4070 but was soon under pressure dropping to a fresh weekly low of 1.3760 in a risk off market before support resumed at 1.3800. Tuesday’s yearly CPI data will be clearly key and will certainly confirm prospects for a May rate hike which is now priced in at a 80% probability. This week GBP will remain sensitive with a lot of the line when we look at long-term direction.
The Japanese yen has been modestly quiet of late, closing the week at 108.80 down slightly off the open last week of 110.10 as movements were limited to offshore news. As equity markets made large moves this failed to trigger a notable move in the JPY as it held firm to 108.50. The Japanese government is set to reappoint Kuroda as BoJ Governor as 86% expected his re-appointment. This week will be interesting to see if the risk off market continues to influence the JPY as uncertainty with volatility continues. Quarterly Prelim GDP data is set to be released on Wednesday, followed by Core Machinery Orders and Revised Industrial Production on Thursday.
In volatile markets, the Canadian Dollar lost ground against the US Dollar over the past week trading as high as 1.2650. Unemployment figures printed Friday were well up on the expected forecast numbers of -10.1k to 88.0k. The Unemployment rate also slightly high than expected at 5.9% pressuring the CAD. Canadian housing starts came in slightly better than the expected 216k against 210k for January but the CAD remained under pressure trading into the 1.26 region for the first time in 2018.
Major Announcements last week:
• RBA leaves interest rate unchanged
• Canadian Trade Balance -3.2b v -2.3b expected
• NZ Employment Change q/q 0.5% vs 0.4% expected
• NZ Unemployment Rate 4.5% vs 4.7% expected
• RBNZ leaves interest rates unchanged as expected
• Bank of England leaves interest rates unchanged as expected
• UK Manufacturing production 0.3% as expected
• Canadian Employment Change -88.0k vs 10.3k expected
• Canadian Unemployment Rate 5.9% vs 5.8% expected