Equity markets are trading at new three week highs with the DOW, and the S&P 500 trading sharply higher for the third straight day. The DOW up 500 points on this time last week to 25709 and the Nasdaq to 7414 from 7250. As we reported prices to continue past 25500 last week this is an incredible turnaround from the February low of circa 23400 in the DOW particularly. The US Dollar index trades around the 89.82 zone confirming the US Dollar had a comeback week retracing recent weeks movements over most major pairs. The ECB is currently buying huge amounts of bonds per month and will continue until September 2018. The meeting in March will signal what impact this will have on monetary policy for the rest of 2018 and 2019. The BoE governor Ramsden spoke about the need to raise interest rates faster than anticipated based on accelerating wage growth factors. The Pound (GBP) dropped in value against the cross currencies. Brexit concerns are still a hotly talked about subject with just 6% of small and medium sized businesses saying the Government is not listening to their concerns, businesses are worried about what the implications are, the government must consider this when the next negotiating is done. The Australian Dollar (AUD) lost ground last week perhaps falling short of what’s happening around the rest of the world with monetary policy on the up, the RBA seem a little timid leading into 2018 with policy and general optimism. Quarterly Private Capital Expenditure on Thursday may give the Australian Dollar (AUD) the punch it needs. The economic week will be busy with a slew of data to be released including the Fed Chair Powell testifying Friday and BoE governor Carney speaking as well. Next week we have the all-important Non-Farm Payroll figures.
The Aussie (Australian Dollar) closed the week 70 points lower against the greenback (USD) hitting a low Thursday of 0.7790. Friday saw AUD back in support pushing back towards 0.7850 with a spike in equity markets and Gold. Seems the Australian economy is falling behind the rest of the world with growth projections and interest rate forecasts, speaking of a wait and see approach through 2019.This week is a quiet week for local data with only quarterly Private Capital Expenditure due on Thursday. Reasonable levels for buyers of USD if the strength of US Dollar continues.
New Zealand (NZD)
The New Zealand Dollar (NZD) was weaker across the board against its closest rivals, the Japanese Yen (JPY), EURO (EUR), British Pound (GBP) and the US Dollar (USD) declining to nearly a two week low against the US Dollar with hawkish FOMC, the New Zealand Dollar focused on offshore announcements. We may see a volatile NZ Dollar (NZD) this week as it eyes US based data for further direction, any upside news in the US could lead to further NZD weakness, 0.7200 key support looks venerable.
United States (USD)
The US Dollar finished the week positively- the US Dollar Index higher on the close to 89.98 as the greenback (USD) held its ground- just. Equity markets were also higher the DOW and Nasdaq both increased in value over 1.3% to 25,309 and 7,337. The 10 year Bond fall short of 3.00% currently trading at 2.86% – with perhaps the calm before the storm as higher short term interest rates are on the way. This week sees a slew on US Economic data to be released with focus to be on growth with Core Durable goods and GDP Wednesdaywith Federal Reserve Chairman Powell testifying later in the week.
The EURO was sold off late last week but remains solid around the 1.23 area finding support. ECB president Draghi spoke Monday and said uncertainties continue to prevail as patience and persistence with monetary policy is still needed. He made further comment that the economy remained stronger than previously expected but recent growth wasn’t yet translating into a rate of inflation they were happy with. The ECB is targeting around 2.00% in the medium term but January’s figures show just 1.3%. The ECB is currently buying 36.9B in bonds per month and will continue until September. The meeting in March the ECB will signal what impact this will have on monetary policy. Perhaps CPI figures to publish later today will give the EUR further stimulation.
United Kingdom (GBP)
The British Pound (GBP) bounced off its early week loses against the majors to close the week at 1.3969 over the US Dollar (USD). The BoE governor Carney spoke but didn’t commit to a decisive plan regarding future interest rate plans but hinted the downsizing of stimulus over the next few years is likely. Manufacturing Purchasing Managers Index is released Thursday and will be a good measure as to whether Januaries poor figures were just a one off or a bigger picture problem and should tell us if this sector has anything to be concerned about for 2018. Technically I suspect the GBP may lose a little ground over the week perhaps back to last week’s low of 1.3850 against the US Dollar.
The Japanese Yen (JPY) lost ground over the week closing down over most of its rival currencies. The Yen (JPY) continues to be driven largely by offshore fundamentals as we continue into another week of no real local Japan based economic data. The only news of note seems to be ongoing discussions over the 10 year US and Japanese bond spread widening further creating further pressures on the Bank of Japan. Over the long term as the US Fed tighten rates this should support the USD. With the USD/JPY dropping from 112.50 this year it may have a lot further to go before correlation between the two economies. JPY/USD is trading Tuesday around 106.90 levels just above the weekly open.
The Canadian Dollar (CAD) made slight ground against the greenback late last week with a US led decline but the US Dollar was soon back in favor trading back over the Monday open of 1.2630 in a quiet start to the trading week. There are no Canadian economic releases on the schedule this week. Canada releases its annual budget on Tuesday night, the Canadian government was steady over the last quarter as they revised down the 2017-2018 fiscal deficit to CAD 19.8 Billion recently. This could well be revised lower based on recent fiscal numbers. Crude oil makes a new high of 64.05 up nearly 1%- if prices continue to improve we may see USD/CAD trading back at the previous low of 1.2600. The Loonie (USD/CAD) trades around the 1.2700 area currently
Major Announcements last week:
.• UK Average earnings 2.5% as expected
• Second Estimate of UK GDP 0.4$ vs 0.5% expected
• Core Retail Sales -1.8% vs 0.1%
• NZ Retail Sales 1.7% vs 1.4% expected
• Canadian CPI 0.7% vs 0.4% expected