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I. Market focus:
At the beginning of Friday’s session, the markets continued to show a moderate increase in risk appetite, despite the prospect of further aggravation of the trade war between the U.S. and China. Improvements in market sentiment were associated with hopes for easing tensions in the Middle East and the anticipated talks on the denuclearization of the Korean Peninsula. Against this backdrop, the yen and gold, which are considered as safe-haven assets and are in high demand during the periods of heightened uncertainty in the markets, declined in early trading.
Meanwhile, the further improvement in market sentiment continued being limited by the prospects for further deterioration of trade relations between the U.S. and China. The media reported that the U.S. Treasury is considering ways to restrict Chinese investments in the United States. China's ambassador to the U.S. stated that if Washington continues to insist on initiating a trade war, Beijing will retaliate. At the same time, the tone of the statement of the Chinese official was softened by a remark that China opposes any trade war and believes that any dispute could be resolved through dialogue and consultations.
Another important topic in the financial markets at the beginning of the Friday session was the reassessment of the Bank of England's (BoE) monetary policy prospects, provoked by the comments of the governor of the British central bank. Mark Carney noted that in light of the mixed macroeconomic data received recently, he did not want “to get too focused on the precise timing” of the next rate hike. Earlier, the markets expected that the British central bank would decide on further tightening of monetary policy soon. After the weaker-than-forecast inflation data and retail sales, which were released earlier this week, the odds of a rate hike decreased, and Carney's statements confirmed the groundlessness of such expectations. The pound reacted to Mark Carney's comments with a sharp decline, which is highly likely to continue in the near future.
The main scheduled event of the final session of the week will be the release of a batch of Canadian data, including inflation statistics and retail sales. The reports will be released at 12:30 GMT and may have a strong impact on the Canadian dollar, which remains under pressure as the outcomes of the Bank of Canada (BoC) meeting, which completed on Wednesday, did not match market participants’ expectations.
II. The market highlights are:
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 1,000 to 232,000 for the week ended April 14. Economists had expected 230,000 new claims last week. Claims for the prior week were unrevised at 233,000. Meanwhile, the four-week moving average of claims rose 1,250 to 231,250 last week. It was the 163rd straight week that claims remained below the 300,000 threshold, the longest streak since 1970.
The Federal Reserve Bank of Philadelphia announced on Thursday its index of current manufacturing activity in the region rose to 23.2 this month from an unrevised reading of 22.3 in March. Nearly 37 percent of the manufacturers reported increases in overall activity this month, while 14 percent reported decreases, the FRB of Philadelphia said. The details of the report were mixed. The indexes for new orders index (-17. 3points m-o-m to 18.4 in April), the shipments index (-8.5 points m-o-m to 23.9), the unfilled orders (-12.3 points m-o-m to 7.8) and inventories (-7.0 points m-o-m to 9.5) all dropped this month. At the same time, the indicators for the prices received (+9.1 points m-o-m to 29.8) and the prices paid for inputs (+13.8 points m-o-m to 56.4), as well as the employment index (+1.5 points m-o-m to 27.1) all increased.
The Conference Board reported on Thursday its Leading Economic Index (LEI) for the U.S. rose 0.3 percent in March to 109.0 (2016 = 100), following a 0.7 percent increase in February (revised from a 0.6 percent gain). Economists had forecast an increase of 0.3 percent. Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board, said “The U.S. LEI increased in March, and while the monthly gain is slower than in previous months, its six-month growth rate increased further and points to continued solid growth in the U.S. economy for the rest of the year. The strengths among the components of the leading index have been very widespread over the last six months. However, labor market components made negative contributions in March and bear watching in the near future.” The Conference Board Coincident Economic Index (CEI) for the U.S. went up 0.2 percent to 103.4 in March, while its Lagging Economic Index (LAG) for the U.S. edged up 0.1 percent to 104.5.
The Ministry of Internal Affairs and Communications reported on Thursday that Japan’s consumer prices rose 1.1 percent y-o-y in March, following a 1.5 percent y-o-y increase in the prior month. That was in-line with economists’ forecast and represented the lowest rate since December 2017. Individually, the fuel, light and water charges (+4.0 percent y-o-y) rose the most in March, followed by prices for food (+1.9 percent y-o-y), medical care (+1.7 percent y-o-y) and transportation and communication (+1.7 percent y-o-y). On the contrary, prices for furniture and household utensils (-1.4 percent y-o-y) fell the most. The nationwide core consumer price gauge, which excludes volatile fresh food prices, rose 0.9 percent y-o-y in March, after a 1.0 percent y-o-y gain in the previous month and matching economists’ expectations.
III. Market Situation
The currency pair EUR/USD traded slightly lower, following a sharp decline in the previous day, which was mainly due to a marked increase in the yield on the 10-year Treasury note (to the highest level since March 21). However, experts note that it will be difficult for the U.S. dollar to continue its strengthening, as many investors remain concerned about the U.S. trade policy, and it is unlikely that the dollar will be able to get out of the current ranges at least until the market begins to believe in acceleration of the pace of Fed rate hikes. Today, investors will focus on the comments of the German Bundesbank President Jens Weidmann, as well as the members of Federal Open Market Committee (FOMC) Charles Evans and John Williams. The euro’s performance could also be impacted by the preliminary data on the consumer confidence index for Eurozone. According to the forecast, the index in April fell to -0.2 points from +0.1 points in March. Resistance level - $1.2421 (low of March 28). Support level - $1.2299 (low of April 12).
The currency pair GBP/USD consolidated near the opening level. Investors took a breather after yesterday's tumble in the pair, caused by the statement of the Bank of England (BoE) governor Mark Carney, which forced the market participants to reassess the prospects of the Bank’s monetary policy. Carney noted that given softer economic data, he did not want “to get too focused on the precise timing” of the next rate hike. However, he added that the U.K. should prepare “for a few interest rate rises over the next few years”. At the same time, he hinted that the widely expected hike at the BoE’s May meeting was not a done deal. “I am sure there will be some differences of view but it is a view we will take in early May, conscious that there are other meetings over the course of this year,” he said. Carney also noted that the major decisions had to be adjusted to the Brexit negotiations and final “divorce deal” with the EU. With an empty economic calendar in the UK ahead, traders will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets, as well as the comments of the BoE’s Monetary Policy Committee (MPC) member Michael Saunders. Resistance level - $1.4246 (high of April 18). Support level - $1.3964 (low of April 5).
The currency pair AUD/USD declined moderately, continuing yesterday's trend, and approaching its low of April 10. The pair’s weak performance was attributable to the positive dynamics of the U.S. currency (the U.S. dollar index stood near the high of April 10). In addition, investors’ attention was gradually shifting to the Australian inflation data for the first quarter, set to be released next Tuesday, April 24. If the growth of the consumer price index accelerated by between 0.4 percent q-o-q to 0.6 percent q-o-q, the pair AUD/USD may test the strength of 0.7860-0.7880 level. Economists forecast the consumer price index increased by 2.0 percent y-o-y in the first quarter of 2018 after an increase of 1.9 percent y-o-y in the fourth quarter of 2017. Resistance level - AUD0.7812 (high of March 19). Support level - AUD0.7649 (low of April 2).
The currency pair USD/JPY rose solidly, reaching the high of April 13, as the demand for safe-haven assets (including the yen and gold) reduced amid weakening geopolitical tensions. The yen’s performance was also influenced by the Japanese inflation data. The Ministry of Internal Affairs and Communications reported that Japan’s consumer prices rose 1.1 percent y-o-y in March, following a 1.5 percent y-o-y increase in the prior month. That was in-line with economists’ forecast and represented the lowest rate since December 2017. Individually, the fuel, light and water charges (+4.0 percent y-o-y) rose the most in March, followed by prices for food (+1.9 percent y-o-y), medical care (+1.7 percent y-o-y) and transportation and communication (+1.7 percent y-o-y). On the contrary, prices for furniture and household utensils (-1.4 percent y-o-y) fell the most. The nationwide core consumer price gauge, which excludes volatile fresh food prices, rose 0.9 percent y-o-y in March, after a 1.0 percent y-o-y gain in the previous month and matching economists’ expectations. Japanese inflation slowed in March, underlining that the central bank will likely continue to support ultra-soft monetary policy to achieve a 2 percent target price growth after five years of intensive stimulation. Resistance level - Y107.91 (high of February 21). Support level - Y106.88 (low of April 17).
U.S. stock indexes closed lower on Thursday, dragged down by consumer staples and technology sectors. Investors also digested the weekly data on initial jobless claims and the Philadelphia Fed Index for April. 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 1,000 to 232,000 for the week ended April 14. Economists had expected 230,000 new claims last week. It was the 163rd straight week that claims remained below the 300,000 threshold, the longest streak since 1970. The Federal Reserve Bank of Philadelphia announced its index of current manufacturing activity in the region rose to 23.2 this month from an unrevised reading of 22.3 in March. Nearly 37 percent of the manufacturers reported increases in overall activity this month, while 14 percent reported decreases, the FRB of Philadelphia said. The details of the report were mixed.
Asian stock indexes closed lower on Friday, tracking losses on Wall Street overnight and a retreat in commodities prices. Meanwhile, the Japanese equity benchmark, the Nikkei, closed only marginally lower, as the decline in the technology stocks was offset by the gains in energy and financials. The weaker yen provided support to the Japanese large export-oriented companies as well.
European stock indexes are expected to trade mixed in the morning trading session.
Yields of US 10-year notes hold at 2.91% (0 basis points)
Yields of German 10-year bonds hold at 0.60% (0 basis points)
Yields of UK 10-year gilts hold at 1.52% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in May settled at $68.10 (-0.28%). The crude oil prices fell slightly, due to a partial profit-taking by investors after the recent rally to the highest levels since the end of 2014. Market participants also anticipating the meeting of the joint OPEC-non-OPEC ministerial monitoring committee, the outcomes of which may contain clues about the fate of the agreement of oil-production cuts. Today, investors will pay particular attention to the weekly data on the U.S. oil rig count from Baker Hughes as well.
Gold traded at $1,342.70 (-0.23%). Gold prices fell, due to decreased demand for safe-haven assets and positive dynamics of the U.S. currency. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.04 percent to 89.98. 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)
MPC Member Saunders Speaks
German Buba President Weidmann Speaks
Retail Sales ex Autos
Consumer Price Index
Bank of Canada Consumer Price Index Core
FOMC Member Charles Evans Speaks
FOMC Member Williams Speaks
Baker Hughes Oil Rig Count
|remaining time till the new event being published|
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