Global market watch - 20th April 2018
The USD is trading stronger across the board this morning against all of its peers. There is no tier 1 economic data being released today. It is up for the second trading day in row vs the Euro and British pound as both regions are struggling with economic growth and inflation.
With no economic data being released today, the US dollar will continue to take its que from the stock market and any geo-political headlines, especially any trade war talk.
It is worth noting that central banks are selling US Dollars in India, Indonesia and Hong Kong to support their currencies. Those central banks may well look to rebalance their books and reserves by buying the Dollars back against the major currency pairs.
The Loonie is trading weaker on the day after CPI came in lower at 0.3%. Additionally, retails significantly declined to 0.0% after the market expected a reading of 0.4%.
There were no surprises from the Bank of Canada this week, as the bank maintained the benchmark rate at 1.25 percent. The BoC was in cautious mode in the rate statement, noting that growth in the first quarter was weaker than the bank had forecast, but that it expected better news in the second quarter. The bank has some egg on its face, as in January it predicted growth of 2.5% for the first quarter, but has now revised the forecast to just 1.3% growth. Speaking after the statement, BoC Governor Stephen Poloz said that “the economy is in a good place,” but added that “interest rates are very low”.
Continuing uncertainty over the future of the NAFTA trade agreement remains a major headache for the Bank of Canada. The protectionist US administration has reopened the NAFTA agreement, threatening to walk away if its demands for major concessions in favor of the US are not met. NAFTA is a crucial component of the Canadian economy, and the loss of NAFTA would be a nightmare for Canada
UK retail sales fell 0.5% MoM to round off three poor data sets for the UK this week. They followed average earnings, coming in at +2.8% and below the 3% expected, with CPI falling to 2.5%, lower than the 2.7% expected. This has led to the Pound slipping across the board whilst the market probabilities for a UK rate hike in May initially stubbornly stayed at 86%. However, in late London trading, BoE Governor Carney added that recent UK data was “mixed” and on the “softer side”. This delivered the coup de grace and Sterling slumped with the probabilities of a rate hike in May now coming in below 50%.
A “source” was quoted as saying that the ECB will give more clarity on forward guidance in June which suggests that next week’s ECB meeting may well not see huge volatility. The June meeting will be important as it has to decide how it deals with the maturing of Euro 432 billion of long term refinancing operations (LTRO) at ultra-low interest rates. For the long term future of the Eurozone, President Macron is looking for solidarity on Eurozone reforms whilst Germany’s Chancellor Merkel is looking for “compromise”. It is worth noting that the French strikes and protests against President Macron’s home reforms are growing. Meanwhile the Euro waits in recent ranges which have held for some 4 months now against the US Dollar.
Japanese Yen continues to trade in tight ranges while the MXN peso is weaker again after its significant losses yesterday.