Fundamental Analysis 14.03.2018 – Market Outlook

14 / 03 / 2018 | Notizie sul mercato

Market Recap

US politics has been in the headlines after US President Donald Trump fired US Secretary of State Rex Tillerson, who famously had to issue a denial that he had called Trump a “moron” – something that made him a hero with most people, who at one time or another have all called their boss something similar (or worse). Tillerson’s removal had been rumored for some time, yet still sent stocks down as his replacement suggests that the protectionist faction in the administration is winning. USD weakened as did AUD, a risk-on currency of a country that depends on trade. USD wasn’t helped by yesterday’s much-awaited US consumer price index (CPI), which came in largely as expected.

This morning, the special election in Pennsylvania is too close to call, although the Democratic candidate has a lead. A Democratic win in such a soundly Republican district could throw US politics into disarray as it might convince more Republicans to retire in November 2018 rather than face going down in ignominious defeat. That too would tend to be negative for the USD as it would raise fears (hopes, in some people) that large parts of the Republican political program might be reversed come November 2018.

CAD collapsed yesterday after Bank of Canada Governor Stephen S. Poloz said he will continue a cautious approach to raising rates. He observed that there are still some 500k Canadians who can be added to the labor force before all the slack is absorbed (much like in the US, where the participation rate has recently started to go up – in Canada, the participation rate has not responded at all to the fall in unemployment, as you can see from the graph) and that the economy can expand further without adding to inflationary pressures. This has been one of his consistent themes:  that growth not only adds to demand, but also boosts supply as companies invest to meet the addition demand, and therefore faster growth doesn’t necessarily imply higher inflationary pressures. 

Today’s market

In Europe today, attention will focus on a conference on “The European Central Bank (ECB) and Its Watchers.” The Watchers are “the various monitoring groups, independent academics and market participants.” 

At the beginning of the US day, two indicators come out simultaneously:  US retail sales and US producer prices.

US retail sales is one of the major indicators for the US economy every month, because so much of the US economy – some 70% -- is private consumption, of which retail sales is a lot. There are four different versions of this indicator, each one more narrowly focused. The “advance,” or headline figure, which includes the most categories, is the most closely correlated with subsequent movements in the exchange rate. 

It’s expected to stabilize from the previous month’s fall, but not by much – not back to the pace of increase seen late last year. This should be negative for the USD.


The US producer price index (PPI) on the other hand is expected to rise at an accelerating pace, particularly the core PPI. This could somewhat counter the relief that accompanied yesterday’s benign consumer price index and counter any disappointment from the retail sales figure, although it may be that US politics are a bigger issue today.

Overnight, New Zealand announces its Q4 Gross Domestic Product (GDP). It’s expected to show an acceleration of growth from Q3 and a slightly above-trend rate. That would be a good showing, given some of the soft data from manufacturing and residential building and the disappointing milk output. This should be positive for the NZD. 

The Fundamental Analysis are provided by Marshall Gittler, an external service provider of an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.

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