17 / 01 / 2018 | Notizie sul mercato

Fundamental Analysis 17.01.2018 - Market Outlook

Market recap

Last night there was a sudden rise in EUR/USD in early Asian trading. The reason is unclear. It may be volatility from the crypto-currency market affecting the fiat currency market. Bitcoin has been volatile this morning.

The VIX index – the so-called “fear gauge” that measures expected volatility in US stocks – has risen. In late December 2017 it hit a record low of 8.90. It had never traded with an 8-handle before. Early this year it wasn’t far off that at 8.92. On Friday 12thJanuary 2018 it closed at 10.17, a more normal level for recently. Last night it rose up to 12.41.


The biggest mover of the day was NZD. According to press reports, it fell ahead of today’s milk auction in anticipation of a poor result. In the event, milk prices rebounded – the average winning price rose 6% to $3,310 – but the NZD didn’t. The explanation could be just technical – the failure of NZD/USD to hold above 0.7300 may have brought in some momentum traders. In that case, there could be a rebound as the market digests the better-than-expected milk auction and looks forward to tonight’s China data.

CHF was the best-performing G10 currency even though Swiss National Bank President Thomas Jordan said that negative interest rates were still needed to limit the strength of the “still highly valued” currency. The gist of his comments was to explain and support the negative interest rate policy. Indeed he pointed out that “If we were to change the interest rates, the franc would appreciate.”

Today’s market

There are no major indicators or announcements due out during the European day.

On today’s agenda is the Bank of Canada rate decision. They’re widely expected to hike rates to 1.25% from 1.0%.

As you can see from the graph, early in the year expectations were leaning towards unchanged – the market put 59% odds on unchanged vs 41% on a hike. But on January 5th 2018 that suddenly flipped to 82% hike, 18% unchanged, after the unemployment rate suddenly plunged to 5.7%, the lowest since the current data series began in 1976. Bank of Canada Governor Stephen Poloz has said that interest rate decisions will depend on the data, and the market clearly thought that that bit of data made a rate hike more likely. Today the odds are 90%.


Other data too pointed to an improving economy. Housing starts remain on an uptrend, and the Bank of Canada’s Business Outlook Survey said that “capacity and labour pressures are becoming more apparent and are stimulating firms’ employment and investment plans,” which mean less slack in the economy and less need for an emergency level of rates.

The main reason to refrain from hiking would be concerns about the negotiations over the North American Free Trade Agreement (NAFTA). But here too things seem to be improving. Press reports say US President Donald Trump is “taking more seriously” the risks of withdrawing from the agreement, for two reasons:  1) the risk to his core supporters, many of whom are farmers who rely on exports, and 2) the risks to the stock market, which he views as a barometer of his popularity.

The key points to watch for are: 1) in the first paragraph, whether they repeat the December 2018’s statement that there is “considerable uncertainty, notably about geopolitical developments and trade policies,” and 2) any changes in the final assessment, which in December 2018 read “While higher interest rates will likely be required over time, Governing Council will continue to be cautious, guided by incoming data…” I think if they repeat both those lines, then CAD could fall after the announcement. 

As for the US indicators, December 2018 industrial production is forecast to rise at a faster mom pace than in November 2018. That’s pretty good, considering that the November 2017 figures still reflected a rebound in production after the hurricanes (particularly in oil and gas extraction). It would show that output is expanding nicely, which should make the Federal Reserve more confident and boost the dollar.


(The capacity utilization figures that come out as part of the industrial production (IP) figures don’t seem to have any correlation with the subsequent movement in the dollar.)




The Fundamental Analysis is 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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16 / 01 / 2018 | Notizie sul mercato

Fundamental Analysis 16.01.2018 - Market Outlook

Market Recap

Dollar's weakness and euro's strength were the main themes overnight.

The main feature of the market then was the fall in JPY, the only major currency to weaken vs the weak dollar.

The 110-level for USD/JPY is an important psychological support, as is often the case for round numbers, plus the tankan showed that companies are estimating an average rate of 110.69 for the second half of FY2017 (Oct. 2017 through March 2018) is 109.66. If USD/JPY breaks that level, then companies would probably come in to cover their positions in order to make budget, which might set off a “snowball effect” as they chase the market.

However, I doubt the government is planning on doing anything about the yen at these levels. They haven’t intervened in the market since Q4 2011.



It is true that back in 2003/04, the period when Japan was intervening, USD/JPY was at or even above these levels. However, this is just an optical illusion caused by using the nominal exchange rate. USD/JPY at ¥110 now and back then were totally different. If we look at the real effective exchange rate (REER), which takes into account the difference in inflation in different countries, the yen is around the weakest it’s been since the early 1970s.


Today’s market

The day starts off with the UK inflation data.

The UK inflation indicators are expected to show inflation slowing. The main reason the inflation rate rose so high was the collapse in sterling after the Brexit vote in June 2016, which drove up the price of imports. But of course that event is now far in the past and its impact on prices is fading. Slowing inflation is in line with the Bank of England’s forecasts; the November 2017 inflation report forecast that CPI would be 3.0% yoy in Q4 2017 but drop to 2.4% yoy by Q4 2018. Nonetheless, the figures could still prove slightly negative for sterling.


The British house price index will also be released at the same time. This is published by the UK Land Registry and tracks the average price of all houses in the country. The yoy rate of increase is expected to slow notably. This too could be seen as a negative for Britain.



Next up is the Empire State manufacturing index, the first of the regional Federal Reserve's indices. It has come down substantially from its peak in October 2017, but is expected to rebound slightly.


Swiss National Bank (SNB) President Thomas Jordan will speak in Zurich on "How Money is Made by the Central Bank and the Banking System."

Overnight, we get Japan’s machinery orders. This is an important economic indicator, but the problem is that it's hard to forecast it. In any case, economists are forecasting that the pace of growth will slow down. They expect a fall on both a mom and yoy basis, which could be negative for the yen.



Australia’s home loans are expected to be unchanged from the previous month. That would be better than the falls in the previous two months, but it certainly wouldn’t show any improvement in the country’s slowing housing market. That’s why this could be negative for AUD.










The Fundamental Analysis is 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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15 / 01 / 2018 | Notizie sul mercato

Fundamental Analysis 15.01.2018 - Market Outlook

Market Recap

A decrease in the value of the dollar as the “monetary policy divergence” trade goes into reverse! This is exceptional, given the fact that Friday’s core Consumer Price Index (CPI) beat expectations. Nonetheless, the Federal Reserve’s tightening plans are well known and already discounted in the market. The change to expectations – and therefore the impetus to change in FX rates – is coming from other central banks.

Foremost of those is the European Central Bank (ECB), which appeared in last week’s minutes to be more hawkish than people had expected. Chancellor Merkel has reached a preliminary agreement with the Social Democratic Party of Germany (SPD) to form a new coalition government. Hence EUR strength and a record-long EUR position by speculators in Friday’s Commitment of Traders report.

GBP also gained to a post-Brexit vote high as the outlook for a soft Brexit seems to be improving.

The Bank of Canada is widely expected to raise rates again at tomorrow’s meeting. 
 

Today’s market

There are no major announcements due out during European time, and US stock and bond markets are closed for the Martin Luther King Jr. holiday.

Bank of England Monetary Policy Committee member Silvana Tenreyro will speak on “The Fall in Productivity Growth: Causes and Implications.” This is an interesting topic and one worth learning more about, because the slowdown in productivity growth has been a big puzzle for economists, including the Bank of England.

Overnight Japan announces its producer price index (PPI). It’s expected to show another relatively high month-on-month increase, which should in theory prove positive for the yen. The year-on-year rate of increase is forecast to slow slightly, but that’s because of a sharp jump (+0.7%) in the like year-earlier month – an increase that was quite an anomaly, as you can see from the graph.



The Japan PPI can be market-affecting, but it’s rather strange – a higher-than-expected figure (i.e., one showing the PPI rising at a faster-than-expected pace) tends to send USD/JPY higher, i.e, push the yen lower. That’s the opposite of what it should be in theory, since if anything it makes a rise in consumer prices marginally more likely and therefore should (also marginally) increase the odds of the Bank of Japan eventually reducing its extraordinary stimulus measures.



A faster-than-expected increase in producer prices might be beneficial for the stock market, and that would affect USD/JPY. But as you can see, the correlation between the PPI surprise and USD/JPY is better than that between the PPI and the TOPIX.



Another odd thing about this indicator is that although investors seem to pay more attention to the yoy figure than the mom figure (slightly more economists forecast the yoy figure and far more people pay attention to it on Bloomberg), in fact the correlation between the indicator surprise and the market reaction is far better for the mom figure than it is for the yoy figure.










The Fundamental Analysis is 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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12 / 01 / 2018 | Notizie sul mercato

Fundamental Analysis 12.01.2018 - Market Outlook

Market Recap

EUR rose and USD fell on a combination of a hawkish reading of the European Central Bank (ECB) minutes plus an unexpected decline in US producer prices and rise in jobless claims.

The minutes of the December 2017 ECB meeting hinted that the Bank could adjust its forward guidance language early this year if the economic and inflation picture improves. They also noted that the recent higher oil prices are likely to push inflation higher. Brent yesterday briefly went above $70/bbl, the highest it’s been since July 2015.

As for the US, the Producer Price Index (PPI) for final demand fell 0.1% on the month vs an expected rise of +0.2%. This was the first decline in around 1 ½ years. This unexpected decline may explain why the market largely ignored some hawkish comments by New York Federal Reserve President William Dudley, who said the Federal Reserver may have to “press harder on the brakes at some point over the next few years.”

The fall in PPI only increases the importance of today’s US CPI. That’s expected to show no acceleration in inflation, which could further weaken USD (see below).

AUD weakened after China’s trade data for December 2017 showed a sharp slowdown in imports, which rose only 4.5% yoy, as compared to 17.6% yoy in the previous month. China takes 35% of Australia’s exports. Furthermore, New Zealand’s exports are mostly food, demand for which tends to change less than for Australia’s iron ore and coal exports. 

The collapse in import growth sent China’s trade surplus soaring to $54.7bn versus an expected $37.0bn. The rising Chinese trade surplus is also negative for the dollar, since it increases the likelihood that US President Donald Trump will announce tariffs or other restrictions on imports from China in his State of the Union address later this month.


Today’s market

The week’s two key US economic indicators come out today:  the consumer price index (CPI) and retail sales.

Although the US CPI isn’t the inflation measure that the Federal targets, the market pays more attention to the CPI than to the Federal’s preferred gauge, the personal consumption expenditure (PCE) deflator. Moreover, although the Federal targets the core PCE deflator, the FX market reacts more to the headline CPI than to the core CPI.

The yoy rate of growth of the headline figure is forecast to slow slightly, while the yoy rate of growth of the core index is expected to remain unchanged. In other words, no sign of any acceleration in inflation.


With the US retail sales figure, the FX market’s subsequent movement is most strongly correlated with the headline figure, the “advance” number. The other two figures - sales ex-gasoline and autos and the “control” figure, which is the one that goes into calculating GDP -- have less impact. A big miss in any one of them can attract attention.

In any event, growth in retail sales is expected to slow after the sharp 0.8% mom rise in November 2017, when sales were still being boosted by the aftermath of the hurricanes (a lot of stuff got destroyed in the storms and had to be replaced). A slowdown in sales and no signs of accelerating inflation are likely to be negative for the dollar.



Philadelphia Federal President Patrick Harker and Boston Federal President Eric Rosengren also spoke quite recently (Friday 5th January 2018 and Monday 8th January 2018, respectively).

Harker expressed concern about rushing to raise rates in a way that would invert the yield curve, and said he expects only two rate hikes this year, rather than the median Federal Open Market Committee (FOMC) call for three. Harker isn’t a voting member of the Committee this year.




Rosengren hasn’t spoken specifically on the outlook for rates in some time. Earlier this week he was speaking on a panel discussion concerning inflation targeting, while in late December 2017 he warned of financial stability risks this year. The last comments he made about the pace of rate hikes was back in mid-November 2017, when he referred to “the need to continue to gradually remove monetary policy accommodation.” His comments could give USD a push upwards.








The Fundamental Analysis is 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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11 / 01 / 2018 | Notizie sul mercato

Fundamental Analysis 11.01.2018 - Market Outlook

Today’s market

There are some second-tier indicators out this morning in Europe, such as German GDP for all of 2017 and EU-wide industrial production for November 2017, but these are not big market-movers and probably won’t cause much of a ripple.

The European Central Bank (ECB) account of its December 2017 monetary policy meeting may be more interesting. The meeting made no changes in monetary policy or forward guidance. The main point was that the staff revised up their growth forecasts notably, but revised up the inflation forecasts much less. The forecast horizon was extended to 2020 but even so, they only see inflation returning to 1.7%, still a bit short of their target. The discussion is likely to center on the question of what should be the appropriate stance of monetary policy when growth is accelerating but inflation isn’t, a conundrum that all the major central banks are dealing with nowadays.

We will get more information on the US inflation picture when the US producer price index (PPI) is released. It’s expected to rise more slowly on a mom basis, but for the yoy rate of change to accelerate on both the headline and core level (although as usual, the mom and yoy forecasts might not be comparable – the mom forecast is based on 55 estimates, while the yoy forecast is based on only 17. In any event, it looks like goods prices are starting to rise in the US, but service prices are still pretty stable overall, mostly because health care costs are being reined in. The result may be a modest increase that could dampen sentiment for the dollar, even though no one could argue that it would be better if health care costs were rising faster.
 


The New York Federal Reserve President William Dudley will speak about the US economic outlook at a Securities Industry and Financial Markets Association event. Dudley hasn’t spoken for quite some time; last time we heard from him was the beginning of December 2017, when he was quoted in the Wall Street Journal as saying that it’s “probably not the best time” for fiscal stimulus, because the economy is near full employment anyway. Given the nature of the recent tax cuts that have been enacted since he said that, he might tend towards a more hawkish view on interest rates, which could be positive for the dollar.

 Overnight, Japan announces its current account data. The current account surplus is expected to narrow slightly. In theory that might be negative for the yen, but at the moment I think the market is probably focusing more on Bank of Japan policy rather than US trade policy, which in any event has focused more on China and Germany – although Trump certainly has had some sharp words for Japan, too.
 



China also announces its trade data for December 2017 sometime during the day.







The Fundamental Analysis is 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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10 / 01 / 2018 | Notizie sul mercato

Fundamental Analysis 10.01.2018 - Market Outlook

Today’s market

The day starts with the UK industrial and manufacturing production. Output is expected to rise at a faster pace than in the previous month. That would be consistent with other relatively encouraging survey data, such as the UK manufacturing PMI (56.3). This figure could be positive for the pound.


The UK trade deficit on the other hand is expected to widen, both for visible trade and overall trade (including trade in services). That would be negative for the currency.

My research has shown that the trade figures are more significant for the currency, particularly the visible trade figure (more so than the overall trade number). So the numbers overall may be negative for the pound if they come in as expected. Of course, a major surprise in any of them could disrupt the usual pattern.


There are three Federal Reserve speakers on the schedule today. Chicago Federal President Charles Evans will discuss the economic and monetary policy outlook at an event, including a Question & Answer (Q&A) session. Dallas Fed President Robert Kaplan will take part in a moderated Q&A session. Finally St. Louis Fed President James Bullard will speak on the economic outlook. The divisions on the Federal Open Market Committee (FOMC) have been clear recently as Philadelphia Federal Reserve President Harker Friday said that he preferred two rate hikes this year, while San Francisco Fed President Williams Sunday said that three rate hikes “makes sense.”

Bullard spoke just last Friday, when he continued with his usual extremely dovish stance, so his views are unlikely to change. Kaplan warned back in December 2017 that the flattening yield curve limits the Federals' flexibility, because an inverted yield curve has been “a pretty reliable forward indicator of recession.” And Evans asked in early December 2017, “is there really a hurry to raise rates?” It’s likely that these three will reprise their dovish comments, which could be mildly negative for the dollar although as their stance is well known, it shouldn’t have that dramatic an impact. However, if any of them were to change their views and turn more hawkish, that would probably trigger a dollar increase.

It’s no surprise that the market expects another large drawdown in US oil inventories this week. What is noticeable is that the drawdown is expected to be less than what we’ve been seeing recently, indeed the smallest since the week of 24 November 2017. That might suggest the drawdowns caused by the unusually cold weather are coming to an end, which could be negative for oil prices and CAD.




Overnight, Australia releases its retail sales figures. While growth is expected to slow slightly from the previous month, it’s still expected to be well above trend. That could prove to be positive for the AUD.






The Fundamental Analysis is 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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21 / 12 / 2017 | Notizie sul mercato

Fundamental Analysis 21.12.2017 - Market Outlook

NZD performed well overnight. CAD gained on a much higher-than-expected wholesale trade survey, plus a further rise in the price of oil. JPY on the other hand did not perform well as the Bank of Japan kept its policy unchanged. They used slightly more optimistic language but noted that inflation expectations remain “in a weakening phase,” which rules out changing policy any time soon lest their actions confirm the decline in inflation expectations. With the Federal Reserve already tightening policy, the Bank of England having made one rate hike, and the European Central Bank moving in that direction, expectations of indefinite easing in Japan could be JPY-negative.

GBP also fell on several bits of negative news. The CBI retail survey was weak. EU Brexit negotiator Michel Barnier made clear that the EU doesn’t have any free trade agreement that would allow automatic access to the EU’s financial services market so the Bank of England’s offer to allow EU banks to operate in Britain after Brexit isn’t much of a help to the country. He also noted that with Brexit, the UK will be leaving around 750 agreements that the EU has signed with third countries.

Today’s market

The election for the new regional government in Catalonia will be held today. Following the referendum on whether to declare independence from Spain the Spanish government imposed direct rule over the region, dissolved the government and called this election. Senior figures in the separatist movement are either in exile or in prison awaiting trial for rebellion. A poll last week showed the anti-independence groups leading slightly with a combined 44.9% support against 43.8% for the separatists. A victory by the “remain” side would probably be positive for EUR.

The graph shows how the spread of Spanish bonds over German Bunds has remained unusually wide since the independence movement started to gain traction in October 2017. At the time this didn’t have much impact on EUR/USD, but there’s always the possibility that a more serious threat to Spanish unity could affect the currency.



The UK public sector net borrowing (excluding public sector banks) is forecast to be up slightly. This is another not-seasonally-adjusted indicator, so the key point here is how the 12-month moving average changes. The consensus forecast of GBP 9.0bn would bring the 12-month moving average to GBP 3.48bn, basically about the same as GBP 3.47bn in the previous month. A figure of around that level would probably be neutral for GBP.

US Q3 Gross Domestic Product is expected to be revised up a touch in this third and final revision.

The Philadelphia Fed survey is expected to be down slightly, in line with the fall in the Empire State manufacturing survey. It’s someone odd considering the jump in the Markit manufacturing Purchasing Managers' index for the month, but these indicators can diverge. This could be USD-negative.

Canada’s Consumer Price Index is expected to accelerate sharply on a year-on-year basis, and it’s not all oil – the core Consumer Price Index is forecast to accelerate, too. This raises the possibility that core inflation may hit the middle of the 1% to 3% target earlier than the Bank of Canada currently envisions. That would be positive for the CAD.



Canada’s retail sales will also be announced at the same time. The Forex market watches the figure for sales ex-autos most closely. It’s expected to be up slightly, which could also boost CAD.



Eurozone consumer confidence broke above zero last month and is forecast to move slightly higher this month. It’s the first time this index has been above zero since early 2001. The figure is a diffusion index; that is, people are asked about their financial situation and the general economic situation and whether conditions have improved (or going to improve), just improved, stayed the same, just worsened or worsened. These are given weights of +1, +½, 0, –½, -1 respectively and the balance is reported as a diffusion index, meaning the number of those saying conditions have worsened is subtracted from those saying they have improved. Thus the move into positive indicates that the number of people saying conditions have improved is greater than those saying they’ve worsened. A further move into positive territory should be good for the euro.



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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20 / 12 / 2017 | Notizie sul mercato

Fundamental Analysis 20.12.2017 - Market Outlook

USD was generally lower on a “buy the rumor, sell the fact” response to the passing of the US bill (although it hasn’t passed entirely yet). There may also be some belated realization that this bill won’t necessarily boost the US economy that much but it will cause the US budget deficit to increase.

The question now is, what comes next for the US? US President Donald Trump is now promising a “soon to be submitted infrastructure plan” for “roads, bridges, tunnels, railways (and more).” The budget that he submitted back in May 2017 included a $1tn plan for private/public infrastructure investment. Now, with the Congressional Budget Office estimating that the tax cuts would increase the deficit by $1.45tn over the next ten years, it remains to be seen just how much money is left for infrastructure spending. It may be that disappointment over the lack of any direct fiscal stimulus could dampen sentiment for USD.

NZD did not perform well. Prices fell at the dairy auction yesterday, on top of which the trade deficit for November 2017 was more than double what the market has expected (NZD -1.193bn vs NZD -550mn expected, NZD -843mn previous).

GBP fell too after Britain’s cabinet met yesterday for the first full discussion of what kind of an outcome it wants from the Brexit negotiations. They agreed to demand a bespoke arrangement that would be “significantly more ambitious” than the EU’s agreement with Canada. GBP recovered somewhat after the BBC reported that the Bank of England will unveil plans on Wednesday 27th December 2017 to allow European banks operating in the wholesale market in Britain to continue to operate under existing rules even if no deal is reached. That’s great, but of course the more important question is whether UK banks will be able to operate on the Continent under existing rules.

JPY was lower ahead of tonight’s Bank of Japan meeting.

Today’s market

The big event of the day takes place overnight, when the Bank of Japan Policy Board meets. As with the other recent central bank meetings, the results in terms of interest rates aren’t in doubt.

In fact, the market’s assessment of Japanese monetary policy has been quite stable. There’s been no substantial change for several months in the market’s estimates of the likelihood of a rate hike. Core inflation is only 0.8% yoy, well below the Bank of Japan’s 2.0% target, so there’s no hope of a rate hike. But on the other hand, there are serious concerns that sending rates further into negative territory could weaken the banks and make them even less likely to lend. Thus the Bank of Japan seems stuck on hold for the time being.



Since recent meetings haven’t changed policy, they’ve been accompanied by less than usual volatility.

There is one dissenter on the Board, Goushi Kataoka, who was previously an economist at Mitsubishi UFJ. In October 2017 he voted against the proposal to keep policy unchanged, because he wanted the Bank of Japan to start buying longer-dated bonds to bring down yields at the long end.

On other fronts, the US Senate passed the tax bill, but the House vote was deemed improper. The bill will have to have some minor alterations and will be sent back for another vote today.

The European Commission (EC) is due to publish its directives for the Brexit transition phase today.

Turning to the indicators, the Confederation of British Industry (CBI) retailing survey will be released. The diffusion index is expected to be slightly lower, which could be negative for GBP.

Later in the day, Bank of England Governor. Mark Carney plus several of his Bank of England colleagues will appear before the Treasury Select Committee to discuss the November 2017 Financial Stability Report. Mark Carney has been relatively upbeat about the recent progress on Brexit and about the economy, particularly after a slightly more fiscally expansive budget, so he can be expected to be in an optimistic mood. That could also be GBP-positive.

US existing home sales are forecast to rise in November 2017, as indicated by a large increase in pending home sales in September 2017. Sales would be higher except supply is relatively low (3.9 months’ worth of unsold homes, vs a more normal 6 month inventory) and prices are high, which of course indicates strong demand. This could be USD-positive (New home sales, also shown on this graph, will be released on Friday 22nd December 2017.).



Overnight, New Zealand announces its Q3 GDP. Growth is forecast to slow owing to weak output in the primary sector (milk and oil & gas production especially). Furthermore, Q2 saw a spike in growth from higher milk production and an increase in tourism associated with a rugby tour, which obviously wasn’t repeated on Q3. The figure could be mildly negative for NZD as a reflex response to a slowdown in growth.



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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19 / 12 / 2017 | Notizie sul mercato

Fundamental Analysis 19.12.2017 - Market Outlook

CHF gained overnight and NZD fell during the European and US days yesterday. NZD is firming this morning in Asia ahead of the upcoming dairy auctions. Other currencies largely moved in a narrow range.

The full UK Cabinet meets today to discuss Brexit. There was a small Cabinet meeting yesterday of key figures involved in the negotiations. According to press reports, UK Prime Minister Theresa May argued that Britain should continue to press for a “bespoke and ambitious” trade deal that would give Britain the benefits of a Canada-style free trade agreement but with some additional elements that are of importance to the UK, such as services. This is despite the fact that the EU’s lead negotiator, Michel Barnier, has ruled out “sector-by-sector” participation in the single market. Cabinet members still seem to disagree on how closely Britain should align itself with EU regulations following Brexit.

The US House of Representatives is scheduled to vote on the Republican tax bill today. The bill’s ultimate passage seems assured after the last two holdouts in the Senate yesterday said that they would vote for it.

Germany’s Ifo Institute for Economic Research Index starts the day off. The business climate is at a record high, the current assessment is near its record high, and the expectations index is the highest it’s been in seven years, so even staying around those levels could be positive for EUR. 

US housing starts and building permits are forecast to be lower in November 2017. That’s not too much of a surprise, because there was a surge in starts following the interruption to building caused by the hurricanes in August 2017 and September 2017. Apparently the market expects activity to calm down a bit, especially as both labor and materials are in short supply. Nonetheless both would still be above the pre-hurricane trend, which could be positive for USD. The market seems to pay a bit more attention to the starts figure than to the permits figure.



The US current account balance is forecast to have narrowed slightly in Q3. The market consensus figure (-$116.4bn) is what the 4Q moving average would be if indeed it comes out at that amount (-$116.8bn).



Overnight, New Zealand announces its trade data. The figures aren’t seasonally adjusted, so in this case it definitely is important to look at the moving average. Meat and dairy exports are picking up and so the forecast figure would imply a continued narrowing of the deficit on a 12-month moving average trend, which could be positive for NZD. 



This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.
 

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18 / 12 / 2017 | Notizie sul mercato

Fundamental Analysis 18.12.2017 - Market Outlook

The dollar is starting the week stronger against most of the other major currencies. Reports that several of the Republican holdouts against the tax bill have capitulated and will vote for it have raised hopes that the bill will pass. 

As for other currencies, GBP fell after both European Commission President Jean-Claude Juncker and EU President Donald Tusk warned that the second stage of negotiations, to determine the trade relationship between Britain and the EU after Brexit, would be even more difficult than the first stage. We’ll learn more this week as the Cabinet meets to discuss the agreement so far (today and tomorrow) and the European Commission publishes its directives for the Brexit transition phase (Wednesday 20th December 2017).

EUR gained overall after the leaders of the Social Democratic Party (SPD)  voted unanimously on Friday 15th Decemebr 2017 to start exploratory talks with Chancellor Merkel’s Christian Democratic Union (CDU) on forming a new coalition. The Social Democratic Party (SPD) refused to enter into a new coalition, thereby making it difficult to form a government. The agreement suggests that now it’s just a matter of haggling over the details before a new coalition similar to the one that they had before is formed.

Today’s market

Perhaps the main event of the day was the beginning of the three-day Central Economic Work Conference in China. Party leaders will discuss economic policies for the next year at this conference. The main point of interest for the market will be the key GDP growth target. Some analysts expect that they will explicitly lower it to 6% from 6.5%, or failing that, lower it implicitly by fine-tuning the wording to reflect greater tolerance for slower growth. A reduction in the growth target could be negative for AUD.

There will be a small meeting of certain ministers of the Cabinet of the United Kingdom and Prime Minister Theresa May today to discuss what relationship the UK should have with the EU after Brexit. The full Cabinet will then meet on Tuesday 19th Decemebr 2017.

The US Senate may vote today or tomorrow on the revised tax bill.  If it does pass, it could be slightly USD-positive.

The Confederation of British Industry (CBI) trends survey is a second-tier indicator at best, but I include it because of the intense focus on the UK economy nowadays. The diffusion index for total orders went up last month; it’s expected to come down a bit this month but still remain at an elevated level, which could be positive for the pound. No forecast is available for the selling prices DI. 

The US National Association of Home Builders’ (NAHB) survey is also a second-tier indicator. EUR/USD does sometimes show a significant (>0.1%) change in the house following the indicator, but it’s unclear how closely related that move is to the NAHB itself, because the movement is not closely correlated to the change in the index. In any event, the index is expected to be unchanged this month, it probably won’t affect the market much. 

Overnight, the Reserve Bank of Australia (RBA) releases the minutes of its recent policy meeting. However, since that meeting was accompanied by a Monetary Policy Statement, I wonder just how much more there is to learn about the RBA’s views and how much impact this report is likely to have. The minutes could shed some light on why they changed their comments about AUD  and dropped the expressions of concern about an appreciating currency. For the record, the 5 December 2017 meeting sent AUD/USD sharply higher, but by the end of the day it was back down to where it started from. That suggests the minutes could be AUD-positive. 

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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