Daily market report April 12th 2019
ECB Council member Villeroy stated that the Euro-zone is in a slowdown, but not in recession while reiterating that the bank is determined to be as accommodative as needed for as long as necessary. Fellow member Knot stated that the forthcoming TLTRO loans need to be less generous than the previous one which provided an element of Euro protection.
US producer prices increased 0.6% for March compared with consensus forecasts of a 0.3% gain with the year-on-year increase at 2.2% from 1.9% while core data was also slightly above expectations.
Initial jobless claims declined to 196,000 in the latest week from a revised 204,000 which was below market expectations and the lowest reading since October 1969. The firm data provide an element of dollar support, although the impact was limited given expectations that the Federal Reserve would hold interest rates steady in the short term.
Although there were expectations of a dovish Fed stance, the dollar was able to resist further losses and regained some ground during the session, especially with commodity currencies losing ground. Expectations of a dovish stance from other global central banks also underpinned the US currency. After failing to challenge the 1.1300 level, EUR/USD retreated to near 1.1250.
There was support at lower levels and EUR/USD moved higher again to a 2-week peak just below 1.1300 on Friday as the dollar lost some ground once again with a tentative rebound in commodity currencies, but little conviction.
US Treasuries gradually lost ground ahead of the New York open and yields also edged higher after the US data releases with the 10-year yield close to 2.50%. With wider US gains, USD/JPY advanced to above 111.50 despite a dip in oil prices.
Federal Reserve Vice-Chair Clarida stated that a patient stance to interest rate changes remains appropriate and that the Fed Funds rate is now in the broad neutral range. He also commented that inflation is muted while long-run inflation expectations are at the lower end of the range consistent with price stability. Governor Brainard also repeated the message of patience and there were similar reported comments from Chair Powell.
There was a mixed trend in equities on Friday as Chinese markets retreated, but the Japanese bourse made headway. There were expectations of merger-related flows out of Japan which limited yen support, especially with underlying yields still negative for the Japanese currency and the Euro moved higher. Overall, USD/JPY advanced to the 111.80 area as the yen lost ground on the crosses with limited reaction to mixed Chinese trade data.
Sterling trading was subdued during Thursday with no data releases and an important sense of anti-climax following the EU Brexit extension until the end of October 2019. Although the threat of a ‘no-deal’ exit had been eliminated, there were further concerns over damage to the economy, especially with underlying investment liable to remain weak. In this context, Bank of England Governor Carney warned that capital spending had stalled since 2016 and this was undermining productivity.
There were also concerns that there would be no progress in breaking the domestic political deadlock, especially with parliament now in recess for the Easter break. There was also intense pressure on Prime Minister May to resign.
With oil prices under pressure, Sterling was unable to gain any traction with further GBP/USD resistance on approach to 1.3100 and a retreat to 1.3050 while EUR/GBP held above 0.8600. Sterling was unable to gain any traction on Friday with a lack of buying incentives.
The Swiss currency resisted further losses on Thursday despite an increase in US and German bond yields. EUR/CHF was unable to hold above 1.1300 and edged lower in late European trading. USD/CHF peaked at 4-week highs close to 1.0050 on wider gains and held above parity despite a correction.
Risk appetite held firm on Friday and EUR/CHF moved back above 1.1300 to 3-week highs. There was further speculation that persistent National Bank warnings over the threat of intervention and negative interest rates were undermining Swiss support.
AUD/USD + USD/CAD
The Australian dollar was unable to gain further traction during Thursday and lost ground in New York as the US currency regained ground.
AUD/USD retreated to the 0.7120 area before stabilising. The Reserve Bank Financial Stability Review stated that risks in the household sector had increased with a general tone of caution.
The Australian dollar was resilient and made slight gains to the 0.7135 area as the US currency lost ground, but struggled to sustain the advance.
The Canadian dollar was undermined by a generally weaker US dollar and a dip in oil prices with USD/CAD pushing to highs near 1.3400.
There was further resistance on approach to this area and the Canadian currency recovered some ground on Friday as crude edged higher with USD/CAD near 1.3365.
After solid gains during Wednesday, the Norwegian krone was unable to make further headway. As oil prices corrected lower, the krone lost ground with correction pressures also significant.
Overall, EUR/NOK advanced to the 9.61 area with little changed on Friday as USD/NOK recoveries stalled just below 8.55.
Swedish consumer prices increased 0.2% for March, in with consensus forecasts with the year-on-year rate unchanged at 1.9% and slightly above consensus forecasts of 1.8%. The core rate also held steady at 1.8% and matched expectations.
The krona strengthened briefly following the data, but failed to hold the gains and EUR/SEK returned to near 10.45. The krona drifted lower on Friday with USD/SEK above 9.25.
Euro-zone equites struggled for direction during Thursday, although there was net support from expectations of a very dovish ECB policy over the next few months.
The German DAX index advanced 0.25% with slightly stronger gains for the Eurostoxx 50 index as the French CAC 40 index advanced 0.6%.
Currency trends offered slight support to major UK equities during Thursday, but oil prices retreated and there was a lack of buying impetus with slight losses for the FTSE 100 index.
Wall Street was in a cautious mood ahead of the earnings season with markets also waiting for global trade developments. Sentiment held firm with the S&P 500 index closing unchanged.
There was notable divergence in Asian markets on Friday.
Japan’s Nikkei 225 index advanced 0.7% as a stronger dollar provided support and the Australian ASX also index gained 0.75% as gains in key commodity prices boosted support.
Chinese equities retreated with uncertainty ahead of the trade data with the Shanghai index 0.3% lower in late trading with similar losses for Hong Kong’s Hang Seng index.
There were comments from OPEC officials that it would debate increasing output at June’s meeting if prices hit $80-85 p/b and production declines further.
The comments curbed support for prices, especially as there was increased pressure for a correction.
Crude was also hampered by a firmer dollar and WTI retreated to lows below $63.50 p/b. overall sentiment held firm, especially with underlying supply concerns and WTI recovered to near $63.80 p/b on Friday with Brent just above $71.0 p/b.
Gold was undermined by a dollar recovery during Thursday and there was sharp selling during the day. Losses accelerated after a break below the $1,300 per ounce level with a slide to lows around $1,290 later in the New York session.
There was only a slight recovery on Friday despite a EUR/USD recovery. Silver was also subjected to heavy selling with a slide below $15.00 per ounce and was held below this level on Friday.
Cryptocurrencies came under further selling early in the European session on Thursday as investors continued to take advantage of recent gains to lighten holdings. Coins also failed to take advantage of sharp losses in gold with slightly greater confidence in traditional assets.
Bitcoin dipped to lows near $5000 and was unable to secure more than a limited recovery. There was a further dip early in Asia on Friday with bitcoin dipping below $5000 before a tentative recovery.
Ether was unable to recover ground and retreated to lows below $165.
Major events for the day ahead: (times in BST)
15.00: US University of Michigan consumer confidence